"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....