"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Wednesday, February 23, 2011

Daily Market Commentary

Strong upmoves in both gold and silver today with both metals feeding off of the surging oil price and drawing safe haven money their way.

Gold shot up right into its next resistance band on the chart near the $1420 level before setting back some. One can see the bids flowing into the screen and as they abate somewhat, the bullion banks are able to shove price lower with their offers. When the funds engage in another round of buying, the offers get overwhelmed and back up it goes. It is a similar situation in silver.

From a technical perspective, gold has now established $1420 as the last level that needs to be taken out before a run to the lifetime high commences. I am expecting the bullion banks to fight like hell at this level to prevent that but if crude continues its charge higher, and certainly if the unrest in Libya and elsewhere spreads to Saudi Arabia, no amount of BB selling is going to hold $1420 much less prevent a run to the old high. 

Downside support can be expected near the $1400 level with strong support below that back near $1385.

The open interest data from yesterday’s gold and silver trading session is a tale of competing cities. Gold open interest surged over 14,000 with heavy speculative buying competing against heavy bullion bank selling (what else is new). Silver however saw a sharp drop in open interest which plunged a bit over 5,000 with the rollover beginning in earnest as traders move out of the March into the May contract. It is going to be interesting to see how the delivery process unfolds in the March contract as we enter that period next week. The backwardation structure still exists but it seems to be loosening up a bit based on where the first three futures months are trading as I write this.

Back to the silver open interest - it is a bit tricky trying to get a read on the drop off because we had a big wave down in silver yesterday followed by a pretty decent recovery higher. Both longs and shorts were getting out. My guess is that some of the trapped shorts wasted no time in taking advantage of drop from $34 and covered furiously while they had a chance. Tomorrow’s data will give us a bit more insight into what is happening on this front. Trying to get a firm read on this stuff during a rollover period can be tricky at times.

On gold, a surge in open interest of this nature, is indicative of very keen interest on the part of Managed Money again. They look to have gold back in their crosshairs once again and if they keep returning at this kind of rate, it is not going to take them long to push the price up to the recent all time high above $1430.

The HUI is up but fading a bit from its best levels of the session here at . Technical indicators show a trending move is underway so dips should be expected to uncover buying support. Moving averages are all positive as well, further reinforcing the bullish picture. The one fly in the ointment is that big ugly downside bar on the chart from yesterday. It needs to be cleared to give the index a shot at running up towards the next resistance level on the chart which comes in near 580.

Well - what do you know - after acting like fools and throwing away all their corn yesterday for no reason other than their damn black boxes told them to, the hedgies are in there today buying it all back again. As I commented yesterday, the unrest in the middle East is serious but it is not going to stop the rest of the world from having to deal with a shortage of corn stocks that had shows no signs of ameliorating. If they could not shut off demand at $7.00 for corn, they sure as hell are not going to shut it off any further by discounting the price another $0.40 /bushel. End users did what we expected them to do - they stepped up and bought all the corn that the hedge funds were throwing away.

Soybeans too recovered in price and the strength in those two markets help to pull wheat up, which is also in low supply but has been dropping because some of the big wheat buying countries are in the middle East and traders are uncertain how the unrest over there might affect the government bids for wheat on the global market.

Cotton has continued its recent sell off from record levels but looks like it might be finding a temporary bottom in here. That market is enough to make all of one's hair turn grey very quickly if you happen to get on the wrong side of it, either moving up or moving down. It is merciless and extremely volatile right now but even after its three day move lower, it is still incredibly expensive meaning all of us will be seeing higher prices for cotton goods, towels and clothing, for some time. That could not come at a better time seeing that we will soon be leaving our firstborn child at the gasoline pump.

Speaking of gasoline - it was up as much as 13 cents a gallon at the wholesale level today at one point and is currently trading over 12 cents higher. Think of how this is going to affect not only all of us consumers at the pump but all the businesses that move freight or packages or anything. The cost to haul our fruit, vegetables, and meat to the grocery store is going to rise not to mention here we go with the airlines once agian as aviation fuel costs rise further. What are they going to do next that they haven't already done  - charge us for wearing clothes on the plane?

Stocks are broadly lower but the S&P is off its worst levels of the session helped no doubt by strength in the energy sector. Technical damage has been severe on the daily chart but the weekly still shows the market in an uptrend. Further weakness will begin to put that into doubt. The market will need to hold the 50 day moving average near 1280 to keep the bulls charging.


  1. Thanks again Dan for your excellent daily report! Indeed it is going to be very interesting to see how the delivery process unfolds.. I was a bit 'disappointed' by todays volume in silver after 10:00am. Do you have any idea what the reason of this could be?

  2. Tuesday's decline in the HUI was in large part due to KGC. The other stocks actually fared pretty well.

  3. Your updates are excellent, Dan!

  4. Your updates are greatly appreciated

  5. Thanks again, for such a wide-ranging report!!!
    I exited TBT a couple of days ago, so I'm watching the bond situation with great interest!

    I hope you continue to track the bond story...it's such great help!


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