"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, January 12, 2012

Gold, Silver and Copper responding to low interest rate environment

All three of the above commodities are responding to news today that inflation in China is supposedly slowing somewhat (one always has to read these numbers with a healthy dose of skepticism as the Chinese are becoming almost as adept as US official-sector statisticians). Also adding to the mix is news that the ECB will keep interest rates low and would not rule out additional rate cuts if necessary in their view.

This is music to the ears of gold as it thrives in environments when there is plenty of room for more liquidity. The thinking in regards to China is that they have room to back away from any rate hikes and actually ease credit restrictions which had been put in place over the last year as the authorities there grappled with inflation problems.

Copper liked the news very much as traders there are viewing the news as positive for future demand if credit stays easy.

Note that in this environment silver is outperforming gold. That will continue as long as traders adopt a psychology focusing on future inflation as a result of easy credit instead of the opinion that deflation is the evil genie to be focused upon.

We are basically back to the risk trade today as most commodities are higher (crude oil continues its Yo-Yo-like trade as it is now higher) as the US Dollar sinks back down while the Euro rallies a full point. Grains are dragging on the commodity indices however as a USDA report has sent corn limit down this morning with spillover being seen in the Soybean market. Wheat bulls were also kicked in the groin by the same report showing larger-than-expected supplies of wheat. That news is good for consumers but disappointing for many farmers who are probably looking at corn with a handle of "5" in front of it unless some sort of crop scare down in Argentina surfaces.

Gold has pushed through $1650 and run as high as $1663 but has fallen back from its best levels. The bulls are performing but need to keep it above $1650 to see it run to $1675- $1680.

If Silver, and this is a big "IF", can hold ABOVE $30, it has a very good shot at seeing $32 relatively quickly. It has been unable to hold gains above $30 for some time now so such an event would signal a shift towards the metal by large speculators and hedge funds. We will see how it fares the remainder of the session.