"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, April 5, 2012

Weekly Gold Chart

Gold did not have a good week falling below chart support at the 50 week moving average for only the second time since the bottom made way back in late 2008/early 2009. As you can see, since then it had only violated this important chart level once and that was the very last week of trading in 2011. You might recall that funds were then dumping longs, booking profits before year end and moving out of commodities over fears of European sovereign debt meltdowns.

The start of the new year brought with it expectations of increased liquidity coming from Western Central Banks to deal with the fallout from that sovereign debt crisis and the deflationary impact it would necessarily have on global financial markets. As the new year unfolded, funds increased exposure to the commodity sector in general and to gold in particular, that is until Uncle Ben and his merry band of dollar creators decided to try talking down the commodity sector and herding these pesky funds into the equity markets instead.

Seeing the importance of this chart level now violated, it is imperative that bulls push the price back up through it before the end of next week's trade. Two consecutive weekly closes below this level would not augur well moving forward.

As long as gold holds above the red lines shown on the chart and labelled as chart support, it will be okay as it still remains in a very broad range defined by a top at $1800 and a bottom down near $1535 - $1530.

Central Bank buying has been quite strong down at that latter level and I would expect that to continue should price indeed move down towards that level.

As far as any upside momentum goes for the metal, it is going to have to firmly clear and hold the $1680 level before it can generate the least bit of excitement.

Swiss National Bank intervenes to undercut Franc Strength

While the Swiss Franc is lower today against the Dollar (as is the case with all of the European  majors), it has been gaining against the Euro as nervous investors in Europe weigh further escalation in the region's ongoing sovereign debt crisis.

Note the following ratio chart or the cross I have created to give you an idea of what has been happening with that particular cross. The Swiss Franc has been the beneficiary of investor preference going back to the beginning of the Fed's stimulus party in late 2008.

European sovereign debt fears then further contributed to increasing gains in the value of the Franc against the Euro as investors on the Continent began looking for a safe haven alternative to US Treasuries. Apparently that has led the Swiss National Bank to once again intervene into the foreign exchange markets. They are determined to prevent the Swissie from rising any further against the Euro.

This is an interesting development since it may serve to preclude any further investor flows from Europe into the Franc leaving them with one less safe haven to run into in the event that things begin spiraling downhill once again over there. With issues now arising related to Spain and Italy not out of the woods yet, this is the sort of thing that has the potential to give rise to a series of investment flows back into gold on the Continent.

If that is the case, EuroGold will begin to move higher and that will work to steady the US Dollar price of Gold.

The jury is still out on this but it does indeed bear watching.

Food Inflation back in the News

Reuters is carrying an article discussing the rising cost of food ( By the way, the US monetary authorities all tell us that is not true as their parrots have trained them to repeat the words. "there is no inflation; inflation is subdued") in an article that I have linked to.

Eric King and I have been discussing this on our recent KWN Weekly Metals Wrap interviews but it seems to have gone unnoticed by many in the financial press until now.

While the Continuous Commodity Index ( CCI ) has been moving lower again, this is more a function of the outflow of hedge fund money from the sector as they jam into the equity markets, the obedient lapdogs of the Fed that they are. The rest of them have been too busy getting whipsawed to death in the commodity markets.

With current stocks of both corn and soybeans tight, and energy costs remaining stubbornly high, it was just a matter of time before those at the final end of the pipeline had no choice but to pass on those costs to the consumer if they wished to remain in business.

Keep in mind that high gasoline and diesel prices impact the cost of food from a transportation viewpoint ( trucking them to market ) and from a planting point of view ( running tractors and other farm equipment requires fuel).

I am of the opinion that the rise in the broad US equity markets is more a case of paper asset inflation than anything connected to a true signal of strength in the underlying US economy. After all, that freshly printed money has to go somewhere and why not into stocks. In an ultra low interest rate environment, the Fed can easily herd their lapdogs into stocks to prop up that all-important "economic indicator".

As it becomes more clear to others that the need for continued accomodative monetary policy is the only option left for the Fed ( let them even hint at trying to remove it and watch what will happen to their beloved equity market rally), gold will get its legs back under it and stabilize prior to making another leg higher.

Food inflation seen back on the table as prices rise

Wed Apr 4, 2012 6:01pm EDT
* Strong correlation with high oil price* Corn, soybeans gain on physical markets in March -FAO data
* U.S. soybean futures jump in March on tight supply concerns
By Svetlana Kovalyova
MILAN, April 5 (Reuters) - World food prices are likely to rise for a third successive month in March, and could gain further beyond that, with expensive oil and chronically low stocks of some key grains putting food inflation firmly back on the economic agenda.


A Happy Ending News Story - Dogs RULE!

Those of you who are dog lovers as I am, will be absolutely edified by the following story detailing the heroics of Man's Best Friend. A cat would have probably run and hid under the sofa...

Pit Bull Shot In The Head Trying To Protect Owner, But Miraculously Survives

'Kilo' Didn't Take Too Kindly To Gunman Pushing Into Staten Island Home