"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, December 31, 2012

Happy New Year to my Readers

May the New Year of 2013 be a Happy, Healthy, Safe and Prosperous one for you all. Thank you for your interest in the blog this past year. For those who took some time out to write words of encouragement or thanks, I appreciate you!

Only the Lord knows what will come our way in this next year but one thing promises to be certain in regards to the markets - more volatility, more uncertainty, more wild price swings and more Central Bank interference.

Comex Gold Closes UP 6.9% for the Year

Comex gold had a nice day to finish out the year as it moved sharply higher around mid morning and pushed right into strong resistance at $1680 on the price chart.

The move enabled gold to put in yet another good performance on a yearly basis as it added 6.9% in 2012.

Gold in Yen terms was the best performer among the major currencies as the Yen lost over 20% of its value against gold.

Saturday, December 29, 2012

HUI Weekly Chart

The mining sector, as evidenced by the HUI has not been a happy place for bulls since late this summer. The selling has been a combination of both frustrated and disenchanted longs bailing out in addition to some opportunistic shorting.

While the broader stock market has fared well since the beginning of the year, it too began fading about the same time as did the overall mining sector. However, it still techically remains in an uptrend as long as it holds above the 1350-1340 level unlike the mining shares which have completely broken down falling through one support level after another.

The performance of the mining shares against the broader market can be seen by examining the following ratio chart comparing the HUI to the level of the S&P 500. Notice that even though the S&P was also working lower since late this past summer, it has outperformed the mining sector by a considerable amount. In hindsight, shorter-term oriented traders/investors would have been better advised to have bought into the stock rally and left their gold shares for another day. There is a reason that the motto: "You cannot fight the Fed" has some credence. Whether or not one agrees with this idiocy known as Quantitative Easing, the fact is that the market loves it, particularly the financial stocks.

About the best that can currently be said about the mining shares is that that are not further breaking down against the broader stock market. The low in the ratio seems to attract buying. Translation - at some point, perhaps we are there - in relation to the broader market, the gold shares are simply too cheap.

That being said, the problem with the mining sector, right now, is that big money is simply not interested in owning them. Value based buyers are but those are insufficient in size to drive them higher in price. Besides, value based buyers are never the ones who drive prices higher. That would be a contradiction in terms. Value based buyers PUT FLOORS UNDER MARKETS. Momentum based buyers drive them higher.

What is missing in the mining sector is the MOMENTUM BASED buyers. Right now, the momentum based buyers are busy chasing higher returns in other sectors of the market. To bring them into the miners one needs to see a TECHNICAL CHART SIGNAL and currently that is missing. For a bare minimum - the HUI needs to clear and CLOSE ABOVE 440. That will signal a very short term bottom is in. To do more than just meander sideways above support however, it will need to push past 455 which will spark some short covering and further fresh buying that will set up a TEST of 465. If and when this index clears that level, then, you will begin to see some more serious buying occur.

I am not in the business of making predictions for as a trader I do not have that luxury. I have to read what the current sentiment in the market is if I hope to profit and thereby trade accordingly. While 2013 might be a banner year for the mining sector (and I hope that it is), the current chart picture is not especially encouraging.

Remember, as a trader or even an investor, you are not going to profit UNLESS AND UNTIL many more traders/investors come around to your way of thinking. Without their money coming into a stock/commodity, it will go nowhere. Once it does, and the chart action confirms that your view/opinion of the market is becoming more widespread, then and only then can you be considered to have made a GOOD CHOICE. If you buy a stock that sits at the same level for months on end or even years on end you might eventually be proven to have made a correct choice but think about the lost opportunity cost of having tied up so much of your valuable investment capital that could otherwise be working for you elsewhere.

This is the reason that doing a regular analysis of your portfolio (WEEKLY) is so critical. If a technical chart is breaking down, get out of that stock unless you are content on sitting through corrections in price that may last for a long time. Do not forget, if you are constantly monitoring a portfolio or position on a regular basis, you can ALWAYS GET RIGHT BACK IN if the technical posture changes for the better.

I personally am not a big fan of Jesse Livermore because I believe he would have starved to death in today's markets. That the markets have changed tremendously since his day is an understatement of near cosmic proportions. Livermore, who by the way ended up taking his own life - an abject failure in my defintion of a successful man - should have learned to cut his losses instead of "sitting tight". How in the hell does anyone know in advance what sort of events can transpire that can completely wreck one's trading account? Yes, long term fundamentals will eventually win out but at what incredible cost to one's investment or trading account.

Also, Livermore never had to contend with trading against computer algorithms. Those mindless machines, which control most of the world's trading capital nowadays, could care less about the long term view. They are going to buy or sell depending on the current price signal, not on what any of us might think is going to happen 6 months out from now.

The good thing however is that the same technical price signals that trigger those nasty algorithms can be seen on the price charts and if we learn to properly interpret them, allow us to position ourselves to let the machines work in our favor.

In closing here, I want to emphasize the fact that I am talking as a trader and as someone dealing with paper markets. When it comes to PHYSICAL BUYERS OF METALS, if you do have a long term view of the consequences of nearly unlimited money printing by so many of the Western world power Central Banks, then you can also use the algorithm based selling of these paper markets to acquire the ACTUAL METAL during episodes of price weakness. Buy them when they are cheap; do not chase them when they are higher. Remember, this pertains only to the actual metal; not to positions being taken in the Comex futures market. If you choose to willy-nilly buy into the futures markets WITHOUT a technical price signal confirming that, just understand that you are an accident waiting to happen. Trade smartly and do not end up as road pizza on the floor of the pit.

Trader Dan Interviewed on King World News Markets and Metals Wrap

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


Wednesday, December 26, 2012

Alas, Christmas has now come and gone for another year. The hustle and bustle of the season begins to wind down, the wrappings, bows and pretty paper now being consigned to the trash bin. Soon the lights will be coming down and the trees discarded for mulch or put back into the basement or attics. The children will be out making merry with their new toys and games. These things seem as constant as the North star for those of us who celebrate this wondrous holiday.

Sadly, as constant as the above, so too it seems is the desire of political leaders to debauch or debase their own currencies. Witness the Japanese Yen as it continues to plummet following the path desired by the new political leadership. The point is not being lost on gold as it continues to hover near record highs when priced in terms of that currency.

Incidentally, unleaded gasoline is threatening a breach of overhead resistance at the top of its trading range near the $2.81 level. Distillate strength is keeping a very firm bid in the liquid energy markets despite the continued threat of a so-called 'fiscal cliff' breakdown.

Crude oil is flirting with a band of heavy resistance between 90.30 - 90.60. Above that, it can be expected to see strong selling pressure emerging if it approaches the $93 level.

Cold weather has given heating oil a boost and it too is up near the top of its trading range. These energy markets are worth keeping an eye on as any bona fide breakout will tend to give gold a boost to the upside as well.

Well, at least we got a brief respite from the high gasoline prices. We'll see how long this upside push might last in the liquid energies.

Sinking grains today are working to undercut strength in silver which had been following copper to the upside but began wilting as the soybean complex, along with wheat, lead the entire grain complex lower. Silver still likes to see soybeans moving higher as it tends to feed into an inflationary bias. When you get the grains moving higher, along with copper and the other base metals, it is almost impossible to prevent the grey metal from moving higher along with them.

Monday, December 24, 2012

Merry Christmas to my readers

“The people who walked in darkness have seen a great light; those who dwelt in a land of deep darkness, on them has light shone... For to us a child is born, to us a son is given; and the government shall be upon his shoulder, and his name shall be called Wonderful Counselor, Mighty God, Everlasting Father, Prince of Peace” (Isaiah 9: 2&6).

"But thou, Bethlehem Ephratah, though thou be little among the thousands of Judah, yet out of thee shall he come forth unto me that is to be ruler in Israel; whose goings forth have been from of old, from everlasting." (Micah 5:2)

"And so it was, that, while they were there, the days were accomplished that she should be delivered. And she brought forth her firstborn son, and wrapped him in swaddling clothes, and laid him in a manger; because there was no room for them in the inn. And there were in the same country shepherds abiding in the field, keeping watch over their flock by night. And, lo, the angel of the Lord came upon them, and the glory of the Lord shone round about them: and they were sore afraid. And the angel said unto them, Fear not: for, behold, I bring you good tidings of great joy, which shall be to all people. For unto you is born this day in the city of David a Saviour, which is Christ the Lord. And this shall be a sign unto you; Ye shall find the babe wrapped in swaddling clothes, lying in a manger. And suddenly there was with the angel a multitude of the heavenly host praising God, and saying, Glory to God in the highest, and on earth peace, good will toward men. And it came to pass, as the angels were gone away from them into heaven, the shepherds said one to another, Let us now go even unto Bethlehem, and see this thing which is come to pass, which the Lord hath made known unto us." (Luke 2: 6-15).

Gold Chart Updated

Gold is tracking sideways remaining above support at the recent bottom near $1636 but unable to get much going to the upside. The rest of this week will see reduced liquidity and thus the possibility of increased price swings. Unless we get a large sustained move in either direction, I would not read too much into the price action this week. Perhaps the only event that might provide some fundamentally-based direction would be news regarding the so-called 'fiscal cliff'.

Silver continues to look much weaker on the charts than does gold. Some of this is no doubt tied to the fears regarding the lack of an agreement of that cliff issue. The reason I say this is because copper is also getting knocked down and has fallen some 20 cents off its recent best levels near $3.72. Unless copper reverses to the upside, silver will have some trouble getting anything going.

Silver experienced only a brief or mild bump off its recent low and then gave a fair amount of that back today. This market will not attract any momentum-based buying whatsoever unless it can get back above 31 which will force some shorts out and issue some signals to the algorithms to begin some buying. If the recent low does not hold, I see no chart support until $2850 - $28.30.

Saturday, December 22, 2012

Euro Yen Update

This cross, after notching a recent high, moved lower the last two trading sessions of this week as nervousness over the US fiscal cliff issue brought about selling in the crosses at the expense of the Euro and some of the other "risk" currencies. That allowed a bit of a safe haven bid to come into the yen and pushed some shorts out of that market allowing this particular cross to move lower.

If the cliff issue begins to look as if there is not going to be any sort of agreement worked out before the end of the year, we could see some further safe haven flows into the Yen at the expense of this cross pushing it lower.

That being said, if traders become more and more convinced that next year, the global economy will improve, we will see a strong appetite for risk and I suspect this cross will move higher. If it does, my guess is that the Yen carry trade will be quite large and this should produce a rather healthy appetite for "risk" assets such as commodities in general.

The thing to keep in mind about this commodity trade will be that while there will be general fund flows into the entire sector, those commodities with STRONGLY BEARISH supply/demand scenarios will still move lower. The fund flows will slow the descent from an otherwise faster rate but the price will still move lower in those sectors which have an oversupply or lack of demand factor.

In other words, we will see the CCI ( Continuous Commodity Index ) move higher with specific commodities either outperforming it or underperforming it depending on their own specific set of fundamentals. Either way, I would expect silver to be one of the outperformers, especially if copper resumes its uptrend which was derailed this week.

Trader Dan on King World News Metals Wrap

Please click on the following link to listen in to my regular weekly radio interview with Eric King on the KWN Markets and Metals Wrap. We will be discussing the price action of both gold and silver this week and the technically significant levels on the price charts.


Thursday, December 20, 2012

Silver Chart and Notes

For you Silver guys out there, by request...

With all the recent selling occuring in the silver market, the chart informs us that metal still remains mired within a very broad trading range that has contained price for the better part of 15 months now.

The top of range is from $35 - $35.50 while the bottom of the range is between $27.0 - $26.50. Within that range silver had put in what appeared to be the beginning of an attempt to start a trend back in October with that strong upside reversal week but it then seemed to run out of steam as it approached $35 and now is sinking lower once again.

There is a bit of psychological round number support at $30 although that is not really all that much in the way of actual technical support. Very strong support lies down near $28 and extends all the way to $26.50. This region has proved to be rock solid in terms of buying support for that same 15 month period mentioned above.

I am of the opinion that for silver to take out this significant support level, an enormous shift  in sentiment would have to occur in regards to the overall global economy. In other words, in spite of the easy money policies being followed by the FEd, the ECB, the BOE, the BOJ and the stimulus measures of China, sentiment would have to shift in concluding that none of it is working and the global economy is heading for a sharp contraction in spite of the massive amount of liquidity being injected and the negative ( in real terms ) interest rate environment that now exists across many of the major industrialized nations.

I am also of the opinion that one would also need to see copper prices collapse sharply for silver to violate this downside support level. If that were to happen, that too would tell us the market now believes that all such stimulus measures by the Central Banks is fruitless and doomed to fail.

While no one can predict the future, especially with the entire global economy in a place that none of us have ever witnessed in our lifetime in regards to the sheer magnitude of the debt overhanging it, I suspect that these same Central Banks would waste no time in dusting off another version of the next round of QE were sentiment to deteriorate that badly. Let's face it - that is all they got!

For now it appears that the US economy and the economies around the globe are stabilizing. That does not mean that they are healthy; it merely means that central bank actions have stop the bleeding of the patient and got him stable. It is quite another thing for the patient to leap off of the table and start dancing. I do not expect that to occur at all especially without any serious structural changes being made in most of the Western industrialized nations.

Heading into the end of the year the thinning trading conditions are going to allow for some exaggerated moves due to liquidity issues. Keep that in mind if we see any sharp short covering rallies or even rallies caused by some new buying. I am looking out more to the start of the New Year to get a better sense of what to expect but as I wrote in an earlier piece this week, it would not surprise me one iota to see another YEN CARRY trade develop this coming year with commodities benefitting from another influx of hot money chasing yield in this pitifully, obscenely low interest rate environment.

Macro Trade Day

If you look at the following Continuous Commodity Index chart ( CCI ), you will see that it is sharply lower today. Even LUMBER, which has been on a tear higher is moving lower today. There are very few commodities that are not in the red today.

For whatever reason, hedge fund longs are dumping commodities across the board. I find that rather interesting to say the least, especially with another $1.02 TRILLION in QE coming our way next year. Some are blaming the sell off in gold and silver on the stronger-than-expeced GDP number this morning, but once you get through the headline number, you realize that the feds used a highly dubious inflation number for their "deflator". The chatter on this number was that it "was so much better than expected that it casts doubt about the longevity of the Fed's QE program". Try to stop laughing here.

Out of that 3.09% growth rate for the third quarter government expenditures were responsible for 0.75% of that number. In other words, nearly a quarter of the stated growth number is due to government spending.

Hidden deeper within the report is the fact that personal savings shrank during the quarter as did household per-capita disposable income. What this usually translates to is that consumer spending increases are not coming from rising incomes but rather from either a drawdown in their savings or from increased cash flow due to home mortgage refinancing. My guess ( and perhaps some enterprising reader can run the data to check ) is that consumers are ramping up those credit card balances once again.

Either way, the idea that the Fed is going to suddenly begin thinking seriously of drawing down its balance sheet sooner than expected based on this data is whimsical to say the least. Besides, my view of the QE programs is that it is designed FIRSTLY to keep US government borrowing costs lower and then SECONDLY to keep the big banks happy with very little daylight between item FIRST and item SECOND. If you think the US government's fiscal condition is now a mess, wait 'til you see what happens to it if interest rates start moving higher and the cost of servicing that mountain of debt comes back to bite them ( and us).

Now, if you want to hear another view as to why gold and silver are going down - hold onto yoru hat here: Traders fear that the breakdown in the "fiscal cliff" talks will result in the automatic spending cuts kicking in next year and reducing GOVERNMENT EXPENDITURES while tax rates rise thereby throwing the country into recession and reducing industrial demand for silver and putting pressure on gold in a deflationary environment.

Hmmm - back when I took logic in school I learned what I thought the real world actually believed - that two mutually incompatible things cannot both be true. "A" and "Not "A". But surprise, that is not how the financial world apparently operates. You see - economic growth is proceeding at a much faster rate that we were thinking giving us hope for a continued improvement in the US economy of such magnitude that the Fed is going to discontinue QE sooner than expected.  TRUE

The fiscal cliff talks are not proceeding well meaning we are going to get severe spending cuts meaning government expenditures will not be there to support the GDP numbers and economy meaning that the growth rate is going to slow and thus the economy will slow with it. ALSO TRUE.

Yep - there you have it. The economy is growing well; the economy is not going to grow well. If you can make any sense of this lunacy, please clue me in because I cannot wrap my pitiful brain around this no matter how hard I pretend to be a hamster on a wheel.

Let's move over to gold however. The bears had been greedily eyeing that 200 day moving average for downside sell stops. Strong physical market buying had stymied them however. Today, that buying dried up long enough to allow them to reach those stops and down she went. Volume is pretty heavy meaning a sizeable flush is occuring with a big transfer out of weak hands into strong hands taking place.

Some have questioned why Central Bank buying is not showing up. Rest assured; it is!

Here is a look at the chart around midday today. Note that 200 day moving average and how the market accelerated to the downside once that was taken out. By the way, there was a rash of put options that were bought earlier this week so someone made a lot of money in a very short period of time.

Gold has now reached the next level of chart support shown here. That comes in between 1640 - 1630, an area denoted by horizontal support drawn off early highs as well as the intersection of two different Fibonacci retracement levels. So far this region is holding the metal. If it fails for any reason, we will more than likely see gold down at $1600 - $1590 very quickly. For this market to have bottomed, we will need to see it move back above that same 200 day moving average and hold above that level. This moving average tends to attract buying or selling based on the algorithms of the funds so there will be a tendency for funds to try to sell against this level. If that selling is absorbed, one can feel very confident that the market has bottomed.  so far we are still looking to try to confirm a support level but the jury is still out on that as of now.

The HUI is providing ZERO help at this time. As you can see on its chart, there is not much in the way of chart support under this market. It might, MIGHT, be able to bounce off that former downsloping trendline that held it in check but if that fails to stem this collapse, then it is going back to 400 or even 390.

Wednesday, December 19, 2012

Rising Economic Powerhouse Brazil Hungry for Gold

Reports coming out of the IMF indicate that Brazil has DOUBLED its holdings of gold since the end of August of this year. It is now officially holding 2.18 million ounces compared to 1.08 million ounces at the end of August. IMF data reveals that Brazil purchased 472,000 ounces in November.

Also, the World Gold Council is reporting that it expects official sector gold demand (Central Banks) to reach 500 tons this year, eclipsing last year's reported 457 tons of the metal.

It is evident that these up and coming economic powerhouses such as Brazil are moving to begin diversifying their burgeoning reserves.

This is the reason why the physical gold market will continue to provide a strong floor of support beneath gold on price setbacks of the nature that we are currently undergoing.

Setbacks like this merely move the gold from weak hands to strong hands. Hedge funds are NOT STRONG HANDS - they are momentum chasers only, either up or down. Strong hands such as Central Banks are generally not prone to selling gold even on rallies in price as their movement to acquire the metal is part of a long term strategy that is not going to be dispensed with based on short term fluctuations in the price of the metal.

Keep in mind that very few people make money trading gold by buying it high and trying to sell it even higher. You have to be faster than the algorithms to consistently pull that off. Be smart and use weakness to acquire the physical metal if you are a long term oriented investor or for that matter, a trader watching for support levels to emerge and be confirmed. Do not chase gold higher. Let the nitwits who run the hedge funds do that for you and use their buying to sell into.

Tuesday, December 18, 2012

Euro Yen Cross - Redux

It has been several years since I last posted a chart of the Euro-Yen currency cross. Quite frankly, there has been no reason to monitor it in my opinion, not with the ongoing crisis that had engulfed the Euro Zone through most of this now fading year. However, with the strong move lower in the Yen of late, I have been examining this cross once again to see if it can provide us with any signals of upcoming events.

You will note its collapse back in 2008 - this was the year in which the big Japanese Yen Carry Trade was unwound as nearly every hedge fund on the planet was taking part in tthat particular trade. When it was time to unwind it during the panic, there was literally no one on the other side of all those trades involving the Carrry.

During that Carry trade season, as this currency cross moved higher, the price of commodities in general tended to track right along with it. Gold in particular was strongly influenced by this cross. As it moved higher, indicating the presence of a strong appetite for RISK, gold moved right along with it to the upside.

If, and this is a big IF, we begin to see this appetite return ( and remember, it first occured because hedge funds were looking for a way to obtain yield in a strongly low interest rate environment - Sounds familiar doesn't it?), then this cross should continue to move to the upside.

The chart shows a picture of a market that looks as if it is very close to ending the 4 year downtrend. If this cross can end this month of December above the 25% Fibonacci Retracement level shown on the chart, then I think we can begin to say with a great deal more confidence that the risk trades are going to return in a much larger way in 2013. I would be about 99% convinced of that if the cross does indeed move up past the 38.2% retracement level.

If this move is for real, and this cross continues higher, it should indicate that any deflation fears are behind the market and that the Central Banks have won their war against it ( at least for the time being). The cost of that victory however will be a repeat of what we saw leading up to the credit crisis of 2008 - namely, soaring commodity prices driven higher by huge speculative inflows from cash rich hedge funds chasing yield. Who among us can forget $150 crude oil back then?

Either way, gold will benefit strongly, and silver will as well, if this is becomes the trade of 2013.
Time will tell. As I like to say, The Central Banks had better be careful of what they wish for - they are liable to get it and more!

Safe Havens Jettisoned

Apparently we now live in world in which lawmakers squabbling over how to avert tripping over an anthill instead of plunging down into the abyss gives reason to buy stocks while selling nearly anything that appears to be a safe haven.

I find it ironic to say the least that the market analysts continue to be so fixated on the non-sensically named, 'fiscal cliff', when the country is on track to have a national debt of over $20TRILLION by the end of the next 4 years and how many more trillions in unfunded liabilities. Economic growth is so anemic that the Fed will be conjuring the sum of $1.02TRILLION into existence over the course of the next year in order to buy mortgage backed securities and US Treasury obligations with the sole purpose of keeping interest rates ultra low so as to encourage additional debt. Yet everything is okay now because Obama and Boehner are talking and moving closer.

Oh well, it is what it is and there is not much sense in even looking at things in bewilderment anymore. The new era of "PRINT YOUR WAY TO PROSPERITY" apparently is now fully entrenched in this generation.

Just look at the following chart of lumber - this market is forecasting a big recovery in the housing market. Ultra low interest rates are apparently predicted to have their intended effect.

Here is the point in this; one cannot be successful as a trader by arguing with the markets. As I have said many times on these pages and elsewhere - they are going to do what they want to do no matter what you or I or anyone else thinks.

The problem that many of us who are long term gold bulls have is precisely that - we are "LONG TERM" thinkers. In the meantime, our markets today have become completely short-sighted forums. Hedge fund algorithms respond to short term signals and then take over. Remember, there is little thinking involved at this point in the markets - they are governed by computer algorithms and those things will either buy or sell based on the short term signals that they get. Get on the wrong side of them and your trading career will be a short lived one. Instead, learn to either get out of the way if a support or resistance level is taken out or be prepared to weather the storm that will then follow.

Take a look at the bond market. Here is the long bond chart. Notice how this safe haven has been thrown out in favor of equities as money flows out of bonds and back in stocks based on the assumption that the fiscal cliff deal, combined with the Fed's easy money policy, and other decent news from abroad has traders currently expecting a recovering economy. Thus, no need for safe havens and back into equities for gains.

This is precisely what the Fed intended when it announced its plans - it wants the stock markets moving higher to boost consumer confidence so that the consumer will take on new debt. Also, businesses love a stock market moving higher as it inflates the price of their shares.

The breakdown in the bond market has sent the price moving down towards the bottom of a 5 month or so trading range. It is interesting to say the least to see this move lower in bonds, particularly with the announced $40billion/month purchasing program, QE4, being just recently announced. That program however is not targeting bonds of this duration however. Still, if longer term rates continue to rise it is going to work crosswise to the Fed's purpose of deliberately pushing rates lower to not only spur more consumer spending but also to keep the US government's borrowing costs obscenely low.

Take a look at the Japanese Yen - another favorite SAFE HAVEN which has obviously severely fallen out of favor. Most of this is due to the new political situation in Japan in which traders expect a strongly negative Yen policy to be FORCEFULLY advocated by the new governing powers. Still, that in itself does not completely explain the weakness in the Yen. Just like the bonds are being discarded in favor of equities, the Yen is being discarded in favor of currencies with a closer relation to risk assets.

As you can see, the Yen is probing into a region of strong chart support. If it cannot muster much of a bounce from this region, chances are that we have seen a major long term top in the value of Yen against the US Dollar. We might even see the start up of the YEN CARRY TRADE in a large way just like we did prior to its collapse in the summer of 2008. One does not see the Yen Carry trade come into being during a period in which market participants are concerned about DEFLATION.

That is why this currency has my attention. Right now it is signaling that there is a move towards risk assets underway. so far this move has consisted almost entirely of equities. But if history is any guide and we see the risk appetite get whetted, look for the commodity complex to follow as money flows will move into the sector in a much larger way to start off the new year. We will see any evidence of this in the charts.

So far we are seeing it in the Lumber market, Cotton market, and the Copper market. We are also seeing it in the Livestock markets. The grains have not experienced it due to the expectations of a very large corn and bean crop out of South America but if these hedge fund computers go beserk in January, at some point we will see some of that money make its way into the grains.

We will keep a close eye on the CCI ( Continuous Commodity Index ) as a forewarner of such an occurence. Today it is sinking lower but if this risk appetite is real, it will find support sooner rather than later. In this sort of environment, it will be tough to be short of anything that looks like a commodity.

We will just have to wait and see what the New Year brings us and then deal with it accordingly.

As for gold, well, what more can be said than it failed to attract the usual strong buyers that have formerly been coming in between $1690 - $1680. They stepped back and as a result, there was an enormous air pocket below the market without any bids of size. Down went the market with locals pushing it along further until they found the sell stops which they did in a big way.

Volume today has been absolutely enormous, especially during a time period in which liquidity begins drying up and volume normally shrinks. That environment allowed the bears to finally reach those downside stops that they have been salivating after. The question now becomes whether or not Asia comes in this evening and begins scooping up gold.

If we truly are seeing a shift towards inflation concerns ( bond market breakdown) gold will stabilize sooner rather than later. I am still watching the HUI for any hint of this but so far, at least in today's session, nothing doing.

Gold has attracted some buying here later in the afternoon and is bouncing off its 200 day moving average. That level seems to be a pretty good support region as it also happens to coincide with the 50% Fibonacci Retracement level from the October top near $1800 and the May low near $1530. Bulls will not want to see this level violated without a quick, intraday recovery occuring as it would mean the market will likely drop to $1640 before any serious buying would emerge.

Even with all this flight away from safe havens today, it does seem to me like this downside move in gold has been overdone a bit.

Saturday, December 15, 2012

Friday, December 14, 2012

HUI Weekly Chart still looks heavy

One month ago, the HUI managed a nice bounce off of an important chart level of support coming in near the 440 level. The following two weeks it then respected that support with the market finding buyers on any approach towards the region. Last week that all changed with those former buyers apparently on strike as they did not show up in sufficient size to offset the selling pressure on the sector. The result was a downside close below 440 last week. This week the market looked as if it was going to finally get something going to the upside on Wednesday but by the close of the week it appears that those buyers on the back of the QE4 news had wavering convictions.

So where are we for now? While the market did hold above the previous week's low it still did not manage to regain that former support level of 440 as it ended the week at 437. Next week therefore will be critical for the sector. If it cannot attract enough value based buying to take the index back above 440 to end the week, it is likely to drift lower to close out the year with the very real possibility that we might see a move to 420. That would basically move the index down to revisit the downsloping trendline, which the index did manage to breach this summer. Ideally, if it were to move this low, the index would then bounce from this line (near 420) and go on to recapture 440. That would be a pretty reliable sign that the selling is exhausted.

For this index to have any chance of actually improving the technical posture, it would need to push above 460 to end a week.

One has to hope, for the sake of the long suffering share bulls, that 420 can stem the bleeding if last week's low does give way.

Putting things in Perspective

The horrible news out of Connecticut this morning should help us all to put things in their proper perspective. It is not possible to find the words to describe the anquish, pain, despair, anger, grief and desolation that has now engulfed the families of all those impacted by the contemptible actions of a worthless maggot whose warped mind somehow convinced himself that the methodical slaughter of innocent human beings, especially little children, was nothing of consequence.

"...Whoever causes one of these little ones who believe in Me to stumble, it is better for him that a heavy millstone be hung around his neck, and that he be drowned in the depth of the sea. Woe to the world because of its stumbling blocks! For it is inevitable that stumbling blocks come; but woe to that man through whom the stumbling block comes". (Matt 18: 6-7).

Just the other day it was another senseless shooting in an Oregon mall. Not all that long ago we remember the terrible shooting at the movie theater in Aurora, Colorado.

These tragedies remind us of the brevity and uncertainty of life and of our own mortality. They are also a sad testimony to the decay in our culture and the decline of our nation. We are witnessing a breakdown in ethics, virtue, and morality, as well as the loss of the sense of righteousess versus sin, and the blurring of the lines between good and evil that has marked the fall of every great civilization throughout history.

Sadly, there is NOTHING politicians can do to deal with the moral rot that has now infected this land. Changing the human heart lies solely in the province of the Almighty. But as more and more He is banished to the outskirts of society, as His laws are treated with contempt if not indifference or even mockery, what can one expect? Human nature, left to itself is no different than a dead fish - it cannot swim upstream but always follows the path of least resistance and that path always tends towards corruption.

I fear for our nation's future in a way I have never feared for it before at any point in my life. What area of our society has not been coarsened? Whether it is in the financial realm where far too often these days it seems we witness fraud, decadence, vice, etc. or in the culture, in its music, which seems to become more degraded with the passing of each year, or in so many of its movies which empitomize the empty souls of an increasingly larger and larger share of our population. Everywhere one looks it seems as if the nation is spiraling downward.

"Righteousness exalts a nation but sin is a disgrace to any people" says the Scripture. Nothing further can be added to that except this:

"The law of the Lord is perfect, restoring the soul; the testimony of the Lord is sure, making wise the simple. The precepts of the Lord are right, rejoicing the heart; the commandment of the Lord is pure, enlightening the eyes. The fear of the Lord is clean, enduring forever; the judgments of the Lord are true; they are righteous altogether.; they are MORE DESIRABLE THAN GOLD, YEAH, THAN MUCH FINE GOLD; sweeter also than the honey and the drippings of the honeycomb. Moreover, by them Thy servant is warned, in keeping them there is great reward." (Psalm 19: 7-9).

Please keep these things in mind as we are reminded that it was at this season the Son of God came into this earth, to suffer and to die in the place of guilty sinners and to thereby offer His own spotless life as the REDEMPTION for all those who believe in Him. At times like this we are made mindful of the fact that we are all sinners and only but for the grace of God, there is no level to which we all might stoop were we left to ourselves.

Sadly, one wonders if that is not EXACTLY what the MOST HIGH is indeed doing to this nation. As He turns HIS BACK on us, in response to the nation turning its back on Him, I see no hope for any restoration of this once great nation's future.

Wednesday, December 12, 2012

Whoops - that Didn't Last Long!

Watching the late session price action in the Emini S&P 500 is quite disconcerting if you were expecting the market to greet the Fed's announcement of another $45 BILLION/Month in Bond purchases with a hearty round of wild-eyed buying.

It sure looked like that is exactly what it did when the news came out but from that point onward, it has been SELLING and not buying which is dominating. I am not sure whether this is a classic case of "BUY THE RUMOR; SELL THE FACT" since it was no secret that the Fed was going to announce a replacement program for the expired Operation Twist and since the number had already been in the market for the previous couple of weeks.

The bulls had better hope that is all that this is (BUY THE RUMOR; SELL THE FACT) because if it is not, and IF this is the market basically yawning in the face of what amounts to a relatively open-ended HALF A TRILLION in Dollar creation over the next year from this round of QE4, then we are perhaps witnessing something that should be sending tremors into the FOMC.

Keep in mind that each successive burst of QE has had less and less of an impact on the markets and particularly on the economy in general as those rounds have made their impact. One has to wonder if this is the case.

Again, it is too early to speak too dogmatically about any bearish reaction but the bulls had better get a strong close in the S&P in tomorrow's session and especially on Friday of this week or we are going to see a good sized round of profit taking by longs emerging, especially with the end of the year fast approaching and the window to realize any paper profits under this year's lower tax rates rapidly closing.

By the way, gold and silver are both undergoing some tremendous selling pressure in Asian trading as I write this. It seems to me there is a similar reaction in the metals to the reaction in the equities on the QE 4 announcement.

When the sum of another TRILLION DOLLARS (combined QE3 and QE4) over the next year (it will last at least that long) is announced and gold cannot take out its overhead resistance, that is all the excuse that some needed to head for the exits and take what profits they had from any longs put on ahead of the FOMC release or at the very least, cut short their paper losses on a trade gone sour.

I have to wonder also if some of the same suspects that had been beating gold down in the aftermarket hours early last week are surfacing once again to try a repeat of that same stunt. We will have to see whether or not that selling is met with improved physical market takeoff.

Gold up on FOMC news but fails to clear Resistance

Gold is thus far responding to news coming out of the FOMC meeting as could have been expected. It is moving higher as traders build in a more inflationary scenario due to the addition (not at all unexpected by now) of a $45 billion/month Treasury purchase program by the Fed to replace the expired Operation Twist.

Again, this is old news as most pundits were already anticipating exactly this amount for last few weeks now. My guess is that the FOMC was afraid of disappointing the markets with anything lower as the last thing they want heading into the end of the year is a disappearing equity market, which is exactly what they would have gotten had they done anything less than $40 billion.

With the $40 billion in MBS buying from QE3 and this $45 billion in what amounts to QE4, the Fed has now committed to $85 billion/month worth of dollar creation out of thin air for the foreseeable future. Annualized that comes out to $1.02 TRILLION in magic money. Any wonder why the Dollar is dropping today? The only marvel is that the thing has not disappeared into the abyss already. Were it not for the fact that the Japanese are planning on adulterating their Yen into the nether regions and that the Southern Euro Zone is a basket case, the Dollar would have already dropped through 76 on the charts on its way to the all time low.

Either way, what we are getting in the way of cheers for a further continuation of this monetary madness from our Central Bank reminds me of a scene from the old Sci-Fi "Logan's Run". In that mid-seventies movie, there is a scene in which all those whose time is up and whose palm red light is flashing (meaning that they are scheduled for ascension) cheer as their bodies float upwards into the termination zone where they explode and fizzle away into nothingness.

It sure seems to me like Wall Street is cheering while the collective red lights of the palms of the US citizenry are blinking. Make no mistake about it - it is the average citizen who is going to pay the price of this folly in banking madness as the hedge fund crowd will now have a green light to further plow money into "risk assets". That means higher prices lie ahead as the Dollar is further eroded by its keepers.

The only thing that really matters however to our monetary lords is that the equities market will continue to take the path of least resistance and that means higher. Don't forget the level of the US stock markets are now national security issues to our central planners meaning that they will not permit bear markets, ever, even if it means creating trillions in funny money and making it almost impossible for seniors and those living on fixed income investments to earn a decent rate of return on their life's savings. What the Fed believes it can do, and thus far one would have to agree that it has, is to permanently prevent BEAR MARKETS in equities. Mourn for what is left of "free market capitalism". It no longer exists having died in 2008 when the monetary madness sprang into being.

Yes, welcome to the investing generation, forced by the Fed to shove its money into the stock market even if there are some who do not want anything at all risky and seek only conservative investments. Finding such investment vehicles in such an environment is a challenge to all but those who have the good fortune to be able to qualify for products offered only to those whose wealth meets a certain criteria.  The rest of them are screwed. Love those high yields on one year CD's at the bank? Glad to hear it because that is all you are going to get for at least another full year and beyond!

The only thing keeping the commodity sector as a whole from powering sharply higher is the unpleasant fact that the economy is stagnant and going nowhere in a hurry. The moribond employment situation and small business fears over the future are preventing it from gaining any significant traction. All the while a rapacious central government continues to swallow up more and more capital in order to sustain itself. Just today the news was reported that the Federal Budget deficit for the month of November was an amazing $172.11 BILION. Try annualizing that and you come up with a number over $2 TRILLION. No worries though; everything is just fine as Ben and da boyz have spiked the punch bowl once again.

I have a big question for Bernanke and company - today they came out and stated that they have a target rate of 6.5% UNEMPLOYMENT that will give them a reason to change course on the interest rate front. Here is the question:
Does that mean if the size of the labor force continues to shrink, bringing the unemployment rate lower without necessarily translating to any true gains in the overall employment picture, that the Fed will raise interest rates if the unemployment number magically drops to 6.5%? What data are they going to use? Keep in mind that the labor force here in the US continues to shrink as more and more people simply have given up looking for a job. You get enough of this long enough and before long, the unemployment rate magically moves lower.

The other thing that Beranke and company stated was that they had a target inflation rate of being below 2.5% for "one to two years ahead" to maintain the current near zero interest rate policy. Which numbers are they going to use (we all know the answer to this already), the doctored and useless government's CPI or something more realistic with an actual connection to reality?

In my opinion everyone on that FOMC Committee should be unceremonially canned with the exception of Richmond Fed Governor Lacker who is in opposition to this idiocy of endless money creation. As I have stated many times before, if creating lasting prosperity was as easy as printing money into existence out of thin air, other nations, kingdoms or empires would have figured it out years before we did. History however has a way of clarifying such things and its verdict will be devastating to this band of elitists at the Fed.

Back to gold - the metal moved up on the news but could not clear resistance at the 50 day moving average near $1728. Until it does, rallies will be sold. If it can power through that level, some of the funds who had been shorting the market will cover. There will also be new money flows coming in from the momentum crowd that will let the market make a run at $1740. It will have to take that out before it can test $1760.

Downside support should be firm now in gold since the Fed is basically attempting to foster an inflationary environment and stave off the deflationary fallout from the excessive debt levels that still plague this economy.

As we enter further into the holiday period, look for liquidity at the Comex to begin shrinking as players square positions and take off for the holidays. We might get some pretty wild price swings as a result. Just be forewarned.

Next year promises to be interesting to say the least with over $1 TRILLION in freshly minted money looking for a home.

The mining shares are doing the same thing they did way back when the first round of QE was introduced in late 2008 - they are outperforming the metal to the upside. The HUI is currently up more than 3% as I type these comments having cleared not only resistance at 440, but also at 450. It has improved its poor chart by so doing but has yet to clear a big batch of overhead selling resistance that will come in near 461 - 464.  It will take a weekly push through that level to confirm a solid bottom. For now, it appears that the floor is in with the most likely outcome moving forward being a range trade unless we get some more nervous shorts seeking to cover in the mining sector.

One last chart I will leave you with - if you think the Fed is debauching our own Dollar by design, you are of course correct. As bad as that it, is apparently is nothing compared to what the Japanese are doing to their currency. Take a look at this chart of Gold priced in Yen terms. It is closing in on a lifetime high. Kiss Japan goodbye - its aging population and failure to honestly address its fiscal excesses have taken their inevitable toll on its currency. The standard of living for the poor citizenry there will continue to decline, as of course will that of the average US citizen here. I will caution the readers with a bit of history - in such environments DEMAGOGUES always arise and find a captive audience more than ready to accept their rantings.

Friday, December 7, 2012

Silver still Mirroring the CCI

Silver continues to mirror the CCI with traders unsure of what direction to take things next.

Mining Shares Eroding further Against Gold

When I normally lay out a chart detailing the ratio of the mining shares to the price of an ounce of gold, I use the HUI. I will still put up one of those further below but wanted to show you a ratio chart using the XAU to illustrate just how cheap these mining shares have become relative to gold itself.

The chart is simply staggering. I have gone back as far as my data will allow me with this and cannot find a reading so low.

I cannot overemphasize how critical it is that the CEO's of these mining companies listen to the message of the market and make the necessary changes to their organizations.

The two biggest things I can read in this message is to:

1.) Get a handle on expenses and cut them
2.) this follows on #1 - return those savings to the shareholders in the form of higher dividends.

Do this, and investors will react positively. Why? Where else can you buy so much gold at such a discounted price to the current market value? Relative to gold, some of these shares are as cheap as they have ever been, period.

Checking in with the HUI, some of the shares that comprise that index are as cheap, relative to gold itself, as they have been in ELEVEN years.

YenGold near all time Highs

TAke a look at the following chart of gold, priced in terms of the Japanese Yen, and then tell me that the Japanese monetary authorities and political leaders are not deliberately debauching their currency. "PRINT, PRINT, PRINT; BANSAI, BANSAI, BANSAI"! They are killing their own currency in terms of its purchasing power.

Thursday, December 6, 2012

Gold Pops above $1700; Silver above $33

Shorts decided to book profits today when the market appeared to have encountered some decent sized buying down near the session lows. Additionally, the upcoming payrolls report has traders uneasy and it seemed like the better part of wisdom for many was to take what money you might have had on the table and go home and watch the action from a safer vantage point.

Open interest declines are telling us that traders are heading to the exits, both longs and shorts as right now uncertainty seems to be the name of the game.

Tomorrow will provide us with a clue to market direction into next week as we close out the week.

Gold did run down towards the very strong support level noted on the chart at $1680 before running out of sellers. A push back through the $1700 that can remain above that point will be constructive from a technical perspective as it will reinforce the $1680 - $1685 region as good support on the chart.

I would not be the least bit surprised to learn in the future that foreign Central Bank buying of gold is occuring down near these levels.

John Brimelow's excellent Gold Jottings detailed very strong Indian buying of gold overnight. Once again it is the physical market which serves as to remind these paper pushers that there exists life outside of the Comex pits.

One continued fly in the ointment for gold is the pitiful price action of the HUI. At a bare minimum, it will need to close the week ABOVE the 440 level to give any hope of an intermediate term bottom. Seeing that it remains below the various Fibonacci levels shown on the chart, the bears are evidently in solid control of this sector for the time being. Something needs to change on this chart to spook some of them out and convince them to ring the cash register on their tidy profits.

The miners continue to lose ground against the price of gold itself. The ratio of the value of the index compared to the price of the metal is threatening to make a new ELEVEN year low. Keep in mind that this is the CLOSING price for the month so there is yet time to avoid this but the sector needs some help from somewhere.

ECB's Draghi Undercuts the Euro

Over the last few weeks, the Euro has benefitted from growing concerns over the fiscal health of the US. The current grossly misnamed "fiscal cliff" talks have allowed money flows to make their way back into the common currency at the expense of the US Dollar.

That has changed in today's session. ECB President Mario Draghi's comments at a press conference have been interpretted as quite dovish by the trading community. Even though the ECB kept interested rates unchanged, the talk in the market quickly moved in response to what many feel was Draghi's leaving the door open for rate cuts in the not-too-distant future. What this means is that the interest rate environment in the Eurozone will remain negative in real terms. This is the type of scenario in which gold thrives.

While Goldman's report from yesterday pronounced an end of the negative real interest rate environment in the US sometime late next year or early in 2014 (something which I strongly disagree with by the way as higher interest rates will crush this economy), Draghi's comments seem to have paved the way for the continuation of such over in the Euro Zone for teh foreseeable future.

The result can be seen in the EuroGold chart which has experienced a nice bounce even as the Euro itself has come under some strong selling pressure here in the US session.