"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, November 30, 2011

Monthly Gold Chart - Closing Price Only

I still marvel when looking at these charts at those who continue to denigrate gold and particularly those who deny it is a safe haven.

While we all know that the official government CPI numbers are a fantasy, it is still rather interesting to see where gold has run into overhead resistance based on this inflation adjusted chart.

Crude Oil prices - Collateral Damage

Once again the WTI crude oil market is testing the psychological $100 level. After mounting a huge rally over the last two months that took price from down near $75/bbl to over $100/bbl, crude prices retreated as fears surfaced concerning the ongoing crisis in Europe.  While tensions with Iran have kept prices from tanking, it is a given that crude oil was not exempt from risk aversion trades and fears of an overall global financial slowdown.

However, as traders have begun anticipating action by the Central Banks to deal with this crisis, crude has floated back up again. Today's spiking of the punch bowl by the Fed and its cohorts at 5 other Central Banks, has driven crude back above the $100 level.

I find this quite fascinating because this is exactly the same thing that forced the Fed to eventually try to backpedal on its QE efforts earlier this year and pull the plug back in June when QE2 was due to expire. Bernanke and company realized that the cost of providing this liquidity binge was a weaker Dollar and surging energy prices. Only when the pain at the gas pump became large enough to elicit howls of complaints from voting constituents did we see Congressional leaders start complaining about the Fed. Prior to rising energy prices and soaring food prices, most of these leaders were silent enough especially as the same liquidity bursts kicked the price of US equities higher. After all there is nothing that most politicians love better than to see the DOW going up while they are in office.

What we are going to be carefully monitoring is how crude oil prices move in the days and weeks ahead. Any moves by the Central Banks to keep the liquidity crisis from becoming a full-blown solvency crisis are going to drive crude oil, along with the rest of the commodity complex, higher. What happens if crude then moves back above $115 barrel and looks like it is going to mount an upside breakout? Will rising energy prices undercut any so-called "growth" in those economies being targetted by these Central Banks?

Once again, we are back to what was said way back when the Fed first started up its QE program - they cannot selectively move equity prices higher and improve the economy WITHOUT also getting a sharp rise in commodities, including food and energy. Hedge fund money flows are not selective - they buy everything in sight and there is nothing the Fed or any other Central Bank can do to prevent this. One way or the other, there is going to be fallout - either failing banks, falling prices, rising unemployment or surging prices, particularly energy and food once again.

Silver and Gold charts

Fundamental Spark for Silver and for Gold?

Today's actions by the Fed, in concert with 5 other Central Banks, plus the move by China to lower bank reserve requirements 50 basis points, the first time they have done so in three years, has provided today's fireworks across the commodity and equity marks. It is RISK ON time once again for the hedgies.

I mentioned in my analysis of the COT report yesterday, that the metals needed some sort of fundamental spark to break them out of their respective trading ranges. Perhaps we have that, at least for today, in the form of easing of liquidity concerns. That is unclear to me at this point since this really does not do anything to address the structural issues leading up to the sovereign debt issues. It is simply keeping a liquidity crisis from becoming a full-blown insolvency crisis.

This might explain why after the initial blast higher in the markets on the euphoria around the Central Bank actions, that the markets have not been able to continue adding to their early session gains. Traders are maybe having second thoughts about all this. I know I sure am. While it will temporarily help ease lending concerns, it still does not address the sinking value of all that sovereign debt on the books of the big European banks, nor of that on the books of some US banks. It seems to me we are going to have to see a very clear, unambiguous signal that Germany is going to go along with a large role for the ECB and maybe even a Eurobond market before traders will get more aggressive to the upside.

Regardless, silver has been able to capture its first line of technical chart resistance centered near the $32.50 level. This is its first visit back to this level in a week's time. That has served to reinforce the support level that formed just below the $31 level. For this market to now get anything going to the upside, it is going to have to first convincingly clear $33.50 and then exceed $35. Only then will it have a shot at anything more than a return to the top of its recent trading range.

Charts to follow later....

Tuesday, November 29, 2011

Commitment of Traders reports confirms effects of Risk Aversion trades

This past week's COT report was delayed until Monday (yesterday) on account of the Thanksgiving holiday. It does however confirm the market price action in both gold and silver which are currently stuck in no-man's land experiencing range bound trade with firm resistance on rallies and good support on dips.

Simply put - speculative interest in the metals has dampened off considerably as more and more traders/funds move to a cash position and lower their overall exposure to the commodity sector in general (risk assets). This is particularly evident among the general public, the small spec category, which have fled both silver and gold. In the case of gold, this category of traders is now holding the smallest net long position since February 2010. They have also cut their net long exposure to gold about 44% since the peak made back in March of this year.

 The big hedge funds continue to draw down net long exposure as well. This is not a recipe for higher prices.

While the reports indicate that a thorough cleansing process of both metals has been underway, it also confirms why neither market can currently get anything sustained to the upside. There is simply not enough speculative interest to push prices sharply higher at this time. Something will have to change on the fundamental front that triggers a strong desire on the part of the speculators to bid up the prices of both metals.

Keep in mind, there is nothing bullish about COT reports which show a fall off in speculative demand. Our modern markets are driven by money flows and money flows come from speculators. Until and unless they come into a market in a sustained fashion, prices will not be able to escape pressure related to commercial selling. The only thing "bullish" about this week's reports is that they do show plenty of room for this sort of speculative interest to build ONCE SOMETHING TRIGGERS THAT BUYING INTEREST. Until it does, neither one of these markets will be able to escape the range trade that currently holds them in check.

One other thing - a large part of the fall off in open interest in both metals is due to spread trades being taken off. Those are primarily a function of speculators playing differentials between various contract months. The fall off in the number of spreads also confirms the waning speculative interest in both markets.

Lastly, Silver continues to see the Swap Dealers increasing the size of their net long position. You've got to go back to April 2009 to see anything resembling this size exposure to the long side in silver by this category. That is rather interesting. This category is difficult to decipher because they can be putting on positions for clients, trading for themselves or hedging private contracts. But it could be that this is the reason silver has thus far been able to consistently bounce off the $30 support level. The Swap Dealers seem to be pretty comfortable with long side exposure in the metal down there. My guess is that if and when silver prices do eventually mount an upside breech of overhead resistance and begin a trending move higher, these traders will be selling out longs, booking profits and then moving back to the short side in a more conventional pattern for what we are accustomed to seeing with this group.

Monday, November 28, 2011

Risk on - Everything got fixed overnight

Talk about potential IMF loans to Italy had everyone feeling slap-happy in today's trading session, especially seeing that the finanical world did not come to an end over the US Thanksgiving holiday weekend.

Back on came the risk trades; up went the equity markets; up went the commodity markets in general and down went the US Dollar.

Both gold and silver moved higher with silver leading the way in this "risk environment".

If you note the gold chart below, it ran to $1720, the next resistance level noted on the chart, where it then encountered some selling pressure which kept it from getting too far out from that level. I would like to see this market stay above $1725 for at least one bar before thinking it can mount a run back towards $1750 with its first stop on that journey near $1735.

Gold did manage to claw its way back above the upper tine of the bearish pitchfork which should now serve to support the market on any dip lower IF THIS MARKET is going to have a shot at turning the psychology a bit friendlier. For that to occur, it seems to me we are going to see some sort of fundamental spark which would undercut the recent strength in the US Dollar. Traders may be selling the Dollar today but that could all very quickly reverse if today's euphoria turns sour.

Simply put - there is no clear cut trend in gold, or for that matter silver right now as far too much depends on perceptions involving conditions across the Eurozone.

Wax on - Wax off - Risk on - Risk off. That is the story once again.

Saturday, November 26, 2011

Trader Dan on King World News Weekly Metals Wrap

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


Wednesday, November 23, 2011

Happy Thanksgiving to my American readers

We do indeed have much to still be thankful for in this wondrous land of ours.

The Wall Street Journal has a fine tradition of reprinting some wonderful reading each and every year in honor of our Thanksgiving holiday. May I suggest taking a bit of time to read these two fine articles and reflect on the sacrifices made by those who came to these shores more than 400 years ago  and by those who looked upon what they had created years later and recorded their thoughts.

The Desolate Wilderness

A chronicle of the Pilgrims' arrival at Plymouth, as recorded by Nathaniel Morton.


And the Fair Land

'For all our social discord we yet remain the longest enduring society of free men governing themselves without benefit of kings or dictators


Gold weak but holding support - for now

Gold has now gone down and visited the critical support level near $1680 three times in the last three trading days, each time managing to recover as it attracted quality buying and rebounded. Considering the weak action in both the HUI and in silver, and of course strength in the Dollar, this is encouraging but overall the market is acting rather poorly.

Until this market can manage to regain its footing above $1725, it is in a precarious position. I got the distinct impression that many traders did not want to go home short over a long holiday weekend period (many are taking off until Sunday evening) due to concerns over what may great them come Sunday evening/Monday morning of next week.

The Dollar is on course to end this week on a very strong note barring any changes in the fundamental picture in Europe. That will lead to further weakness in commodities in general. Now that the failed German bund action has sent shock waves through the markets in general and chatter continues to grow that France is next on the downgrade list, the US Dollar is seeing strong inflows as money comes out of Europe. One has to wonder if the Asians are dumping Euro-based debt and gravitating towards Treasuries.

At some point in this crisis, gold is going to stop following the general commodity sector lower and will trade as a safe haven but it is going to continue to experience computer selling from hedge funds and index funds which benchmark against the various commodity indices. It should be noted however that gold is holding much better than silver or the CCI in general. This is due to its function as a safe haven. Were it not for that, it would be getting sold down more severely due to the mad rush for cash currently underway.

Note the various support levels and resistance levels I have noted on the chart. The failure at $1800 is very evident now that we have had some time to put in some more trading bars on the chart. Rallies are being held in check by the downsloping dark blue line of the pitchfork. Support has been established below $1680 with some spiking down towards $1665 producing some decent ricochetting back above $1680. Failure to hold these lows established this week should let the market fall down towards the downsloping red line which parallels the upper tine of the pitchfork.

Silver continues to be at the mercy of the risk trades

Silver rallied yesterday on news about a proposed IMF plan to aid Europe. That took equities higher, the Dollar lower and the metals up for the ride. Today that is yesterday's news as the pitiful German bond auction sent investors fleeing out of everything they bought yesterday and rushing back into the Dollar once again.

Down goes silver, crude oil, copper and just about everything else on the planet.

All you need to know about silver is contained in the following two charts. The first is the Continuous Commodity Index. The second is Silver. Note how eerily similiar the two charts are.

This is the reason that I keep saying that silver is not going to go anywhere until the sentiment towards "RISK" and towards "INFLATION" changes. As long as traders are seeing the sovereign debt crisis in Europe as worsening and eventually causing a contraction in global economic growth, they are not going to be piling into silver as they did back during the days of the Federal Reserves' Quantitative Easing program.

Silver does however continue to find buying on dips into the region near $30 which is becoming a critical chart support level. As long as buyers see value in this area it should remain well supported as they will accumulate the metal during such bouts of price weakness. If the European contagion begins to worsen, this level could become vulnerable.

As investors rush back into the Dollar, it is poised for another trip to the 80 level on the USDX. If it manages a weekly close above this level, it is going to be rough going for the commodity complex. If it traders become convinced that even Germany is going to succumb to the contagion spreading across Europe, the Dollar is going to move through 80 like a hot knife through butter. If on the other hand a change of sentiment towards Europe emerges, 80 will prove to be a formidable resistance level.We will have to see where events lead us.

Note that both longer term moving averages, the 50 day and the 100 day, are now moving higher in conjunction - a bullish sign.

Keep in mind that even though the Dollar has its own set of problems, and that set is very significant, right now it is NOT THE EURO, and that is what has money flowing back into it.

Monday, November 21, 2011

What's wrong with Europe? - Listen to my new hero Nigel Farage

This is my kind of leader!

Gold nearing important technical support level

The $1680 level is an important chart area as it has served to function both as overhead resistance and as downside support depending on the status of the gold market at the time that price has neared this area. In today's session, it is acting as a downside support level thus far holding price from dropping further as the risk trades are once again taken back off.

Should this critical level fail to stem the decline in gold, price will fall into the next band of support which is near and just above the $1640 level, a level that also coincides with the rising 150 day exponential moving average. That moving average has seen value-based buyers emerge over the last two months so we can expect it to uncover similiar buying once again should price move this low.

For gold to stem the current tide of bearishness and rattle the shorts a bit, it will need to recapture the $1710 - $1715 level for starters with a further push into the $1740 region necessary to bring in some momentum based buying.

Saturday, November 19, 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.

Thursday, November 17, 2011

Fear, Fear and more Fear

European woes are rising and as they rise, more and more it seems as if the level of FEAR is rising alongside of it. The cost of insuring FRench, Italian, Portuguese, and Belgium bonds hit record highs today. The ECB was said to be a buyer of Italian bonds today (no one else seems to want them).

I think it does not take much in the way of insight to realize that after the collapse of MF Global (they insanely leveraged their buys of European sovereign debt to asinine levels and raided their customer monies in an effort to cover their staggering losses), there is no market for European sovereign debt. Investors are looking at the huge sums of this debt on the books of the European banks (and that on the books of US based banks as well) and are suddenly realizing that there is no one to sell this stuff to besides the big Central Banks. Many are fearing that a collapse of those big banks is coming without some sort of action by the ECB.

One has to wonder what good that will do in the long run because it will no doubt involve money printing. That is what has Germany reluctant to go along with the program because the Germans are fearful of the impact on the Euro.

All this fear send investors/traders rushing into cash and once again jettisoning commodities in general while buying US Treasuries. Hey, compared to Greek or Italian or French debt, US Treasuries look like the Rock of Gibraltor for stability. What makes this so ironic is that the US reached the "laudable" level of $15 TRILLION in indebtedness. The Dollar - like I have said repeatedly, right now it is the best looking piece of trash on the kitchen floor.

Gold was sold along with silver and along with Platinum and Palladium, which were absolutely crushed today. Palladium dropped near 7%. Copper of course was hammered lower falling better than 3%. In that sort of environment it is to be expected that Silver would get the snot beat out of it. It is down nearly 6.55 as I type this.

Gold fared a bit better than silver falling only 3% or so. While the gold shares were smacked down (again failing to extend past the 600 level on the HUI), I do not expect gold itself to fall apart. Reports today stunned traders when they learned that Central Banks were huge buyers of gold on the recent retreat in prices underscores the strong demand for the yellow metal that exists (they scooped up over 150 TONS!).

There is no doubt in my mind that value based buying of gold will continue as this stupidly insane hedge fund selling of the metal will be eagerly welcomed by various foreign Central Banks and deep-pocketed value-based buyers. I expect to see China acquiring the metal in December as dealer there prepare for their yearly New Year's celebration later in January.

Crude oil could not keep its footing above the $100 level sinking below that in today's trade as both it and gasoline were also sold off. Natural gas bucked the general selling trend as it made a new yearly low yesterday so it appeared some guys were using the general wave of selling to cover shorts. That managed to pop the market higher a bit.

As stated previously in both writing and in my radio interviews - silver is not going anywhere until it can convincingly clear the $35.50 level to the upside. That is going to require a change in investor sentiment towards it. Right now, with silver still tied directly to the risk trades, it cannot mount any charge higher until buyers feel comfortable enough to take on a high level of risk. I am not sure what might make that happen given the current state of the European mess.

Gold is a different animal as it is a true safe haven. Remember it gets knocked down along with these risk off trades because it is sold as part of a basket of commodities that comprise the various commodity indices against which hedge funds and commodity index funds benchmark. However, safe haven buying usually surfaces in gold, albeit at the lower levels because those who are worried about currency stability will move to the metal as their distrust of the monetary officials and political leaders increase.

Looking briefly at the gold chart, the $1800 level has been acting as resistance for the last two weeks or so. The $1750 had been serving as support. That gave way with the market falling through the first level of chart support near $1720 before bouncing off the second level of chart support just above the $1700 level. Gold is attempting to climb back above $1720 as I type this but as of now cannot quite muster the strength to do so. We will have to see if it can do so in Asian trading this evening.

Failure to hold at $1705- $1700 will allow the metal to drop towards $1680 where we should see some buying emerge. I would quite frankly be surprised to see gold lower than $1680 for any length of time. All of these paper currencies are extremely suspect right now, due to the huge sums of indebtedness in the system and all the implications that this carries with it. Central Bankers, when forced to choose between deflation and inflation will always opt for the latter. They feel that they can always "control" or manage that - the former is a different story altogether for them.

I think if push comes to shove and the Germans are forced to make a choice between inflation or deflation, they too will choose what might be regarded as the lesser evil of the two and opt to move forward on the Financial Stability front. It's either that, or the Euro falls apart and so too then does the ECB itself.

If gold were to fall through $1680 for any reason, I would anticipate increased buying by longer-term oriented investors/traders who are looking for the metal to make a push towards $2000. Downside in the metal at $1620 - $1600 would be much less than upside risk to that level.

Wednesday, November 16, 2011

Rising Prices just a Figment of Our Imaginations

JACOB MARLEY:  Why do you doubt your senses?

SCROOGE:  Because, a little thing affects them. slight disorder of the stomach makes them cheats. You may be an undigested bit of beef, a blot of mustard, a crumb of cheese, a fragment of an underdone potato. There's more of gravy than of grave about you, whatever you are!

So goes the conversation between the two former business partners in a scene from Charles Dickens', "A Christmas Carol". Of course Marley is a disembodied spirit who comes to warn Ebenezer Scrooge to change his ways while there is still time. Scrooge thinks he is imagining the entire encounter.

Reading today's CPI numbers from the official bureau of propaganda I could not help but to think of this scene. Yes, according to the feds, those rising prices we are all experiencing in the grocery story are nothing more than "undigested bits of beef" ( I could not resist the pun).

Funny that on a day when we have to sit and read commentators telling us gold is under pressure because "inflation is benign", we watch WTI Crude Oil surge through the $100 barrel level as news hits the market that the flow of crude oil in the major pipeline that runs from the Gulf Coast to Cushing, Oklahoma will be reversed allowing oil to flow OUT of Cushing thereby reducing what has been a supply glut pressuring the benchmark for oil.

If WTI Crude continues to show strength, it is going to be a difficult trick for the gold bears to keep up any chatter on ebbing inflationary pressures.

On a different note, take a look at the composite price of wholesale beef. It scored an EIGHT YEAR HIGH yesterday! Don't worry however, this is just a figment of your imagination. The government tells you so.

Meanwhile, Commodity Prices are indeed not continuing to soar into the stratosphere, but neither are they breaking down sharply either. This index would have to fall below 560 to suggest a bear market in commodities overall is underway. Prices have retreated from their all time peak, but seem to be moving in a generally sideways pattern over the last couple of months having bounced off of the above level and moved higher. The index would need to clear 620 to suggest a period of rising commodity prices is underway once again.

That is what is particularly galling about the government's numbers. They give the impression that inflation is benign but the truth is that while the CCI has fallen from its peak, it remains at an extremely lofty level nearly 90% above the bottom made back in 2008. It is a bit of an exaggeration to say it this way but it conveys the point more forcefully - commodity prices have nearly doubled since the fall of 2008.

When you put it that way, the "benign inflation" picture does not seem quite so benign now, does it?

Tuesday, November 15, 2011

Farm Land - the Latest Bubble

In private conservations with various friends I have been discussing the very real possibility of a bubble-like price increase in farm land across this nation. There are several reasons but suffice it to say that soaring grain prices have led not only farmers, but investors to hit the trail looking high and low for tracts of good farmland that they can scoop up.

Farmers acquiring top quality farm land to increase their production is a normal response to higher food prices as supply will need to increase in order to keep up with the growing global demand for food. I do however have serious misgivings when I see hedge funds, and other assorted characters seeking to capitalize on this situation by setting up vehicles designed with the sole purpose of acquiring farmland for speculative reasons. This smacks of a mania to me and today that was pretty much confirmed by a report out of a conference held in Chicago which was hosted by the Federal Reserve Bank of Chicago.

The Chicago branch of the Fed, and the Kansas City branch, both reported that farmland values increased 25% from the previous year (according to a report by Dow Jones). This was the largest increase since 1977.

I have always been a fan of the American farmer and am pleased to see these hard working folks reap some of the benefits of increasing global demand for their product as well as seeing their land rise in value, but I am very worried that this could easily turn farmers against wild-eyed speculators who are chasing land, not directly for its productive capacity and value, but rather for an investment which they can later flip to another speculator. We have all seen what these fools did to the real estate market after packaging those mortgages into so many combinations of letters of the alphabet securities (CDO's, SIV's, etc.) that one could hardly keep up with them all. What happens if we see a repeat of that folly?

Obviously, some speculative buyers of farmland will lease the land out to farmers for agricultural use but the notion of hedge fund money sloshing into and out of farmland makes me extremely uneasy. What might happen if enough of these speculative buyers amassed significant holdings of quality farm only to see a drop in value at some point down the road? Would we witness the first domino falling and setting off another chain reaction like we saw in 2008 or any other bubble that has come and gone?

Maybe - Maybe not - all I know is that the combination of hedge funds/investors and farm land does not sit well with me.

Gold marking time - rangebound trade continues

Gold has been held in check below $1800 with the bulls unable or unwilling to commit enough firepower to run the shorts out of their defensive line erected at that level. Bears on the other hand cannot get anything going to the downside either as buyers are surfacing on dips in price. The result is more of the same - rangebound trade.

Sometimes there is not much worth commenting on concerning market action and today is one of those days.

Uncertainty over European financial woes is keeping a firm bid in gold with Euro-gold above the 1300 euro level.

Saturday, November 12, 2011

Trader Dan on King World News Weekly Metals Wrap

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


Friday, November 11, 2011

12 Hour Gold Chart

Risk trades were back on in several markets today with equities rallying, the US Dollar selling off and both gold and silver moving higher. Once again, copper was up and thus so was silver. The link between those two metals lately has been quite tight.

Gold bounced from support near $1750 and is moving back to towards $1800 once again. You might recall from the other day that I mentioned a large number of fresh short positions were shoved on at $1800 and above. We will see how those new bears defend those fresh positions. Bulls can give them plenty of headaches if they can muster the strength to push price through that recent high. Failing that, the market will see some liquidation from both floor traders and shorter term oriented longs who will note the inability to better that level and take that as a signal to book some profits.

Aiding the cause of the gold bulls is the very strong showing in the HUI today as it is currently up better than 3% and is above the 600 level on that index's chart. A strong close above this level to end the week would be very constructive on the weekly chart and would set the sector to mount a charge to the 610 level early next week. Failing to hold above 600 would discourage some of the bulls.

Initial downside chart support lies just below 580.

Sincere Gratitude and Respect to our Veterans

Thank you for your Service, Dedication, Sacrifice, Honor and Commitment to our Nation and its Freedom

Thursday, November 10, 2011

Tommy Turkey and Sides are getting more expensive

The Wall Street Journal is reporting that the cost of an annual Thanksgiving turkey dinner for 10 has risen this year to $49.20; a $5.73 increase over the cost of the same dinner last year ($43.47). That is an increase of a bit over 13%.

No worries however - keep moving; nothing to see here. Our illustrious lords that "cook" the official inflation numbers will no doubt be able to deal with this by substituting quail or cornish hens for Tommy and Timmy turkey.

12 Hour Gold Chart

Gold ran into selling pressure today as both safe havens, the bond market and the gold market, were taken lower after the equity markets reacted to a supposed improvement in the US unemployment claims. Personally this number is a very poor indicator to base trading decisions upon but the equity markets are almost desperate to find some good news somewhere.

They even seized on Berlusconi appointing an interim government rather than holding elections further down the road. That was viewed to be friendly for stocks. Heck, it had people buying the Euro today?! Go figure.

Strangely enough, the hedgies were selling the commodity markets in general today with the energy sector seemingly bucking that trend but the metals and grains did not. The result was that the CCI moved lower with the CRB slightly higher, as it is more heavily weighted in energies and skewed in that direction.

Gold did find good buying below the $1750 level and is currently trading near $1760 as I write this. We'll have to see how Asia responds overnight but we certainly have some solid support and resistance levels to work off of thus far. If we stay above $1725- $1720 we should range trade with some chart resistance initially seen just shy of $1780.

The HUI was lower today but it recovered a rather goodly portion of its losses heading into the closing bell. There is chart support near 570 initially with another round of potential buying emerging closer to 565. Keep in mind that this is an index comprised of various mining companies so when I mention support and resistance levels, this is simply picking up on what is occuring in the shares of those companies which comprise this particular index.

The HUI will now have to convincingly CLOSE above 610 to see a solid trending move higher in the mining sector commence. A closing downside push through 540 would signal some additional weakness otherwise the shares look to be forging out another consolidation pattern.

Wednesday, November 9, 2011

12 Hour Gold Chart

Gold failed to extend past the psychological level of $1,800 and is now moving lower towards the first level of chart support just above $1750 and extending down towards $1725 - $1720.

It was to be expected such a large rally in the US Dollar during today's session (Wednesday) would provide some strong headwinds to any move higher in gold. That and the fact that the CCI was hammered lower today as anything remotely resembling a risk trade was yanked off.

This evening, gold is moving lower as there is follow through selling across both the base metals and the precious metals with only slight weakness being seen in the Dollar. Clearly traders are concerned about the woes in Europe.

As long as any setback in gold holds ABOVE $1680, the pattern that will develop is more consistent with a market taking a breather. A drop below this level, that cannot recover it within the same session, will forebode a drop back towards $1640 - $1625.

HUI holding in relation to the S&P 500

Traders/investors looking to take a defensive posture in the equity markets continue to see the mining sector as a place in which to find some temporary shelter. While the HUI is getting pulled lower today alongside the entirety of the US equity markets, the sector is holding in relation to the broader market.

A good trade has been to spread the miners against the S&P, a trade which I mentioned here some time ago would be a winner for the hedge funds instead of the shortsighted spread trade involving the bullion markets and the mining shares. The hedgies were able to play that trade and profit from it for a while but they overstayed their time with it as investors began warming to the solid profits being generated by many of the mining companies. It also did not hurt the bullish cause to see some of the gold miners increasing their dividend payout.

For a look at the HUI in isolation, you can see that the index has filled the former gap region but failed to rally through the top of that gap and hold above that level. It should find some additional buying support back down at the bottom of this same gap near the 570 level if the dip buyers are going to still feel comfortable committing capital to the sector in the midst of this instability in Europe.

Silver whacked along with Copper as Risk trades are taken back off (AGAIN)

Rollercoaster is too tame of a word to describe the kind of insanity being created in our financial markets by the computer algorithms. Yesterday it was "everyone in; the water's fine". Today is, "Get the hell out; a great white is coming at you".

Tomorrow, it will probably be time for a nice yacht cruise again. Who knows and at this point, why even bother attempting to figure it out.

First the focus was all on Greece. Now it has shifted to Italy. Next it will probably be Spain and if we get to that, it will be the survival of the entire European Monetary Union that will be called into doubt. At some point, if things keep heading in the same direction, with one fire after another popping up, nationalistic tendencies will doom the Euro as nations begin opting out. Either way, history is being made.

The impact of this mess (at least for today) is that Copper and Silver were both spanked as traders are looking for a contagion effect that would slow overall global economic growth. Copper is currently down 3.5% with silver being 2.9% lower.

Gold is getting caught in a tug of war between the commodity index related selling due to risk trade reversals and its role as a safe haven. It is currently trading down but not by all that much considering the carnage occuring in the US equity markets. It is hovering between $1780 and $1790 as I write this.

Interestingly enough, gold IN EURO TERMS, is actually higher today which underscores the fact that the yellow metal is indeed serving as a safe haven. It is currently trading near 1320, a mere 50 euros or so off of its recent all time high.

CME working to release transferred MF Global accounts for trading

For the sake of those who read this site and whose accounts were impacted by the mess at MF Global, here is the latest news from the CME Group. The advisory was issued this morning.

CME Group Provides Update on Customer Account Verification Process in Conjunction With Bulk Transfers of MF Global Accounts

CHICAGO, Nov. 9, 2011 /PRNewswire/ -- CME Group today provided an update regarding the process it announced November 4, 2011 to verify customer collateral transferred to receiving firms through the MF Global bulk transfer process, as authorized by the Trustee.

CME Group is committed to ensuring that all customers are treated fairly as CME Clearing works with the Trustee, is making substantial progress on verifications and continues to receive information from the 12 receiving clearing firms and other Derivatives Clearing Organizations (DCOs) to facilitate this process. However, due to the massive undertaking of processing data to verify 15,000 accounts for CME Clearing, ICE Clear US, The Clearing Corporation, KCBOT Clearing Corp., MGEX, NYSE Liffe US and The Options Clearing Corporation, as well as the unique circumstances of the MF Global bulk transfer process, the validation of each account's collateral balance is taking longer than originally anticipated.

CME Group recognizes the urgency of the situation and is working to complete this process as soon as possible. The company expects that those customer accounts including only futures positions will be verified, and holds will be removed on a rolling basis beginning this morning, November 9. Following the completion of futures-only account verifications, the company will work to complete the process and remove any remaining holds on accounts involving options positions throughout the remainder of this week.

CME Group is using a number of channels to communicate with customers as soon as information is available and will continue to provide updates throughout the process through its clearing members and on its website for this matter, www.cmegroup.com/mfglobal.

 Further information about CME Group (NASDAQ: CME) and its products can be found at http://www.cmegroup.com/.

Tuesday, November 8, 2011

The Berlusconi Bash

Maybe that is a bit of an overexaggeration but it was the news that Italian Prime Minister Berlusconi was stepping down, resigning his position leading up the government, that sent the equity markets into an upside tizzy as giddy bulls threw caution to the wind and jumped out of anything resembling a safe haven and back into stocks.

Down went the US long bond, a full point and a half, and down went gold after it had pushed solidly above the psychological resistance level of $1800. Even the mining shares had been moving higher adding onto yesterday's gains before they too gave way under the selling pressure unleashed into gold.

Silver actually was functioning a bit more like a safe haven earlier in the session, drawing buying on off the stronger gold price before it moved lower when gold broke down and could not hold onto its gains. However, the return of speculative inflows  (RISK ON) into copper and many other commodity markets underpinned silver and it clawed its way higher pushing back towards the $35 level.

The Dollar also moved lower as traders jettisoned the greenback for the "undervalued" Euro.

We could just as easily see every bit of this completely reverse before the week ends if these same traders start thinking about the structural difficulties standing in the path of dealing with the Eurozones financial problems. For today, they seemed to think that with Berlusconi out of the picture, a new government would perhaps be more receptive to implementing the "austerity" measures required under the plans by those who hobbled this European care package together. That was interpretted (Beauty is definitely in the eye of the beholder) as meaning the party is going to get going once again as the liquidity spighot opens up.

We'll see how long this sentiment indeed lasts. Suffice it for now, the gold bulls were clawed and bitten some by the bears as a result of this news. The shorter-term oriented bulls quickly sold out and cashed in some of their winnings with a fairly good amount of volume being down up near and just above the $1800 level. Clearly some fresh shorts were put in place today with some attempting to pick a top hoping that the fresh news will provide them with some downside momentum.

Monday, November 7, 2011

Euro Gold within 70 euros of its all time high

Gold when priced in terms of the Euro is showing great strength continuing to track higher ever since it found buying support at the 61.8% Fibonacci Retracement level shown on the chart.

It has now managed to push through the last Fibonacci level of note and based on the norm for most TA, it should now make a push back to retest the recent all time high, which is a mere 70 Euros above its current levels.

It is very evident, that many European investors and average citizens are very far from being comfortable with the so-called "solution" that has been hobbled together by the European monetary and political leaders to handle the fallout from the sovereign debt woes currently besetting the EU.

Gold pushes to $1800

Gold is putting in a very strong showing in today's session as it appears a large influx of new speculative money has found its way into this market. Investors are moving back into both gold and Treasuries as safe havens with gold being the favorite of the two - a nice development to say the least.

Buttressing gold's fortunes us a good showing by silver and a particularly good showing in the mining shares which are surging.

The $1800 level is a psychological resistance level because of the handle change from "17" to "18". If it can clear this level and keep oscillating above it, funds will come in and push it to the $1820 - $1825 level which is the next resistance zone on the chart.

Support should show up on any potential dip to $1755 - $1750 with very strong support now arising closer to $1720.

Note that this very strong move higher in gold is occuring with a backdrop of the US Dollar being relatively unchanged. That means gold is moving higher in terms of most all of the major foreign currencies - a sure sign that the metal is catching its bid as a SAFE HAVEN.

I want to emphasize this because we are repeatedly told by those who should know better that gold has failed as a safe haven. They say this because they do not understand the SHORT TERM effect of money flows in today's financial markets and how interwoven overall commodity market performance is to hedge fund computer algorithms.

Gold gets sold initially during such times of general risk aversion because it is part of the basket of commodities that comprise every single commodity sector index out there. Those indices include the CCI (Continuous Commodity Index), the CRB (Commodity Research Bureau) index, the Dow Jones/AIG Commodity Index or even the Goldman Sachs Commodity Index (GSCI).  Computers do not think - they just do whatever they are programmed to do and selling commodities across the board is programmed into these algorithms when certain pre-defined conditions occur. It takes independent thought and analysis, combined with DISCRETIONARY trading, and not system trading, to counteract some of this mindless buying or selling. Only when there is sufficient Discretionary trading taking place, can enough money flows arise to stem some of the effects from these computers.

That means we need buying in the physical gold market that looks for value to counter the hedge funds. That has been the pattern in the gold market for more than a decade now. Those who keep pronouncing such foolishness such as "gold is a poor safe haven", in order to say something designed to get themselves maximum exposure in the US financial press because of its shock value would be well advised to adopt a longer term view and broader their narrow perspective. They are wrong and could not be more ignorant.

Once the value-based buyers absorb the computer generated hedge fund selling, then the technical factors begin to improve for gold as its chart pattern improves and back in come the same hedge funds, this time on the buy side. That is what is happening today once again.

HUI continues its strong showing

Mining shares are getting a very strong bid in today's session taking the HUI up sharply through the 600 level, a psychological resistance level. As you can see on the chart, the index is moving ever closer to the top of the recent chart gap created last month when the shares were sold off during a downdraft in both the gold and silver bullion markets. I would expect the perma bears in the shares to try to make an effort to hold the index BELOW this resistance level. If they fail, I believe there will be enough momentum in the sector to mount a move back to the recent all time high.

Downside support is back at the bottom of the gap and is noted.

Note how the miners are continuing to outperform the broader equity markets today as they have done so over the last month.

Also note the much longer term monthly ratio chart I have constructed showing the performance of this sector against the broader US equity market over the last decade+.

Saturday, November 5, 2011

Margin Call Process

Many of those who read this site are equity traders and do not live in this exotic world of commodity futures trading as I do and others who read this site. Also, some are relatively new to the world of trading in general and perhaps are reeling at all this talk of  "initial margin requirements", "maintenance margin levels", "margin calls", etc. I therefore thought it might not be a bad idea to provide a very brief explanation of what these things are so they can understand what all the fuss was about this past 24 hours as we sought to understand what was taking place as a result of the original advisory notice put out by the CME Group which was then fortunately clarified later on.

Initial margin requirement is the sum of money necessary to either buy or sell  a single commodity futures contract. For the sake of our illustration, let's say that the DME (Dan's Mercantile Exchange) set the INITIAL margin requirement for a single contract of corn at $1,000. If you want to BUY or SELL one corn futures contract, you need to have at least $1,000 in your trading account or nothing doing amigo.

Now let's say that the DME sets the MAINTENANCE MARGIN level for that corn contract at $750. This is the level at or under which you are going to receive a margin call if your account balance falls to this level or lower. The margin clerk will then notify you that if you wish to continue holding this position open, you are going to have to send enough additional money to bring your account balance back up to the INITIAL MARGIN level; in our case back to $1,000.

At that point, you have one of two options - you can bank wire the sum of $250 or more or you will be forced by your broker to liquidate the corn position by either selling it or buying it back if you were short.

Now let's see how this might work in actual practice. You start out with an account of say, $20,000. In keeping with the DME exchange (I have always wanted to have my own commodity exchange!) you could conceivably BUY or SELL a total of 20 corn contracts as the initial margin is $1,000 for a single contract. That of course would not be wise but believe it or not some traders actually are foolish enough to attempt this.

Let's say you are a bit more prudent and take out a LONG position by buying 15 corn contracts (notice I said, "bit more prudent" - this is still very foolish as I will explain later). That means you have $15,000 in a $20,000 account tied up in initial margin requirements.

You bought your corn at $6.50 a bushel and are feeling good about your prospects. Unfortunately, no sooner than you get your fill price then the RISK OFF trades start and your corn drops $0.10 down to $6.40. Each 1 cent move in corn is $50 so for each contract of corn you own, you now have a paper loss of $500 ( 10 cents * $50). Since you have a total of 15 corn contracts, the paper loss is 15 * $500 or $7,500. That did not take long did it? Welcome to the leveraged world of commodity trading.

Your account balance is now $12,500 ($20,000 initial - paper loss of $7,500). Things begin getting dicey at this point. MAINTENANCE LEVEL at the DME for corn is $750 for a single contract. You have 15 corn contracts. So you need to keep your account balance above $11,250 ($750 * 15 contracts).
You have a cushion of $1250 left ($12,500 - $11,250). If corn drops another 2 cents, the margin clerk pays you a visit. WHY? Because your total account balance has now dropped $1500 further (2 cents * $50 * 15 contracts). It is now at $11,000 when the MAINTENANCE LEVEL is $11,250.

At this point you will receive a "CALL for ADDITIONAL MARGIN" (margin call) to bring the total sum in your account back to the INITIAL MARGIN requirement to hold 15 corn contracts, which as you recall was $15,000.

You will either have to bank wire the money to your account that same day or you will be required to reduce the number of corn contracts you have bought to a level low enough that you are above the maintenance margin levels. You might sell 5 contracts at a loss leaving you a total of 10 corn contracts. Maintenance margin levels for TEN corn contracts would be $7500 (10 contracts * $750). Since your account balance is at $11,000 you would then be okay.

This example is the reason that futures traders should NEVER trade in a size large enough to threaten the integrity of their own trading account. I have told many potential traders that in my opinion, a trader who starts off with $20,000 in trading account should trade NO MORE than TWO corn contracts. Even at that you would want to cut any losses quickly and limit losses to no more than 5% of your total account balance. That means $1,000 on a single trade.

This is also the reason why exhange changes in margins and maintenance margin levels can cause such a huge impact on individual commodity markets when they occur. Traders who are leveraged up to the gills as in the example of our overtrading trader above (15 corn contracts in a $20,000 trading account) are always the first to get hit by these events. Seasoned traders use margin sparingly realzing how dangerous leverage can be when it is working against you.


I would like to publicly express my appreciation for my pal JB Slear, a dedicated commodity futures broker who operates Fort Wealth Trading for putting in yeoman's hours, over a weekend I might add, to help track down what is occuring with this CME margin changes.

Here is the official clarification from the CME Group where they state that instead of raising maintenance margin levels to initial margin levels, they are doing the opposite, and instead LOWERING initial margin requirements to maintenance levels.

Also, thanks to "KId Dynamite" for posting his view earlier that this is what they were doing.

DATE: Saturday, November, 5, 2011

NOTICE # : 11-400

SUBJECT: CME Group Clarifies Maintenance Margin Ratios; Exchange to Reduce Initial
Margin Ratio to 1.00

CME Group Clarifies Maintenance Margin Ratios; Exchange to Reduce Initial Margin
Ratio to 1.00

CME Group today is clarifying its notice to clearing firms regarding margins.  In light of the issues customers transferring out of MF Global are facing, while still maintaining appropriate risk management protections for the market, CME Clearing is setting the "initial" margin upcharge at zero. This upcharge is normally applied to customer accounts when they are receiving a margin call.

The intent and effect of these changes is to decrease the size of any margin calls resulting from
the bulk transfer of MF Global customers to new clearing members, not to increase them.

Yesterday, CME Group successfully transferred MF Global customer positions to a new clearing member with part, but not all, of their funds, as approved by the bankruptcy trustee and the court. By reducing the initial margin “ratio” to 1.00, we ensure that margin calls that are issued to these transferred MF Global customers will be limited to bringing their accounts into compliance with the lower, “maintenance” margin levels. Maintenance margins are set to provide appropriate risk management coverage. Initial margins are set to provide an additional buffer against future losses in the account.

This is a short term accommodation to maintain market integrity and provide temporary relief to customers whose accounts have been disrupted by this event.

We apologize for any confusion our initial advisory may have created.

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, November 4, 2011

Further thoughts on the CME maintenance margin hike

In communications with my broker this evening he suggested that this might be a way for the CME to let some of the firms accepting accounts from MF Global off the hook from attempting to make one margin call after another and attempt to complete a huge number of bank wire transactions in such a short period of time.

What struck both of us as extremely odd was the fact that the communique stating that maintenance margin levels were going to be raised to a 1:1 ratio with initial margin requirements was sent later in the evening, AFTER the close of regular business hours with the change in margins being made effective AS OF THE CLOSE OF TRADING NOVEMBER 4, 2011. That means there was no advance notice given as is the usual norm (we generally have a day or two to prepare for the hikes). Actually the notice hit my box TWO HOURS AFTER the close of business on Friday. Anyone whose account is underfunded is on call immediately based on the timing of the raise in the requirement meaning that they go into the opening of trading Sunday evening already all call.

That gives the brokerage firm the RIGHT, but not the obligation or necessity to immediately liquidate all exisiting positions of customers whose accounts are underfunded ( it could be aimed at some of these new transferred accounts which, if accounts are accurate, have received no more than 75% of their original account balances, some having received only 60% of the original balance).

I am not trying to be sensational here; rather I am attempting to work through the implications of all this especially seeing that it is coming in on the heels of a $630 million shortfall with MF Global. Some 15,000 accounts or so have been transferred thus far. I cannot even imagine the efforts involved by brokerage firms attempting to sort through all these new positions on their books because of the transfers and gauge margin requirements against what is left of their remaining account balances. Some of these firms might be thinking it is just easier to liquidate everything that these newly transferred accounts have and then start with a clean slate. A maintenance margin hike to initial margin requirement levels will make it very easy to justify such an approach.

Those who trade commodities sign an agreement stating that the brokerage firm can liquidate existing customer positions in the event of financial hardship. We may be seeing that taking place.

If I can get some more information on this, I will get it posted as soon as I can but we are headed into the weekend so I would think news is going to be very scarce until we get around to market reopenings Sunday evening and into Monday morning. We could be in for a very wild and unsettling round of price volatility starting Sunday evening. This is unprecedented in my own personal trading career so I am not certain what exactly we are going to get as a result of all this.

Maybe we will get lucky and learn that the CME Clearing House issued the communique by accident or something. Boy howdy do I hope that is the case, but I fear it is not.

One last thing - it should be kept in mind that if the markets open strongly to the upside in general on a round of RISK ON trades, it is the SHORTS who are going to be hurt by the margin change. That would force additional short covering. The flip side to all this is that a great number of the transferred MF Global accounts are mainly on the long side of the market and the RISK OFF trades are what come on Sunday evening. Then the longs are in trouble... What a stinking mess caused by these ***&&$$ at MF Global.

CME Group hiking margins across the Board

If I am reading the communique from the exchange correctly, the margin requirements for ALL CME products is being raised by hiking the MAINTENANCE MARGIN requirements to the SAME LEVEL as INITIAL MARGIN requirements, effective as of the opening of trading Sunday evening/Monday morning, November7. The changes were implemented as of the close of trading Friday, November 4th.

If this is correct, and I think I am reading it correctly, this is the first time that I can recall seeing something like this occuring. It will also precipitate some very volatile trading conditions.

I suspect this is tied directly to the fallout from the MF Global debacle. Apparently CME group and its clearinghouse want to make sure there is sufficient liquidity present to cover all its obligations.

This might throw my previous assessment of silver and gold technical action out of the window. Stay tuned as this is going to get even more wild than I previously imagined.

Traders who are not margined up to their teeth and have a sufficient cushion in their accounts, will be okay. Those who are not are going to get hurt on any adverse price action. What I mean by this is simple - if a trader is long and the market sells off, his paper losses or loss of profits will cut into his account balance perhaps bringing the total margin requirements of his active positions below his account balance. He is going to get a margin call that day if not Monday morning or even Sunday evening. Once "called", the money is going to have to be wired that day or the positions will be liquidated.

Quite frankly, seeing this occuring is very unnerving as I wonder if there is more stress out there from the MF Global debacle than meets the eye. The Clearinghouses obviously want to make certain that they are well capitalized.

My guess is that many of the accounts from MF Global that were transferred and have not gotten the ENTIRETY of their former account balances reinstated, are going to be forced into liquidating unless they have adequate capital on hand elsewhere that is easily accessible and very liquid.

HUI pushing into Chart Resistance

The HUI had a strong showing this week as the return of the risk trades drew money into the sector. Along with that, many investors have come to view the sector as generally undervalued based on the good numbers being reported by several miners and the fact some were raising dividends.

The result was a move back into the large gap region formed in September when gold and silver were both taken down quite hard. Last week the index mounted its first push into the gap and managed to hold the level going into the weekend. This week after some initial weakness, it found willing buyers who came in and took it further into the gap closing above the 590 level. The index now has the potential to mount a push towards 600. If it can do that successfully, it should be able to close the gap completely. That would be a major victory for the bulls.

Note that the market found buyers on the last two days of this week when it fell back towards the BOTTOM of the previous gap near the 580 region. That is good technical action.

Let's see what we get next week with the risk trades. If they are back on, the HUI is going to hit 600.

Silver Chart improving but still bearish

Let's start by examining the weekly chart for a bit longer perspective. For starters, silver remains held under the 50 week moving average so strictly speaking it is still bearish. Once it climbs above this level, funds generally become more involved in the market so that will be the first achievement which the bulls will have to pull off to get the speculators more interested in the market. Note that the over the last two weeks, this level has effectively capped any upward progress although the bulls are working on securing a breach of this important technical level.

You might also notice that there are two sets of Fibonacci levels drawn on the chart. The first, in red, uses the peak near $50 and the subsequent spike bottom near the $26 level. The second set, in blue, uses the failed rally attempt culminating near $44.27 and the same spike low to project some potential resistance levels. The market has rallied back to exactly the 38.2% retracement level of the former and the 50% retracement level of the latter.

You can see that there is a confluence of THREE key resistance levels near the high made by silver this week. Until the bulls can better this level, the stronger-handed bears are not going to run.

What has been happening with silver is that the risk on, or risk-off trades continue to jerk the metal up or down depending on which trade happens to be in vogue on any given day. If we move into next week and market interprets any events in Europe in a negative fashion, silver is going to get sold down along with copper. If the converse is true, silver will move higher alongside of copper.

As has been the axiom of recent weeks, we will know what will happen only AFTER it happens. There is no predicting any of this madness. The bulls are very close to seizing the initiative but close only counts in horse shoes and hand grenades.