"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


Tuesday, March 20, 2012

Commodity Mauling Time

Funds are hammering nearly every single individual commodity futures market lower in today's session for some reason, a reason as to which I am still attempting to discover. There does not seem to be a safe haven, or "risk off" trade occuring in any large degree mainly because the bond market is trading nearly unchanged while the US Dollar is only up very slightly. Stocks while lower today have moved off of their worst levels of the session but the bloodbath is continuing across the commodity sector.

Evidently the computer algorithms have their panties in a wad and are jettisoning a large portion of their hedge fund owners' commodity holdings. The only commodity that I can curently find that is not lower today is the cocoa market. Too bad - maybe we could at least have eaten some cheaper chocolate as a consolation for what they are doing to the gold and silver markets.

Take a look at the following chart of the Continuous Commodity Index or CCI. It has not been able to recover from the hit it took after the FOMC fired their now infamous verbal intervention gun at the sector not long ago.

As stated here previously, the Fed wanted to entice the hedge funds out of the sector and into the equity markets and were hugely successful in so doing. You might also remember the "economy is doing better and does not need any QE3 only a period of continued low interest rates until late 2014", remarks. That was pretty much the short-term nail in the coffin for the sector as a whole based on the price action since then. Rallies are being viewed only as selling opportunities with the proceeds then being funnelled into the equity markets where they can make some gains, especially in time for the end of the quarter statement mailing time.

Gold is still holding above support near $1640 but is looking heavy currently. Bulls need to keep this level intact to prevent a drop to $1620 or lower. Until they can push it back above $1680, the new shorts are going to remain quite complacent and very confident. Should there be an upside surprise that takes it through that level, a large number of buy stops will be set off.

The flip side is that sell stops are building below $1640 - $1635. Floor locals are going to try to make a run at those especially if the fund selling does not let up any.

Silver took out support at $32.50 today as it continues its recent pattern of a large sell off followed by a couple to three days of short covering and consolidation only to experience another round of strong selling pressure. Spec longs are fleeing the Comex Silver market. It is currently sitting just above a layer of important chart support from a technical perspective, which if it fails, will see the market drop quite rapidly down towards the $30.25 - $30.00 region.


  1. Commodities sold off because BHP reported that China's demand for iron ore was slowing.

  2. Sure it's not an upcoming announcement of QE III as the long bonds start to tank and are on the verge of failing key support levels? Wouldn't you want to try and take commodities down as far as you could ahead of this kind of announcement?

  3. GDX: @ Support

    Of course a close below the 200SMA Would be Bearish


    GLD Weekly: @ Support ?

    Sitting at Support from the rising 2008 Trend line ,Should this rising trendline fail and 618 % Watch for a Possible retest of lows ( Maybe even a Pierce to $145 ish



  4. Dan, I can't find the Bernanke statement in the transcript...was this said in response to a question?

    "economy is doing better and does not need any QE3 only a period of continued low interest rates until late 2014"

  5. Just an intuition. Q1 Earning season is coming and the market might just start to get back to reality. Equities can't go up forever in a deleveraging and supposedly “no more QE” environment. Commodities were nicely hammered down before a coming market pull back. I’m seeing high P/E ratio stocks getting severely beaten down since the last few days. A general pull back might very well happen in the next one or two months. Bernanke needs a justification to come up with a new round of QE. So since last October, equities were pumped up on steroids while commodities were relatively kept under control. Then comes a soft equity pull back on a sluggish corporate growth prospect. That pull back will for sure be used to beat down commodities even more. All this to help justify a new round of QE by the Fed in May of June (long enough before the election). If I was the Central Planner at the Fed, this is what I would do.

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  7. thanks Dan. I hate to say it but none of those charts look good for the longs.

  8. If anyone still cares about the miners anymore, there are a plethora of them that have held the lows of Monday even though the metals futures did not.

    GG (2 gap down then high close on 2 of last 3 days)
    RBY ("quintiple bottom" 3.20-3.25) and some huge bids were filled all the way from 3.25-3.20
    EXK (gap down then close nicely postiive)
    ABX (not as good as GG)
    AUY (one of the only ones holding 200EMA)
    among others.

    Also positive is the backwardation now in gold and silver. I don't think I've ever seen backwardation in the gold futures in my 6 years of trading the metals.

    Negatives -
    Many miners still look awful, though more extended than I've ever seen (MUX THM AG SLW NEM)

    The equity markets had a decent pullback today, and I can see the miners' rubberbands being stretched even more if the equity market gets pummeled.

    Thu Mar 22, 09:12:00 PM GMT

  9. It's just the usual weak hand shakedown period. Once they've robbed traders blind, things will turn bullish again for a sustained run up. It's just trying to hold out for the bottom at this point.

    Both gold and silver are "heavy" as you say, but they've sustained multiple downside raids. Silver will *NOT* break 30. You can book that. Go look at the demand for world silver coinage when physical rates start drifting down that low. I'm trying to score some 2012 Pandas, but they are few and far between (so far). Eagles - are still $34. The Canadian Moose coin and Australia coins have high demand. So there you have it - the physical crowd will ALWAYS step up and put a floor on the paper charade.

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