"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


Friday, September 30, 2011

Monthly Gold Charts - Closing Price Only

Thursday, September 29, 2011

Gold market has calmed down a bit

It is still volatile but compared to the wicked roller coaster rides of recent days, it seems a bit calmer. Physical buying under $1600 has been very strong which is serving to shore up support on the chart. Still, there is not enough "umph" to take it convincingly through the $1680 level, a level which must be cleared to let this thing retest $1700.

Downside support near $1580 needs to continue to hold to keep it from dropping back towards $1550. So far the spike low seems to be safe.

The mining shares are still struggling to get anything going to the upside. The S&P has faded from its earlier gains and moved into negative territory as I wriet this. That has taken most of the wind out of the HUI.

Tuesday, September 27, 2011

Gold Chart and comments

I am basically reposting the 4 hour chart that I sent up yesterday as it has been a good guide for locating resistance levels and support levels. I noted yesterday that gold would run into selling near the $1680 level, the location of the former gap and go region. That is where it ran in today's session before the sellers showed up.

A probable bottom has been put in down near $1535 based on today's followthrough buying but there remains a fair amount of technical damage that will require repairing before anyone can start talking about a new leg higher.

I do like the action however as it bodes well for a period of sideways consolidative trade, which is just what the doctor would want to order for this "disorderly market".

On the downside, it will likely retest $1640 for starters to see whether or not it can entice any bulls at that level. Failure there should let it move down towards $1620 - $1615 and then $1600.

On the topside, we need to clear $1680 and hold above that level to set up a push back into psychological resistance at $1700. Above that is $1710 - $1715.

Some could argue that a potential bearish flag formation can be seen on the chart but I think the rebound off the low was too strong for a flag. Perhaps their reasoning would be more solid if the market could not get back over $1600 but it did moving over $120 off the recent low.

Not only that, we are getting a very good washout of speculative money, both in gold and in silver. Quite frankly I wonder where we would get the downside firepower to take price down below $1550 once again on strong enough volume to constitute a fresh, legitimate leg lower. It would take a rather sizeable exodus of hedge fund money not only out of long side positions, but also into establishing fresh short positions.

Not that those guys care a whit about fundamentals, but given the current interest rate environment and the pumping of further liquidity into the system, that seems to be a rather remote possibility.

By the way, to a totally disinterested observer, the modern hedge fund community must no doubt resemble those who have some sort of pathological disturbances in their brains. The mood shifts and swings are downright manic. Sunday evening the world as we know it was coming to an end. Today the only fear is being left behind as the bull train leaves the station without being on board. Are these guys pitiful or what?

What is especially distressing is the fact that we have an entire generation of investors who seem to have absolute faith and confidence in the power of Central Bankers to create prosperity by conjuring liquidity into existence. I am not exaggerating when I say that historians will liken our generation to those of the Medieval period who spent countless hours and resources studying alchemy while attempting to turn lead into gold.

When all is said and done, what the hell is the difference between us and them? Both feats are impossible yet that has absolutely no inhibiting effects whatsoever. Pity the generations that came before us - if they only realized how easy it was to build a strong economy with such little effort....

Country Western buffs will no doubt remember Mel Tillis, the stuttering talker (we used to call him, M,M,M, Mel Tillis) who totally lost that impediment while singing. He had a song out that became a classic:

"Stomp, stomp them grapes
and make that wine,
put it in a bottle boys
and ship it on down the line".


This could be the new song for the Western Central Bankers. They used to be the ones who took away the punch bowls from the party. Not any more... They are the bartenders in chief.

Monday, September 26, 2011

Gold charts and some comments

Gold breached the downside of the downtrending price channel that had been containing price action for the better part of the month of September last week. Overnight it was hit especially hard as a wave of selling across the entire commodity sector flared up as traders ran away from anything remotely resembling risk trades. That selling sent gold down nearly $100 at one point. The volume of trade was especially heavy for those particular hours. However, the selling exhausted itself as some larger buyers swooped in (very possibly Asian Central Banks) and scooped up the metal that was being discarded by the hedge fund algorithms. The recovery basically brought the market back up to its closing level from last Friday creating a potential spike bottom on the chart.

If you note the first blue level of resistance drawn in on the chart that comes in just shy of the $1640 level. Gold will need to push through this level and stay above it to give the bears a bit of unease who have been very confident of late. If the bulls can take this hill, then they have a legitimate shot at seeing price run back up towards $1680, which was a level commensurate with a former "gap and go" on the daily price chart. That level should bring in some selling and could stall any upward motion barring any fresh fundamental news. 

I am looking for and indeed would prefer to see, some sort of stability in the price. The last thing this market needs is another $100- $150 push higher right away. That might actually spook some of the would-be end users.

A come down in volatility with perhaps a smaller daily trading range is exactly what it needs to inspire some confidence on the part of the many end users who are wanting to stock up before the festival seasons. Extreme volatility can spook those guys and leave them on the sidelines. They will want to see that prices have indeed moved into a level that is going to hold and then they will feel more comfortable making larger purchases.

The other possibility that we will watch for is for another leg back down lower again, only this time on decreasing volume which would indicate a loss of appetite on the part of the bears to sell aggressively at these lower levels.

One does reach a point in these hedge fund driven markets where price overshoots both the upside and to the downside making the risk/reward of a given trade not particularly attractive. In this recent case, how much more downside risk do you think gold has compared to upside risk when price is down below $1550? If we were moving into a rising or higher interest rate environment, that would be one thing but we are going to remain mired in an ultra-low interest rate environment for the foreseeable future; one that I might add is highly conducive to owning gold since opportunity cost is lowered to hold the metal in that sort of environment. Besides, any solution being offered by the West to shore up its tottering economies is going to certainly contain measures designed to increase liquidity (debauch the currency by money creation). In that environment, gold's risk will always be more to the upside than to the downside, again, especially after it has been battered down so severely.

Newmont Mining - further chart analysis

Market Volatility

My initial thoughts on this insanity is that we went from total despair overnight to downright euphoria in about 12 hours time. At this rate of mood swinging, those with bi-polar disorder are going to be looking downright tranquil and serene.

Another thought - all those brand new shorts who loved to chase momentum and sell prices lower just had their entire NEW and REVISED MARGIN requirements to trade silver wiped out. The move from near $26 to near $31 amounts to just a tad less than $25,000 per single contract. The new margin requirement will be raised at the end of today's session to $24,975.

At this rate, they will need to hike margin requirements to $35,000 for single futures contract.

One last thought - I think I waited too damn long to fill up my gas tank today. I should have done that overnight....

Copper Bottoming?

Copper often seems to function as a type of bellwether for the entire commodity sector. As fears of a global economic slowdown have intensified, copper prices have been hammered lower. Chinese buying just below the $4.00 level had kept the market supported but once that evaporated, there was a general dearth of buying. That allowed the bears to press the price into downside sell stops which have then fed on themselves.

However, there are some preliminary signs that the bleeding in copper might be coming to an end. The red metal seems to have found support just above the $3.00 level; a level closely corresponding to horizontal chart support and just a tad above the technically significant 50% Fibonacci retracement level of the rally off the 2008 low and the peak early this year.

The chart damage has been severe however so it is going to take further work to repair both the technical picture and the mental state of some of the badly bruised bulls. The spike off of support is a first step but we will need to see some confirmation for the remainder of this week.

If this is the case and copper has bottomed, it will serve to stop the rampant selling in the silver market. Some of that might be showing up today as silver has put in a massive spike off the $26 level.

Sunday, September 25, 2011

Gold coming under selling pressure in very early European trading

Gold opened in Asian trade on a relatively firm note as buyers came in to take advantage of the break in prices. That buying eventually gave way to sellers looking for a bounce to exit from longs. As price dropped down to Friday's closing level (commensurate with the 100 day moving average), longs who had been bottom picking stepped aside removing any support from the market. That allowed the shorts to press it into stops below Friday's low which dropped the metal rapidly into the band of chart support near the $1600 level.

Upon its initial test of this level, it did bounce somewhat but renewed selling then took it back lower and violated this key psychological level.

Should it fail to recapture $1600, the next stop is near the $1580 level. Should that give way, it looks most likely to drop back into the band of congestion on the charts that held the price from late April of this year through the breakout that came in July. Should this occur, the entirety of the leg higher from July will have been erased. The top of that band was centered near $1550 while the bottom of the band was near the $1480 level.

That is rather fascinating to observe considering the fact that the monetary authorities' solution to the woes confronting the European economy and the US economy is further currency debauchment. Some of this is no doubt due to the fact that traders on the losing side (currently the longs) are going to be dealing with increased margins to hold these losing positions come the close of trading Monday (tomorrow) afternoon.

What we are experiencing is very similar to the events of the summer of 2008 when traders began fearing a deflationary outbreak which led to widespread commodity selling as carry trades were unwound. What is different right now is that the US equity markets are not imploding lower ( I suspect we are seeing official sector intervention occuring in there with the Exchange Stabilization Fund very active - whether they can hold it is unclear).

While monetary officials are no doubt quite pleased to see the commodity sector getting pummelled by hedge fund selling, it is going to be very difficult for that sector to continue its freefall without a spillover effect on the equity sector. What's good for the goose is good for the gander. If the global economy is slowing to this extreme to justify the severity of the sell off taking place in commodities, then stocks are overvalued and ripe for a breach of important chart support levels as well. Either the commodity sector will find value based buying very soon or the US stock markets are going to experience a free fall in price.

One further note for those who like to do historical comparisons. The plunge in 2008 took gold down from its peak by approximately 30% before it bottomed out and began its next leg higher. If that same plunge were to occur this time around, the price could drop as low as $1345 or so by comparison. Gold ended last year at $1422 on the front month Comex gold contract so such a plunge would take the metal negative for the year. Those who are buying the physical metal are being given one helluva gift. Scale in buying can take advantage of this setback in price but this is for buyers of physical only. LEveraged futures guys have got to be careful not to let these hedge funds trample you to death in their mindless rush to the exit. Wait for some signs of a bottom before moving in on the long side unless you have extremely deep pockets.

Saturday, September 24, 2011

Trader Dan on King World News Weekly Metals Wrap

Please click on the following link to listen to my regular weekly radio interview with Eric King on the KWN Weekly Metals Wrap.


Friday, September 23, 2011

Keep an Eye on Newmont for signs of a bottom in the gold shares

Newmont has recently been one of the best performing gold stocks on the board. As such it should be closely watched for signs of a potential bottom across the entirety of the gold mining sector. Note the chart below and look at the former resistance level near the $60 region. That held the stock in check for some time and prevented it from moving solidly higher. Now that it has decidedly cleared this level, technical analysis principles tell us that this level should provide some support in the way of buying once it is approached again on a retest lower in price. The reason is that buyers who missed the initial move higher and still want to own the stock will use the move lower towards this level as an opportunity to acquire the stock.

It does seem that there were some fairly active buyers in Newmont today. The stock rebounded fairly well off its worst levels of the session. In the process it has created a POTENTIAL hammer formation (not yet confirmed). Some refer to this as a spike low. If the stock can close above $66, that would confirm a bottom is in. It does not mean that the stock will go immediately higher. It only means that the stock has found willing buyers at the $60 level and that it could then move in a sideways pattern marking time until it can build a base for another leg up towards the recent high. Time as always will make things clearer for us.

Gold Chart comments

Gold was taken down very hard this week for several reasons.

First, look at both charts below of the S&P and the CCI. Notice that both are now solidly in the red for this year. What this tells us is that the vast majority of hedge funds have lost money for the year unless they have been very nimble and were able to beat the rest of their world to the sell button.

Also consider that many of their positions are heavily leveraged. Margin calls are now coming in. What do they do? They can obviously sell out of their positions and take the losses or they can try to pony up additional cash and hold the positions a bit longer in the hope that the markets will rally up and let them sell out at a better level or even initiate some new longs.

That helps to explain why gold was hit so hard this week and why many are now questioning its safe haven status as a result.

First, examine the long term charts of the S&P 500 and the CCI. Notice that both charts are underwater for the year.

What positions could a hedge fund actually sell that are PROFITABLE if they need to raise cash? Answer - They have none -  the only market that is still showing a profit for this year (other than the treasuries trade) is GOLD. It started the year at $1422 on the Comex and closed today at $1640. That is a gain of 15% on the year even after the whipping put on it this week. A short note here - silver is back to where it began this year so there are no profits left in it after this week.

Now consider that hedge funds are getting a boat load of redemption requests from disgruntled clients and from those who are simply scared stiff and have had enough of the insane volatility. They want their money back even if it means sticking it under a mattress. That requires these funds to sell the assets that they have to raise the necessary cash.

In other words, gold, is the only profitable investment these funds have that is both liquid and available for them to meet margin calls and meet redemption requests. This is why it is being sold. The selling has nothing to do with it not being a safe haven but rather functioning as an extremely liquid investment that has shown them a solid profit. Winners are getting sold to meet losing trades and redemptions. Nothing more; nothing less.

Once this money flows issue is resolved sufficiently, the factors that have led gold to rise will reassert themselves.

I am a bit amused by those who keep crying up the 2008 debacle as if gold is doomed once again. I can still hear their voices from back then and as I kept some of their emails to amuse myself in the future. The same things are being said now as were being said then.

Yes, a 30% decline in the gold price then was not fun living through as gold was sold off fiercely as carry trades were unwound and a mad scramble for cash commenced for the same reasons I just listed above. However, looking back in hindsight and at the price chart, that steep move lower amounted to a tempest in a tea pot on the longer term chart. Gold went on to more than double in price from that reaction low.

Not that I would be particularly happy about it should it occur, gold could drop as low as $1500 and still not dent the long term uptrend in the metal. If you look at this chart carefully, note that the red uptrend line was actually violated in 2008 leading to cries that the end of the bull market was upon us. However, that foray lower corresponded with the advent of QE1 and the rest is now history.

I expect that before we see the global stock markets utterly implode, we are going to see more concerted Central Bank action, on a global level, to provide more liquidity to these markets in an attempt to prevent any sovereign debt meltdowns or credit lockups. I am not saying it will be effective, I am only stating that anyone who thinks these monetary authorities will sit idly by and do nothing while the global stock markets fall apart, taking the commodity markets with them, is a stranger to the nature of these people.

I will betcha dollars to donuts that the FOMC is still seething over the response of the markets to its latest "Operation Twist". There is no doubt in my mind that they are already planning their next move.

Commodity complex reeling but still standing

Please examine the following chart to see where the complex is as a whole in terms of its technical posture. With traders currently leaning towards the "slowing global economy" theme, the complex is moving lower to revalue many of the individual markets comprising this index. That is more of the deflationary emphasis and is reflected in the breach of chart support and accelerated move lower once price broke out of the downside of the recent channel.

There has been some chatter that the G20 will attempt to take some sort of concerted action to assuage investor fears. also, today there was news of a speed up in the formation of a European Stabilization Mechanism by some of the European nations. I would also not be surprised to learn at some point further yet down the road that the Fed will openly buy equities to prop up the US market should they feel the need to do so. This will be another form of QE but would target stocks instead of interest rates. The idea would be to influence investor sentiment and "revive the animal spirits".

If the investment world believes that some sort of liquidity mechanism will be introduced that might serve to reflate stock markets and stave off deflationary pressures should those get too far out of hand in the minds of monetary officials and some policy makers, the commodity complex would get a jolt higher once again.

Sadly, until we get structural reforms and changes in fiscal policy, the efforts to shock the economy into getting a stronger heart beat are destined to fail. The economy in the US is being held back by policy blunder after policy blunder by the current administration, which is in way over its head and is actually making matters worse.

Detailing a monthly Silver chart

Silver has been the victim of its industrial metal status this week as fears of a global slowdown in growth slammed the base or industrial metals complex. Copper, aluminum, lead, zinc, platinum and palladium, to name some of them, were all hammered sharply lower as traders were heading for the exits trying to snatch what little might have been left of their profits for this year.

Under those circumstances, silver was facing far too strong of a headwind to hope to rely on its status as a monetary metal. The resultant selling has done some serious damage to the chart.

We now want to look at the longer term monthly to see if we can spot any levels that might provide us a bottom in this market and to perhaps gauge how low it might fall before it attracts buying in sufficient size to halt the decline.

I am using two sets of Fibonacci retracement levels to do this. The first originates from the bottom in the silver market made back in late 2008 when QE1 was first announced. That is in blue. The second originates from the breakout point late last year when silver embarked on its stunning run from down near $20 all the way to $50 before it sold off. That is in red.

Note that if we use the latter set (in red), silver has violated all of the major Fibonacci retracement levels except for the last one, the 75% retracement level. That comes in near the $28.50 level.

It just so happens that this level is fairly close to the more significant 50% retracement level of the entire rally from 2008. That comes in near $29.22 (in blue).

Also note that there was a bit of a pause in the silver move higher over a two month interval in NOvember and December 2010 that hovered in that same general area. This is a potential support level for the metal. If silver can recapture $30 and then $32.50, today's low might be as low as we get. If it cannot and fails at today's low, then the band between $29.22 - $28.50 will come into play.

If the market were to fail there, it will then have potential to retrace the entire movement higher from last year with only the $24.30 region to prevent that.

Let's see what the next week brings us.

CME hiking Margins on the Precious Metals Monday

As of  the close of trading on Monday afternoon, margins for the precious metals will be increasing.

For Gold

Old Margin                     New Margin

$9,450                         $11,475

Old Maintenance           New Maintenance

$7,000                         $8,500


Old Margin                  New Margin
$21,600                      $24,975

Old Maintenance         New Maintenance
$16,000                     $18,500

I would not read too much into these margin hikes as far as any determined attempts by the exchange to induce more selling. This time around I believe the hikes are legitimate. When you get a market like silver that drops 15% in ONE DAY, you are going to get margin hikes. The reason - the very integrity of the Clearinghouse comes into play.

Silver closed down $6.48 today. In a single session, one long contract in this market cost the buyer a paper loss of $32,400! That is enormous. If you consider the fact that the previous old margin was $21,600, that was wiped out and then some.

During the clearing or settlement process, the winners get paid (have their accounts credited) by debiting the loser's accounts. If the losers do not have sufficient funds in their accounts, the whole process breaks down. Guess what then happens? The Clearinghouse comes to the brokerage firm whose clients do not have sufficient funds and says to them "You pay us the difference and then go and get it from you customer". If the brokerage house does not have sufficient wherewithal financially to make good on those losing trades, we have a major problem.

When we get these wild, insanely huge ranges in a single day, the computer programs used by the exchanges to measure volatility are going to flag those markets and will raise the margins to make certain that there are no problems paying ther winners.

We might see some additional selling pressure from this margin hike hit the metals Sunday evening or Monday morning but I am of the opinion that anyone who was trading gold or silver and who was already undercapitalized going into today's (Friday's) session, has already been paid a visit by the resident margin clerk and been told to either sell out the position or wire the money immediately. Not many have sufficiently deep pockets in the smaller spec category to carry that sort of paper loss, so I believe a large number of them are now gone.

Thursday, September 22, 2011

Silver - Weekly Chart and annotations

Silver tends to get harder than gold during bouts of risk aversion related selling. That was made evident today as the metal lost nearly 10% during the session. Potential buyers who had been active on dips below the $40 level and ranging down towards $39 stepped out of the way of the herdlike fund liquidation removing the buying support beneath the market that had been putting a floor there.

There are several minor bands of support between the present level and the critical $32.50 region. Whether it holds those depends on the extent of further risk aversion related selling. As long as this market holds above the $32.50 region on a weekly closing basis, it will be okay and will continue to consolidate, although within a larger range.

If it fails there, the potential for a move towards $30 becomes likely.

Bulls need to take price back above the $40 level to shake the confidence of the bears after today's rout.

Gold technically weak - needs Asian buyers to become active

The following chart provides a picture of the technically weak posture brought on by today's hedge fund selling barage. Asian buying had been providing very good support on dips below $1800, particularly into the $1780 zone. That buying was overwhelmed today by the West jettisoning gold as the algorithms were all tripped into the sell mode on account of the rallying Dollar.

The result was to take gold through all of the support levels that had been holding it thus far. Both today's low and the 50 day moving average are the last line of technical chart support preventing a dip towards psychological support at the $1700 level. Below that, should it fail to hold, there is a former gap region near $1680 which should provide pretty solid support if this thing is going to stabilize. If not, it does have the potential to dip lower and move towards $1650.

On the upside, it needs to get back above $1800 to put a little doubt in the mind of the bears. A run through $1820 would see some sizeable short covering on their part.

It needs some help from the lagging HUI, which was slammed incredibly hard today.

S&P 500 Closing in on a Key Technical Support Level

With the US equity markets in seeming free fall today, there are some things worth pointing out here as well.

First of all, take a look at the horizontal red and blue lines shown on the weekly chart. Look first at the lower red line. Back in August of last year, rumors began to surface that the Fed was going to embark on another round of Quantitative Easing. The reason - the first round had apparently run out of impact. Yes, it had halted the collapse in both equity and commodity prices associated with the unwind of the carry trades on the heels of the credit crisis eruption, but when it came time for it to expire, the equity markets had nothing else to drive stock prices higher and began retreating.

Also, economic data had begun to once again deteriorate. The result was that the stock market dropped in April 2010 and then moved sideways almost as if hanging on by a mere thread as it attempted to force the hand of the Fed for the next dose of liquidity. The Fed did oblige and that took the index on a several month long rally that peaked shy of 1400 in early May of this year as the market anticipated the ending of the QE2 program at the end of June.

Since that time, look at what the S&P has done - it has completely erased the entirety of its gains associated with the actual implementation of QE2. Another way of stating this is that the effect of the gargantuan sum of $600 billion in Treasury purchases and $300 billion for Agency Debt has been utterly wiped out. We are now back to levels commensurate with rumors of the QE2 program began surfacing.

When one considers the fact that we just witnessed a month in which ZERO new jobs were created on a net basis, you can reflect on the enormity of the wasted effort.

Perhaps that was in the mind of the Fed yesterday when they announced a sterilized Treasury purchase program of $400 billion. Either way, the markets are not at all happy.

What is more ominous however is where this market appears headed. Tomorrow's close is going to be extremely significant from a technical perspective. Note that the S&P has not yet CLOSED below 1100 on a Weekly basis. It did violate that level in early August but recovered to end the week well above this key level.

If the bulls cannot quickly muster a new effort, and we get a weekly close below 1100, it would put the index on a course for a push into the level just below 1050. Below that there is nothing on the chart until you get closer to 1000.

What I am taking away from the price action thus far is that traders right now feel no reason whatsoever to step in front of this market to buy stocks. There may be some who are calling them "cheap", and that might be true, but some are looking for them to get even cheaper before they consider buying. With nothing seemingly happening on the European front, with Chinese growth numbers a bit lower and with the Fed having fired off its gun, what else is left for the market to rally on at this point is the current line of thinking.

Let's see what we get in tomorrow's action.

Commodity Sector Breaking Down but long term trend is still higher

Consider this as sort of an addendum to the article on the Australian Dollar earlier today.

Today's selling onslaught across the entirety of the commodity sector has wiped out the gains in this sector for the year. That is leading to further selling as hedge funds are grabbing what little might be left of their paper profits in there before those entirely disappear.

There are several factors which I think merit referencing on this weekly chart.

Firstly - the stampede to sell has taken the index below a major horizontal chart support level that came in near the 600 level. It has also brought into a focus a downtrending price channel that can now clearly be seen on the chart. Price is working slowly lower in this channel having failed to better the 660 level which is now a major point of chart resistance.

However, the longer term trend in the overall sector is still higher as can be seen from the uptrend line drawn connecting some of the reaction lows in the ongoing bull market that began back in late 2008 with the inception of the first QE program.

I am keenly interested in the point at which the lower red line of the price channel intersects with the rising blue uptrend line. That comes in near the 580 region.

In spite of the widespead selling across the commodity sector this morning, some of the major bank trading houses are still bullish on the sector overall but are cautioning their clients about the possibility of further near term declines. Some are advising clients that buying opportunities are going to present themselves but warn those potentially interested in the long side to expect more volatility. It could well be that we see some of these sidelined buyers moving back into the sector if the CCI nears this chart intersection level of 580.

This is another chart we will have to monitor for clues to future market price action as we enter the 4th quarter of this year.

Australian Dollar closing in on key technical support levels

The Aussie is under severe pressure this morning as traders sell the unit on fears of the global slowdown catching up to the Land Down Under. Australia's economy has been very resilient standing out as a bright spot with relatively low levels of unemployment and a vibrant housing market. That plus the fact that it sells a tremendous amount of its goods to China, has made the Australian Dollar a standout performer for the first half of this year. It has however recently fallen on harder times as traders have shunned "risk trades" in favor of the US Dollar and the US Treasury market and a broad sell off hits the overall commodity sector.

It would appear from the price action in the Aussie that traders are concerned that eventually Australia is going to be impacted by a slowdown in global growth and that any subsequent move on the interest rate front by the RBA will be in a downward direction.

Looking at it on the price chart, it has crashed through a chart support level just below the 99 level this week and has continued its plunge this morning which is bringing it into some key technical support levels. The Aussie tends to be a pretty good harbinger of overall investor sentiment towards growth in general so if it does violate the lowest of this support levels, it will not bode well for future global growth prospects.

If you notice, back in the latter part of 2008, the Aussie bottomed and began its ascent at the same time the US equity markets and the Continuous Commodity Index both bottomed out. So too did gold. We'll keep an eye on this for further clues as to the welfare of all the above.

Another key indicator of overall global health is copper. This has been a very rough month for copper bulls as the red metal has also broken down technically. It looks poised for further declines with some chart support first surfacing about another 13 cents or so below the current level. We will need to see this metal stop declining if we are going to get a shift in investor sentiment back towards risk trades.

Wednesday, September 21, 2011

Markets Digest FOMC Statement - develop a case of Nausea

The long anticipated prognostication finally arrived today as the markets, with bated breath, eagerly poured over the entrails of the FOMC press release to scour for clues to the future. The oracles of Delphi, descended from their lofty tower, uttered their prophecy, and then returned to their temples to observe their handiwork. Meanwhile, the stock markets having digested the contents, soon began to experience an uncomfortable sensation which worsened as the meal settled. Down collapsed the equity markets and then down went the commodity markets and up went the Dollar.

The Fed announced $400 billion worth of purchases of longer dated Treasury debt. One would think that hte markets would be pleased but alas, 'twas not meant to be. What stuck in their craw was the fact that these purchases were sterilized and not fresh purchases. In other words, there would be no increase in the Fed's balance sheet but rather a rolling from their current holdings of shorter-dated maturities into longer dated ones. Apparently the markets were not impressed and were looking for either:

1.) a larger sum than $400 billion
2.) non-sterilized purchases (another dose of QE)
3.) some combination of the above

This is a rather sad commentary on the current state of our nation where a sum as enormous as $400 billion dollars is met with a gigantic yawn followed by an upchuck.  One would think that after having learned that the exorbitant sum of $2.5 TRILLION DOLLARS in QE actually ended up giving us a month in which ZERO NEW JOBS were created, the proponents of more stimulus would have begun to look elsewhere for a cure to what ails the economy. Apparently not.

Either way, when the dust settled, it brought on the risk aversion trades. The thinking is that the sum of $400 billion is too small, especially seeing that it is not fresh purchases of US Treasury debt but rather sterilized purchases to do much in the way of harming the US Dollar. That combined with the fact that non one wants to buy the Euro, or the Swiss FRanc or the British Pound or the Japanese Yen saw the "safe haven" money rush into Treasuries and the Dollar. Imagine locking up your money at the rate of 1.9% or less for TEN LONG YEARS in the securities of a nation which cannot stop spending money or increasing the overall size of its debt load? And this is supposed to qualify as safe haven investing???

The rising Dollar then brought out the algorithm selling across the entire commodity sector as the hedgies did their thing once again and dumped everything tangible. With the Fed telling the world that it foresaw more weakness in the sluggish economy, crude oil and energy were dumped. So was copper. Basically the markets were looking at the absense of inflationary pressures once the Dollar starting rising.

Gold which had initially moved higher when the news first hit, then succumbed to the selling pressure across the commodity sector and moved below $1795 where it hit a few stops which took it into the region just above the $1780 level.

Asia has been buying heavily into this zone so we will see whether these buyers make an appearance again this evening.

I am a bit pressed for time so I have to cut this commentary short for now but perhaps can add to it later if time permits.

The mining shares, which had been performing remarkably well all day long, fell lower when the broader stock market imploded and were thus kept from taking out overhead resistance near the 640 level. I want to see the price action in this sector the next day and especially how it ends the week before drawing any further conclusions at this point but I do want to point out, that even with their weakness today, the sector outperformed the broader markets once again. It could well be that the miners might be evolving into the defensive sector trade which would give them a decent bid even on days of overall equity weakness.

At this point in the game, one has to wonder what tricks the Fed has left in their magic bag because it is evident that this one did not perform.

Tuesday, September 20, 2011

HUI - Mining Shares surging towards a retest of all time high

Very impressive strength in the mining sector was the feature of the day in the trading session.  The result was to set the index within striking distance of its recent all time high.

Newmont Mining shot to yet another all time high today.

Having a few days of price action under our belt allows us to get a better picture of where the buy orders and sell orders are coming in; in other words, defining where the "value" regions are located.

Note the chart and look at the horizontal red line drawn near the 580 level. We remarked that the index bounced off of this level on its retest last week, confirming a reversal of polarity principle where stubborn overhead selling resistance now becomes strong buying support.

IN yesterday's session the market pushed through the former gap and go region noted on the chart but was unable to hold its gains and settled below the bottom of the gap. While the action was not particularly bullish, it did hold the previous day's low, and refused to break down even while the metal price of gold was moving down to near the $1780 level. It was evident that there was dip buying taking place at the lower levels. This was all the more noteworthy because of the very broad weakness across the entirety of the equity world yesterday.

Today saw the miners explode back to the upside, through the gap and go region and to within a few points of the all time high in the index. The ferocity of today's move higher indicates distressed buying on the part of some of the shorts in these shares. They are being squeezed out by some fairly steady and determined buying. My guess is that there were some fresh shorts piled on below the 600 level that were too far underwater to hold any longer.

You can see on the chart that there are several candles with long upper shadows present up at these levels. There is also a minor double top just shy of the 640 level. The bulls now have it in their power to attack that region and see if they can dislodge some of the more stubborn bears in these shares. If they can do so, the buying by the shorts as they seek to cover will intensify and that should give us another sharp push higher.

The strongest hands in the short community are going to try to make a stand and prevent that from happening. Whether they can do so remains unclear at this time. If they fail to hold it at 640, they are in trouble.

Note something else of significance on the following ratio chart. This compares the price of the HUI mining shares index against the price of gold itself. The ratio is useful in the sense that it provides us a benchmark; something against which to measure the value of the shares in general. Here we have the situation where the HUI made it to within a few points of its all time high today yet the overall HUI/Gold ratio is sitting at a relatively low level compared to previous peaks in the valuation of the shares.

Today we closed at the .344 level. The peaks in this index were either above the .60 level or right at it. In other words, even with the HUI sitting at such a lofty level as where it closed at today, the overall sector remains UNDERVALUED against the gold price.

This is what happens when a long established trade outstays its welcome and descends into the arena of foolishness. The ratio spread trade employed by the hedge fund community, buying gold or the ETF and shorting the shares, depressed the share prices of so many miners that it has led to a case of excessive undervaluation which is now in the process of being corrected. I think one could easily make the case without even getting too far out on a limb, that this particular ratio could move to at least the .50 level before it gets anywhere near being in the "overvalued" camp. Believe it or not that would put the index closer to the 900 level if the gold price were to remain near the current level of $1800.

That is mind boggling now isn't it???

Monday, September 19, 2011

Gold chart and comments

Gold continues moving in a broad sideways pattern, unable to breach overhead resistance centered just below the $1840 but remaining above longer term support just above the $1760 level. The current short-term bias is negative until it can at least climb back above $1820.

Thus far forays down below the $1800 level have been met with quality buying in the physical market so this will need to continue to hold it from moving lower through $1760. Should these buyers step back a bit in the hopes of picking up the metal a bit cheaper, we could see it lag down towards the $1730 - $1720 region where one can expect to see very active buying occuring.
There is still some of this risk aversion selling occuring in gold (that is very easily seen in silver) but that is more a function of traders raising cash on their losing equity positions by selling their only winner, namely gold. In watching the price action today it seemed more a matter of a lack of eager buyers rather than any large scale fresh selling. That allowed price to drift lower until it triggered enough downside technically-related sell stops which then took it through $1780 before getting a bit of a light bounce up.

If you look at the copper chart, you can see that today it crashed through a former strong level of chart support. On the weekly chart, it has confirmed a double top pattern but that will not be totally confirmed unless it closes the week below the $3.85 level. Chinese buying had been keeping copper well bid below $4.00 but that buying disappeared today. The 100 day moving average, another key technical level, is now within easy striking distance for the bears. If they can take it down through that level, Dr. Copper will not be telegraphing good economic times ahead anytime soon.

There was also a hit to the unleaded gasoline market as well as crude oil. GAsoline is moving down towards a significant chart support level near the $2.60 region. Weakness in the grains is also evident. The result of all this is to bring the Continuous Commodity Index ( CCI ) back down towards the lower part of its now 5 month long sideways trading pattern.

This widespead selling across the commodity complex is a function of fears concerning the stability of the European Banking system which is reeling from its exposure to sovereign debt from that region. Investors are rightfully fearful of a contagion effect and a subsequent slowing of global economic growth. This is being reflected in severe weakness in the Euro, which as you can see from the price chart, is flirting very dangerously with falling below the 100 Week Moving average. It dipped briefly below this level last week but then recovered by the close of trading Friday and averted more serious damage. That respite was brief however as it has started off this week on a troubling foot. Unless it can rapidly recover above this level, it looks like a move towards 1.30 is in store. That would put even more upside in the US Dollar leading to further pressure across the broad commodity sector.

Take a look at the following chart and you can see where the safe haven money has been flowing over the last month. This is the gold/bond ratio. When the line is rising, gold is the safe haven of choice compared to bonds. When the line is falling, the bonds are the asset class of choice. Ever since the Central Bank organized hit on gold earlier this month, gold has been underperforming the US long bond. This is no doubt much delight to the Federal Reserve and to the Treasury Department, the former of which MUST HAVE LOW LONG TERM interest rates to prevent any further shocks to the already "on-life-support" economy; the latter of which cannot AFFORD to pay higher borrowing costs without worsening the already hopelessly incurable federal debt situation.

The HUI held fairly well today considering the weakness both in the equity markets and in the precious metals but it does need to clear 610 and hold that level if it is going to have a shot at the recent all time high once again. Downside support is initially near 600 followed by strong support near the 580 level.

Saturday, September 17, 2011

Trader Dan on King World News Weekly Metals Wrap

Please click here to listen to my regular weekly radio interview with Eric King on the King World News Weekly Metals Wrap.


Friday, September 16, 2011

HUI bounces from key support level

The mining shares were hit rather hard this week with a bout of selling after the HUI made a new all time high but the price action still looks very good considering where it saw the buyers stepping up.

If you notice on the chart, the region marked as the "GAP and GO" - That constituted a gap higher above the former all time high ( A very bullish development). Normally, on a subsequent price reaction lower, one would like to see this gap region function as a level of chart support which sees the buyers come back in and bid prices back up again. That is indeed what did occur the first two trading days of this week. Price moved down through the gap on both days, but then recovered prior to the closing bell with the market closing either at the high end of the gap or just above it. However, Wednesday of this week saw this sector succumb to a large amount of selling which pressed it lower throughout the day and prevented it from recovering near the closing bell as it had done the previous two days. That bode for further weakness in the next session and that is exactly what we did get. Thursday saw a sharp spike lower across the entire sector; however, buyers showed up in large numbers, so much so that they took the price all the way back to the opening level. That is bullish price action.

What I am taking notice of is the fact that this spike lower took the index back down to a key technical chart level, 580 to be specific, a level which had effectively held the mining shares from moving higher for the better part of this year. According to the basic premise of technical analysis, a broken resistance level undergoes a change of polarity and should then serve as a level of chart support on any subsequent retracement lower in price. Today's gains on top of that spike off of the 580 level substantiates the 580 level as a critical chart support level.

You will notice that the same gap region, the GAP and GO, which formed early this month, and then subsequently failed to hold prices on the way lower, served as a resistance level to today's move higher in the shares. That too is technically significant. What these shares now need to see from a bullish standpoint, is for this former gap region to be bested and for prices to rise through this level and then hold above it. That would set the index up for another test of the recent all time high.

If the index cannot get through this former gap region, then the most likely path for it moving forward is a period of consolidation with the 610 level capping gains on the upside and the 580 level attracting buying on the downside. Such a development would signal that we are going to try a period of base building before attempting another assault higher.

Silver Chart Update

Silver continues to hold very firm at the horizontal red line drawn in on the price chart. Each time it has moved down to this level, a level which I might add is the intersection of TWO important support levels, it has drawn out solid buying and then moved higher. This region is a former congestion zone which seems to attract buyers and forces shorts to cover. The longer this impasse continues, the better for the bulls as it is basically base-building here.

Thursday, September 15, 2011

Everything's Okay - Western Central Banks find Dollars to feed stressed European Banks

Pity some of the poor banks of Europe - it seems that they are having difficulty finding others to loan them Dollars at a "reasonable" rate of interest. If I did not know better, I would say that they are being unfairly discriminated against merely because they have laughably pathetic balance sheets. Oh and did I mention that they have boatloads of Greek bonds hiding in there somewhere as well?

No worries however - the posse is right around the corner, riding to their rescue to save them from the usurious money lenders who would do them wrong. Yep, once again the Central Banks come running to the rescue of the pestilential bankers who continue in their parasitical role of leeches and ticks, sucking the life blood out of the financial system whenever their own greed and stupidity ensnares them in a web from which they are unable to extricate themselves.

"HELP! HELP! We might fail and take you all down with us UNLESS..."

The story never does seem to change does it?

Somehow this is supposedly good news for the global stock markets but then again I basically gave up trying to make sense of the insensible every since the bailouts began when Lehman collapsed back in the summer of 2008.

I think a rewriting of our school books on the causes of lasting prosperity are long overdue since what I learned back when is obviously out of vogue. Nowadays all that is required is liquidity, lots of liquidity. (I am reminded of that scene in the original "The Matrix" move when Neo and Trinity go to rescue Morpheus from the clutches of Agent Smith and need, "Guns, Lots of Guns" to do so). Substitute suitcases of borrowed-into-existence money and you get the general idea as to what is now considered the essential ingredient for true prosperity.

That brings us back to gold once again as it continues under assault from the Central Bankers who seemed deathly terrified of it making its way to the $2,000 mark. Ever since the takedown in the wee hours of the night as chronicled here    http://traderdannorcini.blogspot.com/2011/09/central-banks-waging-war-on-gold-at.html   gold has been on the defensive. That assault intensified near the $1880 level and it is that level which has thus far proven to have been unpenetrable.

Failing there, it subsequently retreated to a chart support level near $1840, which failed to stem its bleeding whereupon it then dropped to test the next support level near $1820. That too failed as did psychological support at round number $1800. It is now flirting with the next support region centered near the $1780 level. Failure there and it should try to test the level near $1755. Beyond this there is not a lot in the way of chart support until it gets down near the $1725 - $1730 region. We will have to see where the big buyers related to the upcoming festival seasons in Asia make their appearance to stem this latest setback in price.

Before gold can hope to get anything going to the upside it will have to recapture $1840.

The HUI is moving down towards stronger support near the rising 40 and 50 day moving averages. Once it failed to move back up and away from its former "gap and go" window near 608 after retesting that breakout level, technical selling has now taken it lower as some discouraged longs liquidate and some fresh short sellers reappear. It will take a push through 615 - 620 to see some of these new short sellers squeezed out.

Meanwhile, it has bounced off the level near 580, a level which some of you might recall had proven to have been incredibly stubborn overhead chart resistance for most of this year. It was not until this level was decidedly broken to the upside that we were able to see any strong move high in the mining shares. Now it is serving as downside chart support, which if it holds, will be very friendly indeed. This level also now closely corresponds to the rising 40 day moving average, a level at which some funds like to buy if they are playing the market from the long side.

Sunday, September 11, 2011

In Memory of those who lost their lives a decade ago today

Over the weekend, a ceremony was held to dedicate a memorial to the citizen heroes of United Airlines Flight 93, who gave their lives to prevent that plane from being used as a weapon in the massive attack against our nation this day exactly ten years ago. Their selfless efforts are now memorialized in a field in Shanksville, Pa, where the downed airliner crashed into the ground killing all aboard. Who knows how many other of their fellow citizens were saved by their courageous actions of that day.

Both former Presidents George W. Bush and Bill Clinton gave deeply moving speeches at that commemoration, which I am linking to here for those who might want to take a bit of time out of their schedules to remember their sacrifice and to also reflect on where you were that day and the emotions you were experiencing as you watched the reports coming out of New York City, Washington DC and of course, Shanksville, Pa.


Saturday, September 10, 2011

Trader Dan on King World News Weekly Metals Wrap

Please click here to tune in to my regular weekly interview with Eric King on the King World News Weekly Metals Wrap.


Friday, September 9, 2011

Swissie Gold and Euro Gold setting all time highs

US based analysts continue to approach the gold market with blinders on as they focus exclusively on the US Dollar price of Gold and draw all their views of the market from that perspective. An apt comparison would be looking at the Dollar price of RICE and extrapolating future price action for the global price of this international food without even considering its price in Japan or Malaysia for example. This is shortsighted at least and foolish at worst as it betrays a flawed understanding of the role of gold in the international arena and its function as the currency of last resort.

With the vast majority of Central Banks around the world embarking on policies and practices designed to deliberately debase their respective currencies, those investors around the globe seeking to protect their wealth from such depradations are buying gold. That is why it continues to make one new high after another across a variety of global currencies.

Consider the price of Gold in Swiss Francs or "Swissie Gold". Ever since the SNB decided to debauch their currency and kill its historic safe haven status, gold has been soaring in terms of the Franc. Do you think that those Swiss who are financially savvy were going to sit idly by while their Central Bank plundered  and looted their wealth?

Or consider the chart of Euro Gold, Gold priced in terms of the Euro. It too is making one new all time high after another. It is responding to the circus in Europe as the monetary authorities and political leaders there provide living testimony why one should not "put their trust in princes". The resignation of the ECB's Stark is yet another straw on that camel's back.

Think citizens in Britain have any more confidence in their leaders than the rest of the Euro Zone? Guess again!

Judging from the price action of the US equity markets this morning, the investing community has as much confidence in the Obama Administration's efforts to create jobs and turn the economy around as the passengers and crew of the Titanic had in their captain to save them from their collision with that  enormous iceburg. This is the reason that while the Central Bank attack on gold continues, they have not been successful in derailing it. No one trusts the hapless clods to fix anything.

Do you get the distinct impression that there seems to be a rising lack of confidence across most of the globe in their respective governments?  Personally I shudder to think where the S&P 500 would be without the surreptitious buying of the Exchange Stabilization Fund.

Considering the debacle unfolding in the equity markets today, the HUI or mining shares index, is once again holding remarkably firm as this sector contines to outperform the rest of the broad market.

Not surprisingly, the US Dollar has become the safe haven currency for the time being not based on any merits of its own, but only because the alternatives are even worse. It is attempting an upside breakout above a key chart level in today's session would which confirm a bottom is in for the intermediate term as it flirts with the 25% Fibonacci retracement level from the decline that began last May. It still looks like a rally in an ongoing bear market however. It could push as high as 79 - 80 on this leg if it sees some follow through gains next week but I frankly would dismiss any long term sustained strength unless it could convincingly clear the 81 level.

In the meantime this Dollar strength is engendering selling in the commodity complex by the hedgie algorithms once again. This is where some of the pressure in SILVER is coming from today. For the time being, the slowing global economic growth theme is currently outweighing the fears of currency debauchment when it comes to commodity pricing.