"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


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.


  1. Hey Dan,
    The ECB/EU situation truly is surreal. It just cracks me up that the Germans especially are trying desperately to hold off on the money printing in the name of protecting the Euro. Where were they when the whole lot of them were running up the debts in the first place? And now....confidence in the whole union idea is dissipating fast... and the whole banking system is skidding toward the edge of the cliff. And they think if the banking system collapses... that will protect the Euro? Stunning. They better pull a rabbit out of the hat soon. This goes on too much longer and rabbit will used for hasenpfeffer if he ever does appear. Thanks for you daily 'sanity check' commentary.

  2. I've been excited all week to buy a couple oz's silver this weekend when the coin show will be in my town, but today's price action is giving me second thoughts. It just seems that silver is more liable to downside than upside at this point considering how Dan pointed out that silver is tied with the 'risk-off' trades. With a global downturn just a corner away, it seems like silver will tumble even further because of it's industrial use. I think gold will be a safer buy this weekend?

  3. I bought some gold on the way down. I did not caught the knive though as it fell. But I did not do to bad.

    Trading on days like these just makes me sick. Wonder what is going to happen next Tuesday when contracts are due?? Anybody what to guess??

  4. Buying silver in the low 30s and high 20s is just a gift! Think of the silver price as; the lower it goes the bigger the GIFT when you are viewing silver as a way to store value.

  5. next tuesday in a holiday week......yesterdaY WAS next tuesday

  6. silverwood,
    I do believe that silver should be and is a store of value, however, the market seems to be telling otherwise with regards to how silver is tied to the 'risk-on/risk-off' trades. Until silver deviates from this pattern, gold seems to be the safer choice.

  7. Anyone else having trouble with www.jsmineset.com?

  8. MellowMushroom

    Buy it and don't look back.

  9. Yes, www.jsmineset.com is not working for me either.

  10. Hi Dan,

    Love your work as always.

    Back in September, you posted a monthly gold chart with a couple of primary trend lines on it. Do you think you could update that for us this week? My basic version shows that we should be smacking into that trend line pretty shortly.



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