Holiday Trade in Many Markets

About this time of the year, many market participants who trade professionally begin to scale back and lighten up on positions as they look to take some time off from the day to day warfare in the pits. Typically, that means lower trading volumes on certain days oftentimes resulting in some pretty wild swings in price as the liquidity dries up. Floor locals look forward to this time of year as many of them can make some very big gains as they play in the sandbox while some of the larger bullies are no longer present. Stop hunting becomes a favorite pastime.

Do not be surprised therefore if we manage to see some strange, sometimes inexplicable price action. Deciphering some of this can be challenging at times as the thin volume makes price movement somewhat dubious due to the exaggerated nature of the swings.

Gold has moved higher over the last two days bouncing from $1225, which is a bit higher than where I had pegged support ( $1220 - $1215). After spiking as high as $1257.80, it quickly encountered a round of selling which knocked it well off of that level. As I type these comments, it is up $1.00 from yesterday's pit session close.

Meanwhile, silver clawed back over the $20 level and did what we expected it to do, namely elicit more selling. Copper also moved lower. Both metals continue to be sold on rallies.

I have already written some comments on the mining shares ( HUI ) but suffice it to say, expecting gold or silver to mount any strong rally on a day in which the mining shares are further getting beaten with an ugly stick is foolhardy. Another near 3% drop in the HUI puts it just a hairbreadth away from psychological support at the 200 level.

Since the shares have been prescient when foretelling the decline in the gold price, odds favor further weakness in gold to end the week. Much depends on how active the physical market is. Don't forget that gold deliveries for the December Comex Gold contract will begin shortly.

In looking at the price chart I still do not see anything at this point that would be considered to be the least bit bullish. Momentum continues moving lower with many indicators still not at extreme oversold levels. The ten day moving average ( noted on the price chart ) has tended to hold gold rallies for last month or so meaning that we are reaching a potential inflection point once again.

 Also I have noticed that the rallies in gold continue to be driven mostly by short covering which means that they will be limited in duration. You get a spike higher on some decent volume which measures the urgency to exit shorts whereupon the market then proceeds to drop down and begin a leg lower all over again.

What I can say at this point is that this week's low near $1225 had better hold or gold is going to test that support level I have noted above. If that fails, I can see it moving below $1200. At that point we will have to wait to see where more bargain based buying surfaces in sufficient quantity to absorb what is surely going to be momentum based selling by hedge funds and other large speculators.

Pressure in crude oil, even in the face of stronger products, weakness in the grains and bean markets today, was offset by a bit of strength in some of the softs and livestock markets with the result that the commodity complex was a mixed affair today. That is why gold did not do all that much nor did silver. Outside cues were mixed as well.

Continued Weakness Across the Mining Sector

While gold is experiencing a bit of a bounce over at the Comex, the mining shares continue their disappearing act as the selling is just relentless. What concerns me is the technical posture of this index. It is running out of time for the month of November to improve the deterioration showing up on the intermediate and long term charts.

The index is currently sitting near its session low of 203.04. As things stand at this moment, it is on track for the WORST WEEKLY CLOSE since November 2008. That is FIVE YEARS. As painful as it is for me to say this, another way of stating this is that the index has surrendered every single bit of its gains it made over the last 5 years. We are now talking about the potential for the index, IF IT BREACHES 200, to move to levels last seen at the very inception of the first QE program. Five years of wasted opportunity cost

I have said it before and will say it again, those mining companies that did not hedge any expected production when the gold chart broke down technically and the trend reversed from bullish to bearish, have done their shareholders a HUGE DISSERVICE. They willingly took on price risk leaving themselves open to downside risk in the price of gold. Businesses should not be in the business of speculation - that is for speculators such as myself. What businesses should be doing is managing price risk and locking in profits when they are available. That is what hedging is all about and why mining companies should act no differently than any other responsible producer.

Sadly, they are now being punished by the market for this folly. Perhaps we will see an end to this bearish trend in gold in the not too distant future and that will save their bacon, but that is no way to operate in an environment in which money flows are coming out of the commodity sector in general in favor of the broader equity markets ( to the exclusion of the miners ).

Here is the price chart as things stand for the moment. Note on the long term monthly chart that every one of the major Fibonacci retracement levels of the entire decade long bull market rally has been violated to the downside. The last one left is near 185. If the index falls through psychological support at the 200 level and does not immediately recover, odds unfortunately favor a move down to that final level of 185.

Trend Analysis of Gold

As we draw near to the close of November, I thought it fitting to provide a look at the gold chart over several time frames, near-term, intermediate and long term, in regards to the trend of the market.

For this purpose, I am using an old but reliable indicator known as the Directional Movement Index, which is as good as any others out there when it comes to determining whether a market is in a trending phase or is moving sideways within a range.

Let's start with the Daily Chart first....


Notice, Negative Directional Movement ( the Red Line) continues to remain ABOVE Positive Directional Movement ( the Blue Line ) indicating that the bears are in control of this market. Further, the ADX line is rising indicating the presence of a STRONG TRENDING MOVE. Because -DMI is above +DMI, we know that the trend is therefore DOWN.

Let's now shift out to the intermediate or weekly time frame. There is one very noteworthy item that immediately stands out to any technician:  Negative Directional Movement has been ABOVE Positive Directional Movement since late November of LAST YEAR. In other words, the Bears have had control of this market for a full year now. That is why it particularly distresses me to read so much of the foolishness that keeps coming out of some quarters of the gold community talking about such things as BACKWARDATION, GOFO rates, COIN DEMAND, etc. It makes for interesting reading and such but is of no value when it comes to interpreting the language of the gold market itself.

Furthermore, the ADX line had been steadily rising since the beginning of this year indicating the presence of a strong trending move lower until the middle of July when the line turned lower indicating a disruption in the ongoing downtrend.

As the price of gold recovered from the spike low near $1180, it rallied up to near $1420 relieving the downward pressure for a bit. However, and this is important to note, the -DMI remained above the +DMI during this time frame. That means the rally was merely a pause in the ongoing downtrend and that the bears still had control of the market.

What gives me reason for concern with gold is the fact that the ADX is showing signs of turning higher once again. It is likely, not guaranteed, that line will show a definite turn higher if gold cannot close higher this next week. Also, the market is moving down into a dangerous area. If it cannot attract the same kind of buying that it did back in the summer of this year, when demand soared higher, chart support will not be able to hold. It is imperative for this market that demand for the physical metal ramps up significantly right away or there is the danger that gold could start yet another leg down in price.

The last time frame we want to look at is the monthly chart. Something that stands out to me on this chart is the fact that the ADX has never yet ( since 2001 ) moved higher while gold was in a corrective phase lower. In other words, on the monthly chart, we have not yet had a period during which the market was in a DOWNTRENDING PHASE. All corrections lower in price were just that, corrections, not changes in the ongoing UPtrend. As you can see, the Negative Directional Movement line remained BELOW the BLUE or Positive Directional Movement Line even in 2008 when we had the debacle in the market. Bulls were remained in control of the market, even if they did just barely manage that.

However, in March of this year, for the first time since the bull market in gold began back in 2001, the Red line or Negative Directional Movement crossed ABOVE the Blue Line or Positive Directional Movement. The BEARS had seized control of the gold market. Shortly thereafter, the ADX line began to rise for the first time in over a decade while the price of gold moved lower, indicating what looked to be an incipient trending move lower. However the price recovery off of that spike low when gold moved up some $240 or so in price, dented the downtrend and the ADX began moving lower once again showing that the market was going into a consolidative phase.

Significantly, with the fall in the price of gold from $1400 to its current $1242, the ADX is threatening to turn higher once again. It is not yet there but it is certainly not falling. Translation - gold is flirting with indicating a trending move lower on the LONG term chart.


This is the reason I have been bearish on gold now for some time - the charts are indicating that bearish pressure is building in the market and is hinting at building across all three time frames. It is imperative for gold bulls that the price recovers strongly before the end of this year to prevent heading into the New Year with a strong bearish bias. Index fund rebalancing might help somewhat but with hedge funds plowing money into the short side of the gold market, Asian and middle East physical offtake is going to have to be large enough to absorb Western-based selling.

What worries me about gold is that the hedge funds still remain NET LONG, even if that position has shrunk to relatively low levels. That means that there remains more than enough firepower to take this market lower if those remaining long positions have to be jettisoned in the event of a breach of downside chart support.
Keep in mind that the first chart to respond to any upside movement in the metal will be the daily time frame. Thus we will continue to closely monitor the price action so look for any signs of a market turn higher first on that chart.

Trader Dan Interviewed on King World News Markets and Metals Wrap

Please click on the following link to listen in to my regular weekly audio interview with Eric King over at the KWN Metals Wrap.

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/11/23_KWN_Weekly_Metals_Wrap.html

Gold Squeaks Out only a Meager Bounce

Heading into the weekend, after a week in which the price of gold has fallen another $44/ounce, I expected to see a bit of a short-covering bounce as bears rang the cash register to book some good profits. We did get a bit of a bounce, if you can call a $5.00 move higher at one point more than a momentary blip on the radar screen. That being said, the market surrendered nearly all of those gains heading into the close of pit session trading so that it ended up a measly $0.50/ounce on the day.

I must say, and I do not like saying it, but that if this is all that gold can do, after a week in which it crashed through a critical level of chart support, then this market is headed for more trouble next week. I hope I am wrong about this but with the gold shares once again seeing even more selling with the HUI losing chart support at the 210 level, it does not look good for the yellow metal.

Adding to this bleak outlook, is this week's Commitment of Traders report which confirms the trend of large speculator selling of gold. Another week and another repeat of what we have been seeing since the end of October, namely, long liquidation by hedge funds as well as the institution of new short positions by this same category of traders.

Here is a partial chart showing the activity of the hedge funds since the month of June during which gold hit that spike low down near 1180. Can you see what took place? Once the market spiked down to that level, value-based buying of large size took place which drove out many of the newly placed short positions as new longs flooded into the market. That drove the market up to where it peaked near $1420 or so. From that point on however, the trend among long position holders has been lower or down while the trend among short position holders has been higher or up. In other words, the biggest speculators on the planet are selling gold, and selling lots of it.

The peak in hedge fund SHORT POSITIONS occurred in early July of this year when their combined futures and options positioned reached a substantial 80,147. This week's number is still well below that coming in at 62,589, but the number has been steadily rising since the end of October and this does not yet include the activity from Wednesday, Thursday and today, Friday, of this week. Look for this number to grow larger in next week's report barring some sort of upside reversal on Monday or Tuesday of next week.

What this translates to is very simple even if it is disconcerting for those bullish gold right now. The number of bulls continues to fall as more and more investors/traders flee the precious metals sector in favor of high yields in equities. Once again the DOW is over 16,000 and the S&P 500 has now broken firmly above the 1800 level. With those kinds of gains, who needs gold is the new trading adage.

Until something happens which derails equities and sends shock waves of fear throughout the financial system (something which rattles CONFIDENCE) it is difficult for me to envision gold moving higher other than occasional bounces from short covering. Look at the VIX or Volatility Index. It is stuck at multi-year lows. The complacency in the system is nothing short of astonishing. There isn't a care in the world in the minds of most investors/traders!

This no doubt will not especially endear me to some friends in the gold community, but the chart and the pattern is what it is. Wishing it were otherwise or complaining about it unfortunately changes nothing of the present reality. Until the bulk of market participants change their views regarding gold, the trend in the metal is down.

One last thing - hopefully these comments based off the COT report will put an end to any more of that foolish "FLASH CRASH" talk as if the gold market is being slammed lower by the nefarious bullion banks. They are NOT SELLING but are buying - the report confirms that as well. When it comes to gold, some simply refuse to open their eyes and see the reality of what is happening. The Fed has effectively herded the masses OUT OF GOLD and INTO EQUITIES. Their pals at the bullion banks no longer need to sell gold, hedge funds are doing that quite well by themselves. Any "FLASH CRASHES" are being caused by hedge fund selling; not bullion banks.

Let those who keep propagating this nonsense offer us solid evidence to prove their claims that it is the bullion banks that are behind this latest move lower in gold. Good luck with that however.

The overall NET SHORT position of the big commercial category has fallen to -12,312, their 6th smallest in many, many years. Swap Dealers also have been steady buyers since the end of October.  

December gold will enter its delivery period very soon. How much does one want to bet that it will be one of the bullion banks, namely JP Morgan on the BUY SIDE as a heavy stopper for their House Account? Hedge fund selling is being met with bullion bank buying. How do we know this? The report tells us.

Forbes Editorial Piece calls for Obama Impeachment

It is one thing for many of the more conservative oriented web sites and groups to call for the impeachment of Mr. Obama. It is quite another when a widely read establishment type of magazine such as Forbes allows an editorial calling for the same thing.

I agree wholeheartedly that the current occupant of the White House picks and chooses which laws/ parts of laws he intends to enforce or to ignore. That does not fall within the prerogative of the executive branch which is charged with faithfully executing the laws of the land. After all, that is why the Founders established an EXECUTIVE BRANCH of the government separate from the LEGISLATIVE BRANCH. The latter MAKES THE LAWS; the former ENFORCES the LAWS.

I find it most disconcerting that more members of Congress are not appalled by this lawlessness and are not jealously attempting to guard their Constitutionally-given power. The Congress is a CO-EQUAL BRANCH of the US government. It needs to start acting like it is.

Sadly, too many are more loyal to their political party rather than to that Constitution that they all took AN OATH TO DEFEND.

Keep in mind that any impeachment process basically works this way - the House of Representatives brings the charges. If voted on and agreed to by a majority, the "trial" then goes to the Senate where the actual guilt or innocence of the President is determined. Sadly for the nation, even if the House were to bring charges, party loyalty would trump Constitutional fealty and the case would die in the Senate graveyard.

Perhaps even more disconcerting for the nation is that so much of the electorate today is too dumbed-down to even understand the separation of powers and the system of checks and balances that our Founders, in their wisdom, bequeathed to us as our legacy of liberty.

Obama's Disdain For The Constitution Means We Risk Losing Our Republic
By M. Northrop Buechner

Since President Obama signed the Affordable Care Act into law, he has changed it five times. Most notably, he suspended the employer mandate last summer. This is widely known, but almost no one seems to have grasped its significance.
The Constitution authorizes the President to propose and veto legislation. It does not authorize him to change existing laws. The changes Mr. Obama ordered in Obamacare, therefore, are unconstitutional. This means that he does not accept some of the limitations that the Constitution places on his actions. We cannot know at this point what limitations, if any, he does accept.

http://www.forbes.com/sites/realspin/2013/11/19/obamas-disdain-for-the-constitution-means-we-risk-losing-our-republic/

CME lower Margins on both Gold and Silver

As of the close of trading, this Friday, tomorrow, the CME Group[ will be lowering margin requirements for their flagship gold and silver contracts. Spec margins will be moving down to $7,975 from $8,800 for opening a contract while maintenance margins will be lowered to $7,250 from $8,000.

For the full sized Silver contract, initial margin requirements will be $11,000 from the current $12,375 with maintenance levels at $10,000 from the previous $11,250.

Volatility has waned somewhat in both metals allowing the computer to mark these margins lower.

The HUI closed extremely poorly today barely managing to maintain itself above all-important chart support near the 210 level. Owners of these beleaguered shares will not want to see this give way, especially to end the week. If it does, get set for even further losses in this bleeding sector in the near future. Where these things are going to find buying support and at what level is very difficult to see right now. Quite frankly, the entire sector has fallen completely out of favor with the mainstream investment world. Only the most die-hard of gold bulls remains holding them.

As mentioned in last night's post and many other posts, those miners which did not HEDGE expected gold production were quarreling against all sound wisdom as they have left themselves completely naked and exposed to downside price risk in the underlying metals. This could have been completely avoided had they instituted some decent analysis in their risk management departments, assuming they even have one.

Keep in mind, any economic data that looks the least bit rosy will feed ideas that the Fed is going to taper sooner rather than later. That will undercut the reason to hold gold or anything gold-related for the time being.

I want to also emphasize that even if the Fed were to taper, say something in the vicinity of $20 billion, that would still leave them purchasing $65 billion/month of Treasuries/MBS. While that is still an extremely significant amount, what the market is looking at is the expected IMPACT ON INFLATION. The way the market currently sees it, if $85 billion/month is not producing any measurable inflation, then any reduction in that amount should further lesson any inflationary impact from the overall bond buying program. That is why gold is paying such close attention to the Tapering/Non- Tapering debate.

I want to reiterate - until the market in general becomes convinced that inflation threats are rising, gold is going to struggle. Also, we will have to see NEGATIVE REAL RATES to bring some serious and concerted buying into the metal. Barring that, it is CONFIDENCE that is going to have to give way for the current bear market in gold to reverse course.

Some Good news for a Change

The following story detailing a medical treatment for some of these new and extremely dangerous antibiotic resistant bacteria is most encouraging...

http://www.foxnews.com/health/2013/11/21/necrotizing-fasciitis-new-treatment-discovered-for-deadly-flesh-eating-disease/?intcmp=latestnews