"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


Wednesday, November 28, 2012

"Whack-A-Mole" Job on Gold takes it Down

Reading the wire feed commentary from early in today's session was another exercise in the cluelessness and lemming-like parroting that proceeds forth from the US financial media these days.

It was that nasty, infamous "FAT FINGER" once again that was initially blamed for the smashing avalanche of sell orders that crushed the gold price lower early in today's session.

Never mind the fact that the market did not immediately pop right back, which would have indeed been the case were there an actual trading error involved. The other annoying fact is that "fingers", fat or skinny or otherwise, have very little if anything to do with today's trading volume. We are talking about gigantic hedge funds and other large commercial interests, most of whom use some sort of automated computer trading platform which places orders for them. The only thing a "finger" is needed for is to beckon the servant to bring another glass of Chabliss to the hedge fund office crowd.

I am reading today's hit as just another bear raid on the gold market like so many other that we have seen over and over again throughout the last decade+ of the bull market in this metal.

The bears were caught flat footed last Friday when gold shot up through $1740 and then $1750 on light volume on a day in which a large portion of the usual trading contingent were still recuperating from their Thanksgiving Day dinner and were nowhere to be found on the trading floor or near their computers, which were probably not even turned on.

The surge, which was suspect to begin with, managed to get the bulls all revved up and had headlines about gold breaking out starting to proliferate. That of course was an enormous, "NO NO" to the bullion banks so in came the extra artillery and ammunition and the upstart bulls were summarily taken to the woodshed with a message being sent that no matter how much, how long, how often and many gazillions in Treasury notes, bonds and bills, along with agency debt or MBS's that uncle Ben and this merry band of alchemists decide to stuff into the Fed's balance sheet, gold will not be permitted to soar unchallenged to new heights. After all, we cannot have any votes of NO CONFIDENCE in this paper conjurers and their insanely destructive monetary policy.

More to follow later....

Those of you who follow the markets closely will no doubt have noticed that the HUI closed on its high of the session and basically moved straight up from the opening bell.

It looks to me that what happened was two-fold - first - an avalanche, and I do mean 'avalanche' of sell orders hit the gold pit in the first minute of pit trading. Volume estimates were more than 13,000 in one minutes time. That is simply enormous. That smashed the price down below $1730 which was where the sell stops were located. That selling then took prices town the gully towards $1700 where the bears were hoping to break it. They could not however as the market spent the rest of the session holding above that critical support level. Bargain buyers moved in.

Secondly - it looked as if there was a pretty sizeable spread unwind in the hedge fund ratio trade where they buy the metals and beat the snot out of selective gold shares. The unwind involves selling the metal and then buying back the shares. As I mentioned in last evening's post - the HUI-gold ratio had fallen to a  potential monthly close going all the way back to January 2002. At some point anyone who is playing that extremely profitable spread trade has got to lift it if they hope to capture any of those paper profits and actually realize them. Seeing that we have three trading days (now only 2) left in the month, some of the hedge funds want to book those profits to look good on those monthly statements that are going out.

Gold should garner good support above the 100 day moving average near 1694, a level which has not been violated since mid-August this year. If for some reason it fails to hold above that 100 day moving average, more fund selling will occur. Bulls will try to keep it from even reaching that level however as there appears to be a decent support level that has formed near $1704-$1705.

On the topside, the 50 day moving average is at today's high near $1740. Gold will need to climb back above that level to attract the momentum based buying crowd.

Keep an eye on the HUI - if the slap happy mood continues in the broader equity market, which by the way rallied on news of near permanent Federal Reserve buying of Treasuries and other assorted candies and nuts, not to mention more propaganda about some sort of deal to avert falling off the fiscal cliff, then the mining shares will probably correct some of this drastic undervaluation against bullion.

As a trader I have to go with what the market price action is telling me but as a student of world history and economics, I have to also shake my head in bewilderment that anyone with a thinking brain can believe the current crop of losers in Washington DC are going to do anything to actually get the US's fiscal house in order.

"Revenue increases" aka (tax hikes) will generate enough revenue to run the government for about 10 days if I did my math correctly. Meanwhile, just like they promised back during the Reagan era and the Bush I era, Democrats will mumble about cutting expenses but those pathological liars will spend and spend and spend until they guarantee the nation's bankruptcy and financial ruin.

Both parties are not one bit interested in reducing spending and putting the nation on a path towards fiscal sanity. The only difference between them is that the Democrats will ruin the nation faster than the other group.

By the end of the next four years, we will be more than $21 TRILLION in DEBT. chew on that one for a while and weep for your children and grandchildren who will, or already are, enslaved to the debt that this current crop of shortsighted political fools have saddled them with.