"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


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.