"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, May 29, 2013

Trading Theme Du Jour

Here's the current mindset in the gold market as of this morning... the stock market looks as if it is experiencing either a bout of profit taking by longs or has temporarily run out of willing buyers near its new lifetime high - that begets a safe haven bid and a bit of the risk aversion trade comes back on.

That can primarily be seen in the bid going into the Japanese Yen, which is becoming extremely volatile due to this risk on, risk off, alternating from day to day. You can also see it in the long bond which rallied over a full 1 1/2 points off its low of the session. This trade then brings back a bid into the gold market.
 especially as the US Dollar weakens.

Today, we have the European majors and the Yen moving up against the US Dollar as the equity markets weaken. The inverse link between the greenback and gold then comes into play and gold pops higher. Gold then functions as a safe haven.

Whether this is sufficient to take gold through the $1400 level and maintain a "14"handle on it is unclear at this time. It all depends on what happens to the equity market. If this is just another dip in price that will be bought by the large specs, then gold will run into further selling as it moves towards overhead chart resistance. Why? Because they will look to jettison their gold holdings to put that money to work in the equity markets. If it is something more serious in regards to the stock market, then gold will be able to clear round number resistance at $1400 and should be able to maintain its gains.

This is what will be required to spook any of the hedge fund shorts out of their positions and touch off some buying by that side of the ledger. Remember, gold needs a catalyst of some sort.

I should also note here that there is general weakness in the grains and in the energy sector today. That combined with weakness in the copper markets is keeping pressure on the Goldman Sachs Commodity Index and furthering the notion that inflation, at least when it comes to the cost of basic commodities, is currently a non-issue.

Take a look at the chart of Unleaded Gasoline. Notice that it is some $0.45/gal cheaper than it was a mere two months ago. You put that together with a stock market nearly daily making one all time high after another, and is it any wonder that consumer confidence readings are moving up?


  1. Even though unleaded gas is going lower in the commodity market, isn't nice to see it about 30 cents higher at the pump over the Memorial Day weekend?
    Don't you just love it?


  2. Bernanke has expertly and deftly managed to be able to steer key commodity markets.

    First, by actual action (i.e. increasing margin requirements)

    Then, by "Jawboning", by talking about QE withdrawal and the like.

    Today, he's perfected it by merely "threatening" to even say something like "Taper", let alone actually do anything.

    I think it is clear to say that the Bernanke Fed has been the first central bank in history to be able to "whip inflation" by simple verbal threats.

    No need for Friday Night Massacres or Volcker-Style bond market runs.

    Bernanke is able to keep rates low and just flap his gums if necessary.

    Did anybody else imagine that controlling inflation could be so easy while printing $1 trillion per year? LOL....

  3. Mark, appearances of 'controlled inflation' are deceiving.
    Alterations in package sizes are in the eye of the beholder.
    Government downsizing or expansion proves similar principles of corporate revenue are in operation.
    The cost of living is inversely correlated to the standard of same.
    The cost, inefficiency and burden of mandatory insurance coverage, taxes and regulations of a selective nature experience booms when official subsidies, incentives, exemptions and bailouts prevail.


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