"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, August 9, 2012

Euro Gold Hinting at Upside Breakout

US centered investors/traders more often than not develop a US Dollar-centric view of the price of commodities, gold included. As such we oftentimes can miss how a large portion of the global investment community can be viewing the price action of an individual asset.

It is no secret that the current epicenter for global economic troubles is Europe. Sovereign debt woes and squabbles among the various members of the EU have led to a sort of impasse which is sapping confidence from investors in that corner of the world.

The result has been a significant amount of gold buying as a safe haven among Europeans.

This is quite noticeable when one compares the current chart of gold priced in Euros to a gold chart priced in US Dollar terms.

Frankly, Euro gold has a much stronger chart than US Dollar priced gold currently has. As a matter of fact, you can see from the following chart, that Euro Gold is a mere 50 euros or so just off its all time high! Compare that to US Dollar priced gold which is currently trading closer to $300 off its best all time level.

Unless we get a significant downside move in EuroGold, US Dollar gold bears are going to have their work cut out for them getting much more in the way of additional downside price action.

Unleaded Gasoline Flirting with the $3.00 Level

One of the casualties of all this chatter about another round of funny money from the Monetary Masters of the Universe is the price of Unleaded Gasoline. Throw in a dose of tensions in the Mid-East on top of this, and you get a market that is clearly going to cause headaches for the Central Planners if they stupidly unleash another round of Quantitative Easing at the end of this month or early in September.

Consumers will soon be reeling from the effects of rising grain prices related to the worst drought in decades to have struck the critical corn and soybean growing regions of the US. The impact of this surge in grains is going to be most deeply felt later this winter and into early spring of next year as the poultry, pork and beef industry will have no choice but to pass this surge in feed costs along to the consumer. However, it will not take that long for the impact to felt as cereal, bread, pasta, etc, all start rising within the near future.

Consider this, the central bankers have not yet given the decided go-ahead for another round of bond buying and already we are watching the price of commodities moving ahead, right at the exact time that the US economy is on life-support, with its job creating engine having blown a gasket.

These meddling Central Bankers may feel it is their divinely-inspired purpose in life to create an environment of ever-rising stock markets, but in the process of so-doing, they have sown the seeds for the ruination of the middle class and have heaped another lead weight on those already struggling to barely get by.

Food and energy are the two essentials for modern life. They are about to get more expensive if Wall Street pressures the Fed and the ECB into another round of bond buying.

Take a look at the CCI Chart below. Notice that it has been in a downtrend since early last year. This time however it looks as if it is trying to change that. It is currently bumping up against an overhead resistance level near 565. Unlike the rally in July-Aug of 2011 and that of Jan-Feb of this year, which rallies prompty and abruptly fizzled out as prices then resumed a sharp fall, this latest rally is showing signs of "sticking" and moving sideways in more of a consolidation type pattern rather than a bear market bounce.

If this index takes out the key 38.2% Fibonacci retracement level coming in near 575, look for gold to break out above its resistance levels on the chart as well. Why? It will indicate that trader psychology has moved past any deflation scares and is now shifting toward the inflation front. Such an event would have to be accompanied by a breakdown in the longer dated Treasuries and bond markets.

Note what has been happening to the yield on the Ten Year Treasury Note over the past two weeks, but particularly this current week. It has managed to clear a resistance hurdle at the 1.7% level. We need to keep a close eye on this. If we are going to get a full asset shift away from bonds and a solid rotation into equities and tangibles, yields will continue to rise steadily higher as money exits from this sector. My guess is that the Fed is also keenly watching this particular chart. The LAST THING That they want is higher longer dated interest rates.