"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


Saturday, August 31, 2013

Trader Dan Interviewed at King World News Metals Wrap

Please click on the following link to listen in to my regular weekly audio interview with Eric King over at the KWN Weekly Markets and Metals Wrap.


Friday, August 30, 2013

Gold Uptrend Pausing

Recent action in gold during the latter part of this week is suggesting a pause in the fledgling uptrend. The metal seems to have run into a heavy band of resistance near the $1440 level and is setting back.

Gains during the early part of this week, tied to concerns over the situation in Syria, have been fading as the refusal of the British Parliament to go along with the Obama administration's plan to lob cruise missiles into Syria took some of the safe haven bid away from gold. Traders/investors have read this to mean that an imminent strike was less likely.

Truth be told, the President has foolishly put himself into a box and has destroyed US credibility and prestige by his inept comments about a "red line" and his bellicose comments since then. This has introduced an element of uncertainty into both gold and crude oil prices which has recent buyers of both heading for the exits and booking some short term profits rather than risking losing them.

That has resulted in some short term sell signals in the metal with both indicators shown on the chart below suggesting a waning of upside momentum. Again, this does not mean that the longer term move higher in gold is finished; it does mean that unless the bulls are able to quickly reassert themselves and take control of the market by pushing price through this very stubborn band of overhead resistance, price will more than likely drift lower to see at what level dip buyers are interested in coming in. Losing psychological support at $1400 today and that "14" handle was not helpful to their cause.

Right now, without a strong catalyst from the situation in Syria, many are hesitant to chase the metal higher and are uncomfortable getting too aggressively long at current levels, especially with some reports circulating that physical offtake has slowed down a bit due to price sensitivity. Seasonal factors do still favor the bullish cause but it may take some further move lower in the metal to bring the physical market buyers back in larger numbers.

Keep in mind something I wrote earlier this week - gains in the price of gold due to geopolitical concerns do not tend to last long unless there is a worsening of the overall scenario. When news or rumors first surface about such things, the price of gold tends to quickly reflect the worse case scenario that traders envision based on that current set of information. Unless that changes for the worse, any lessening of concerns generally results in a very rapid retracement of price gains tied to the original story.

How much of gold's recent gains are tied to the Syria situation are not quite exact but it appears to me that the break out above $1360 can be attributed to it. This means we could see gold retreat back towards that level unless we do indeed see missiles flying very soon.

A concern that I do have about the gains made this week are also from a technical standpoint due to my reading of the Commitment of Traders report. We had a very sizeable amount of short covering in the "Managed Money" or Hedge Fund category, much more so than we did new buying from that same category. I cover this in detail in the Metals Wrap interview with Eric King over at King World News so be sure to listen in to that.

A quick point about this however - we need more than short covering to sustain this uptrend. Gains tied to short covering are very quick and very powerful at times. However, once that panic buying has finished, unless there is SUSTAINED NEW BUYING TO TAKE ITS PLACE, the market will run out of the thrust it needs to maintain those gains.

What this means is that Western investment demand for gold must not falter. That will be evident IF and ONLY IF overhead resistance above $1440 - $1450 is vanquished.

Wednesday, August 28, 2013

Gold backs off from chart resistance

The region near $1434 - $1440 is proving to be a bridge too far for the gold bulls for the time being. You can see that this level held the market in check twice previously, once in late May and again in early June.

Bulls ran it up into this resistance zone this week but thus far have been met by solid selling. As stated in yesterday's comments, the market is overbought and is thus susceptible to a bout of profit taking.

There is psychological support first at $1400, then at $1380 and much better chart support down near $1355.

Markets which are reacting to news events can be very treacherous often making wild swings in price so traders be careful. Do not get too aggressive in here unless you have very deep pockets and are not overly leveraged. Better to make a smaller sum of money on a winning trade,  or lose a smaller sum of money on a trade gone bad, then to bet the farm and end up being a tenant worker!

There is a time to be brave and a time to be cautious.

Mining Shares Run into Chart Resistance

The mining shares, as evidenced by the HUI, have been very strong over the last three weeks making a nice run from near the 220 level all the way to 280. It is at this latter level that they have hit a wall for the time being. It was this same level back in late May/early June of this year which stymied their upward progress and sent them back to a test of the 245 level, a test which they subsequently failed before making a final low just below 210.

For now this level has been reinforced on the price chart. Translation - bears are digging in up at the recently made highs in the stocks that compose this particular index.

Based on some swing pattern analysis, the HUI has the potential to make a move lower into the 245 region ( the rectangular red box labeled support) where, if the uptrend is going to continue, they should uncover some decent buying.

If that were to fail, the index could sink back into the former gap region which extends down to 235. I would not expect that to fail should it happen for if it did, it would foreshadow a move back to 220.

For the bulls to ignite a sharper advance, 280 needs to be cleared and HELD.

The gold market is going to be very similar to the crude oil market for the near term in the sense of volatility tied to the situation in Syria. While I believe that gold has priced in a missile strike, I am unclear as to the extent or duration of such a strike. If it is indeed the pin prick which many feel it will be, it will accomplish nothing and will soon be forgotten. If it were to escalate into something deeper, then I feel that gold and crude will react more strongly.

The President's foolish blustering about "red lines" and ultimatums have boxed him into a  corner in which he appears buffoonish and inept if he does nothing but which runs a serious risk of further undermining the already sinking credibility of the US if the response is seen as a mere effort for him to save political face.

This is not our battle as there is no good outcome to intervening in this internal fight in a nation that has not threatened us or our allies directly. Either way, we will have to stay on our toes as traders as no one can be quite sure how all of this is going to play out or of the market reaction.

Tuesday, August 27, 2013

Syria News Sends Gold and Safe Haven Treasuries Higher

There are two news stories serving as catalysts for the move higher in gold in today session.

The first of these is talk that the US is planning on lobbing some cruise missiles into Syria in response to unsubstantiated reports that the Assad regime has used chemical weapons against civilians. The has the attention of not only the safe haven markets, (the Yen is also getting another one of those goofy safe haven bids) but also the crude oil market, which is soaring moving above $109 at one point in the session.

The second news item is that the US is up against that pesky debt ceiling once again. It never ceases to amaze me how damned inept these politicians are and how they cannot live within their means.

Either way, that has the focus of the markets back on the US fiscal house disorder which is helping to put a bit of pressure on the Dollar in spite of the fact that global investors want to own the thing whenever a crisis or shock event appears on the radar screen.

I mean the entire thing is weird. Here we are talking about a nation that is running over $17 TRILLION in its national debt ( and remember we are not even talking about unfunded liabilities here) and there are those who are dense enough that they want to own more US Debt as a SAFE HAVEN. I honestly cannot stretch my mind around the two sets of words ever being coupled together in the same sentence; it is a fact however that the global investment community has been conditioned as well as Pavlov's dogs to buy the blasted things every time they get nervous.

Gold has run into some pretty good selling at the highs made back in late May/early June after putting in some sizeable gains since Thursday of last week.  Working against further gains in today's session is the weakness in the mining shares ( HUI ) as those are following the broader stock market lower due to Syria fears.

Remember, gold buyers never like to see the shares going lower with the metal moving higher as it makes them nervous and more likely to snatch profits rather than dig in and buy more at the highs. Additionally, gains in gold due to geopolitical events tend to not hold as a general rule unless the events indicate a worsening of the situation. It looks to me like the market has priced in a missile strike; whether that escalates into something further is unclear.

I personally think it is ill-advised for the US to be meddling over there in Syria as I see no strategic interest of ours being threatened. Assad is a dictator of that there is no doubt but whose business is it of the US what he does or does not do in his own country? As long as he is not threating us or any ally or ours, why should we be lobbing million dollar plus missiles into that nation? To do exactly what anyway? If he were to go, who exactly replaces him?

Also where is the US Congress on this? Apparently Congress has ceded its war making authority to the executive branch. That seems to be a pattern nowadays.

No doubt some of my political views on this will offend some but that is a perk that comes with writing at ones own blog!

Back to gold however - the market has run into a band of resistance just shy of $1440. You can see how price has met up with selling at this level since late May of this year. Bulls have taken it firmly above the 100 day moving average however and three major moving averages ( 10, 20 and 50 day) are all moving higher with price trading ABOVE those levels. Also, the ADX line continues to rise and is at 23.45 indicating the presence of an incipient uptrend.

The lower indicator is nearing overbought levels however so some caution is warranted if you are long. That does not mean price is ready to collapse; it merely means that one might wish to protect some profits while they wait for another entry point if we get a correction lower in price. Any correction should encounter dip buyers just above psychological support at $1400 and again at the confluence of the 10 day moving average and the 100 day moving average in the vicinity of $1375 - $1370. The trend is up and that is the key right now. If it changes, we will try to pick that up using the indicators.

Syria is a wild card however and no one can predict exactly how events are going to unfold over there so traders with a short term horizon need to be vigilant. If that band of overhead resistance  gives way gold will catch some upside wind due to the plethora of buy stops sitting just above there that should carry it on towards $1480 where I would expect some formidable selling to appear.

The miners need to find some sponsorship.....

by the way, Silver knocked RIGHT ON THE DOOR of its April high today before setting back a bit. That is near $24.80. Frankly, I do not see much in the way of resistance to a move higher if it clears that until one gets near $26. This market is extremely overbought and can spin on a dime so caution is also warranted. Bulls, do not get too complacent but stay alert for any shift. A 25% gain in the price of the metal since late June is nothing to sneeze at.

Saturday, August 24, 2013

Friday, August 23, 2013

Weak Housing Number Propels Gold Higher

Here is all one needs to know to explain why gold did what it did today:

The new home sales number showed the steepest drop in three years! Any questions?

What that translated to is very simple - Death to the Tapering! Long Live the QE Kings!

If that rotten July number was not bad enough, the insult to injury was the downward revision to the June number.

My view on this is simple - I have been posting charts of the Ten Year Treasury Note yield for some time now and have been remarking that it keeps pushing higher and higher and is closing in on that 3% mark. There is no way that rising interest rates in an environment in which salaries/wages are stagnant and job creation consists mainly of part time jobs is NOT GOING TO IMPACT HOUSING SALES.

I feel like I have been beating a dead horse but I repeat - the FED cannot be pleased with what has been going on in the Treasury markets because this entire phony "recovery" is predicated on one thing and one thing alone - CHEAP MONEY. Take that away and there is nothing else to support it.

The other side note to this is that these rising rates are going to significantly impact the US Federal Governments borrowing costs.  When the national debt is over $17 trillion-gazillion-bazillion-whatever, and rising, even small rises in interest rates will have a significant impact to the nation's bottom line.

Bottom line - rising interest rates are a pox on the nation and on the economy and the Fed knows it.

Take a look at the Homebuilders' ETF. It is on course to close below its 50 week moving average even though it is valiantly trying to remain above it. The shorter dated moving averages have already turned lower indicating that the short term trend is down. I am monitoring this to see if we get any bearish downside crossovers of that 50 week. Either way, this sector is not particularly friendly on the charts.

It was easy to see that for today, the bonds were the beneficiary of buying related to no end to the QE bond buying program. When that housing number hit the market, they never looked back erasing all of this week's earlier losses and then some. The yield on the Ten Year backed down towards 2.81% after peaking near 2.92% this week. A collective sigh of relief along with a great deal of backslapping and hi- Fives was heard at the offices of the Fed.

Gold is right on the door of the psychological $1400 level in the aftermarket today. The December contract has missed that number by a mere $.10 as I type these comments.

Silver pushed up through $24 and looks very strong heading into next week as well. It looks to have very little in the way of impediments until it nears $24.70. If it clears that, silver could get quite exciting, very quickly. It will be interesting to see if it can hold above $24 as it goes out here on Friday afternoon. There are sellers around at that level as well as the $1400 level in gold.

The US Dollar was undercut by the weak housing number as it lost any gains it had against most of the majors with the exception of the Yen (barely) and the Pound (barely). The forex markets are ultra sensitive to any news whatsoever right now that they regard as potentially impacting Federal Reserve policy. Thus, we will continue to see more volatility and unpredictable price swings upon the release of each bit of economic data. I for one have sworn off trading the currencies until I see something more definitive as far as a trend goes. I am not a masochist and will leave them to others who are more tolerant of ulcers and other stomach wrenching maladies.

The HUI still needs to clear 280 on a weekly closing basis to kick the mining shares into a stronger uptrend. Price action has been very constructive but there remains work to be done on that price chart to dispel any doubts.

Today was one of those days in which it was hard to find any commodity that moved lower. Cattle did but they have been so bullish of late that I can understand them not participating in the buying orgy today. Soybean traders have effectively managed to kill the crop once again, as they do every single year without exception. First it was too cold and too wet; then it was too hot, then it was too cool and the crop was lagging and needed heat to mature. Now that it has turned hot, it is too hot and too dry so it is time to kill all the beans once again.  If you think gold and silver are nuts, try beans. They are worse especially when the mindless machines are buying.

Sharply rising soybean prices which are oftentime viewed as a proxy for food prices by some, tend to feed into silver buying on the thoughts of an inflation play. Remember, silver will outperform gold to the upside when inflation fears are dominant.

Personally I think the funds are driving soybean prices to ridiculous levels as all they are managing to do is to destroy foreign export demand for our beans at current levels. Old habits die hard in the commodity markets however and the combination of two words, "hot" and "dry" is all that is needed to spark a wave of short covering and more buying.  We are not going to run out of beans anytime soon with those massive S American crops and even if this year's crop does get smaller from previous projections, there are more than ample supplies of soybeans that are going to be around. Wait until the combines start rolling...

Maybe silver can take out chart resistance before that happens. We'll see. I will be talking about this on the KWN Weekly Metals Wrap so tune in to listen to my comments. I will get some price charts up later this afternoon as my schedule permits.

By the way, J P Morgan continues to stand for delivery in gold. They have taken the lion's share of all deliveries this month.

Wednesday, August 21, 2013

FOMC - More uncertainty

The way I am reading today's release of the FOMC statement is more of the same - some on the FOMC are ready for tapering; some are not. Translation - we are back to watching the economic data releases and attempting to ferret out what is in the mind of these monetary masters from which the markets are begging their crumbs.

I still think that when it comes down to brass tacks, the key data is going to be the payrolls numbers. As far as the Fed is concerned, inflation is non-existent and thus there is no need, as of now, for them to cut back on the bond buying. What will tip the FOMC in favor of tapering sooner rather than later is strength in the jobs market and there is not a lot of that which I can see.

Part of the reason is this damnable Obama-care. It is a job killer and everyone in Washington, including the administration, which rammed it down our throats, knows it. That is the reason they gave the exemption or delay to corporate America in implementing this disaster.

Until this albatross is taken off the necks of the US job creation machine, I do not see any SHARP increases in hiring. Instead, I think we will see more of the same - mediocre increases in hiring which a large percentage of that in the form of part time jobs.

The bond market however seems very concerned that those who favor the early tapering are going to win out and thus we are watching interest rates on the long end of the curve continuing to rise. The yield on the Ten Year just missed 2.9% today!  Methinks that those in the FOMC who are watching these long term rates rising are getting more than a bit concerned about that.

Gold is trading in the same confused manner as some of the other markets with it bouncing higher, dropping lower, bouncing back up again and then moving lower. It is readily apparent to me that there is simply not much in the way of very strong conviction when it comes to gold right now. The bulls have brought prices a long way from off the lows under $1200 but the bears seem fairly resolute in selling shy of $1400. We need to see that handle change from "13" to "14" to spark another strong wave of hedge fund short covering and bring in some more hot money.

That being said, thus far the metal is holding above the major moving averages with the 50 day down close to $1298 and rising. There looks to be a pretty good zone of support between $1344 and $1324 on the chart with resistance just above $1380 and then again just shy of $1400.

Silver is being buffeted by the same winds that are blowing through the rest of our markets but has been able to maintain its footing above $22 with buyers emerging down near $22.50, a former resistance level now turned chart support.

The mining shares as evidenced by the HUI were spanked fairly hard today closing down 4.60%, which is fairly dramatic. The chart shows hefty resistance at 280 with good support near 255 and again near 237 or so. The 50 day moving average is moving higher with the market trading above that level so the bulls currently have the advantage.

It is a damned shame that our once proud system of financial markets, the envy of the civilized world, has been reduced to a quivering blob of Jello, sitting at the feet of the FOMC like some sort of lap dog begging for scraps of food from its master. I for one wonder how historians are going to record this period and whether or not they will chronicle this as just one more step down the path towards mediocrity and decline in our nation. Personally, as someone who loves the markets and the study of fundamentals upon which solid investment decisions were once made, it disgusts me to witness this unseemly beggary and sycophantic attitude.

Since when did the well being of our markets become so utterly dependent on the vicissitudes of 12 men and women sitting on a committee? This is not the capitalism that made our nation the marvel of the world.

Saturday, August 17, 2013

US Dollar - no clear trend

The US Dollar, as measured by the US Dollar Index or USDX, started the year off on the strong note and looked to have regained its status as "King Dollar" until the beginning of last month when it put in an outside reversal week lower on its weekly chart. Interestingly, it put in the same exact pattern a year ago in the same month. (By the way, for those are not technical analysis geeks like I unfortunately am - an outside reversal week pattern is one in which a market which has been trending higher makes a NEW HIGH for the week only to then CLOSE LOWER than the previous week's LOW. It is generally regarded as a fairly reliable BEARISH signal).

It is difficult to point to an exact reason for this change in sentiment towards the Dollar right now given the fact that the US economy is in better shape than Europe and Japan ( that is not saying much) and appears to have entered a season of rising interest rates accompanied thus far by a soaring stock market. For the first half of the year that was all that investors needed to see and into anything US Dollar related they ran. Something has changed that - or at least it so seems.

It might well be that the US fiscal house disorder is coming back to the forefront of investors'/traders' minds once again as the federal government is up against its borrowing limit and once again the usual circus in Washington on the Potomac is back in town. Whatever the cause, the Dollar has now moved lower in 4 out of the last 6 weeks and in the two weeks that it did manage to close higher, the high of that week did not exceed the previous week's high price. That is not exactly a show of confidence as it is certainly not bullish.

While it is still higher on the year (barely) the chart is picking up some signs of waning upside momentum. The high price made this year in July exceeded the high of the previous July 2012 and that outside reversal pattern but the indicator did not score a fresh high; instead it registered a lower high resulting in a BEARISH DIVERGENCE. This in and of itself is NOT A SURE Sell signal unless it is confirmed by subsequent price action, which of course the market did. Even at that, the Dollar has not broken down technically on the price chart .

I would have to see  a weekly close BELOW the band of "MAJOR" support noted on the chart to turn bearish the Dollar. Right now I am ambivalent towards it, being neither bullish or bearish except for the shortest of term trades.

Trader Dan Interviewed at King World News Markets and Metals Wrap

Please click on the following link to listen in to my regular weekly audio interview with Eric King over at the KWN Markets and Metals Wrap.


Friday, August 16, 2013

Dow Jones/ Gold ratio - by request

I like to track this ratio to see if I can glean what investor sentiment is towards the precious metals in relation to stocks. As can be expected, with the horrific sell off in the precious metals sector this year, coupled with the surge in US equity markets into all time highs, the ratio has been rising since the beginning of this - until the beginning of last month (July) when it began to move in favor of gold once again.

It could very well be that some large investors are seeing US stocks as overvalued and in the latter stages of a bull run compared to a beaten down sector which is undervalued and needs further long side exposure. For whatever reason, over the last 6 weeks or so, gold has outperformed the Dow Jones.

Additionally, the indicator below the price graph has now crossed below what is a signal or trigger line for the first time this year. That would entail that gold is coming back into favor when compared to expensive stocks.

while I do not like becoming too dogmatic when using these ratio charts, they are still very informative as to SENTIMENT.

By the way, I have noted the very clear, textbook perfect example of what is called "Bearish Divergence" on this chart. While the ratio was going on to make new highs the indicator measuring momentum was making a series of lower highs. In other words, the upside momentum was waning. Translation - there appears to be a very slow yet growing shift in sentiment in favor of gold and away from equities.

This does not mean that the stock market has topped out and the bull run is over - what I think it means is that gold is slowly coming back into favor among some larger investors.

Stay tuned!

Long term interest rates continue their ascent

There is no doubt in my mind that we have seen the lows in yields for Treasuries perhaps for the rest of my lifetime. The long bond has topped out on its price chart indicating an end to the THREE DECADE LONG bull market in bonds. While that does not mean we cannot get some intervals during which interest rates move lower again, I do not expect to see the long bond to ever again exceed the top shown on this chart. If it were, it would signify a PROLONGED DEPRESSION the likes of which would be difficult to envision.

The weekly chart is also showing a rising ADX line indicating the start of a trending move, in this case to the downside. I find this rather interesting because I believe that the Fed does not want rising long term interest rates. For whatever reason, the chart is showing that the bond market is expecting the exact opposite.

Already today the Ten Year hit a TWO YEAR HIGH yield of 2.864% at one point before settling the day at 2.829%. Think about this - it was just 14 basis points shy of hitting 3% today! I wonder how that is going to play with the real estate/housing markets?

There is obviously rotation going on with money moving out of bonds but whether or not the majority of that is going into equities is a bit unclear to me. It sure seems like some of it is heading back into the base metals/precious metals and certainly the mining shares right now. One thing is clear - it sure ain't going into the home building stocks!

Also, check out the home builders ETF, XHB, and look at the break in the uptrend. It sure seems to me like the Street is noticing this rise in interest rates and is treating the homebuilders accordingly with an expected negative impact to the industry. If the Street sees it, my guess is that the Fed is also seeing this and is not happy!

Demand Side News

The World Gold Council this week released some very interesting data which I want to relay here although you can get it firsthand by clicking on the link below to take you directly to their site.


I want to first start with a chart of the largest gold ETF, GLD. I consider this ETF to be a very good proxy for overall WESTERN gold investment demand.

Notice how the gold holdings in the ETF have been consistently dropping for this entire year thus far. GLD Began the year with 1350 tons of gold reported in their holdings. As of yesterday, August 15, reported holdings are 913 tons. Doing the math we learn that a total of 437 tons have gold have been offloaded from this ETF by predominantly large WESTERN investors, aka, hedge funds. So we have it established that investment demand for gold in the West has been pitiful. That we know and have stated repeatedly as the gold price chart has continued to deteriorate for most of this year.

However, what stands out to me in the WGC data is this: (By the way, I could not help but notice that they misspelled the word ' jewelry)!

Globally, jewellery demand was up 37% in Q2 2013 to 576 tonnes (t) from 421t in the same quarter last year, reaching its highest level since Q3 2008. In China, demand was up 54% compared to a year ago; while in India demand increased by 51%. There were also significant increases in demand for gold jewellery in other parts of the world: the Middle East region was up by 33%, and in Turkey demand grew by 38%.
Bar and coin investment grew by 78% globally compared to the same quarter last year, topping 500t in a quarter for the first time.  In China, demand for gold bars and coins surged 157% compared with the same quarter last year, while in India it jumped 116% to a record 122t. Taking jewellery demand and bar and coin investment together, global consumer demand totalled 1,083t in the quarter, 53% higher than a year ago.

Look at that last sentence again.... total global consumer demand for gold totaled 1,083 tons in the second quarter. The report also states that demand for bars and coins was 508 tons - that is more than enough to completely absorb the 437 tons of gold dishoarded by hedge funds!

What the hedge funds have been throwing away, the Chinese and the Indians have been buying as well as smaller buyers of bars and coins.

This fits with the Commitment of Traders reports which have been detailing the continued long liquidation by the category of traders known as Managed Money or Hedge funds, not to mention the rapid escalation of new short positions in gold.

It has been this solid, sustained demand for PHYSICAL GOLD that has put the price floor under this market and prevented the bears from cracking the market lower. However, in and of itself, that buying was insufficient to drive the price SHARPLY HIGHER. To do that, MOMENTUM BUYERS must make their entrance into the metals markets. That now appears to be occurring; not in a large way as of now, but nonetheless it is happening.

As mentioned yesterday hedge funds are beginning to take a look at the precious metals once again and getting some exposure on the long side. They are grossly under-invested in this category (and that includes the mining shares) and thus we are seeing somewhat of a rebalancing of their portfolios to favor a larger exposure. This bodes well for the metals as we head into the historically strongest season for gold prices.

Oh and by the way, It is certainly helping matters to learn that Paulson has cut this holdings in gold in a significant way. A move by such a large player of his nature goes a long way in assuaging fears that more "capitulation" type selling in gold is coming. Maybe we can look back at some point in the near future and point to his selling as the final bottom. I find that incredibly ironic. It also goes to show how the STREET shows no mercy and has no friends whatsoever but is a violent, cruel and brutal entity. The smaller barracudas seem to relish harassing the larger sharks when opportunity presents itself.

Thursday, August 15, 2013

Gold Breaks Free From its Range Trade

The metal has been knocking on the door at the top of the range trade/consolidation for some time now but has been unable to break through. Today it did so in a very big way.

Note the change in the indicator which I have posted previously on the metal. Positive Directional Movement, or + DI, has now bullishly crossed above the Negative Directional Movement line for the first time since NOVEMBER of last year!

Also, both of the shorter dated moving averages have completed upside bullish crossovers of the 50 day moving average.

Lastly, the move off the low is not yet at 20% so we can not officially state that gold has entered bull market territory as silver has done, but the chart is significantly improved and looks quite strong at the moment. A change of handles from "13" to "14" would be very significant as it would signal that WESTERN INVESTMENT INTEREST in gold has returned.

Thus far it has been very strong Asian demand for the metal that has kept it supported. That has provided the solid floor of support that we have been seeing of late. What is necessary to drive it higher however is that investment demand which is not as price sensitive as the physical markets over in Asia are.

One more thing - the seasonal tendency is now firmly on the side of the bulls as the bears have run out of time. Generally speaking the latter part of August into October is strong for gold prices as the festival season buying commences. Combine that with a renewed investor interest in the metal ( based on what I am seeing in the ETF) and the bears are going to have to look around to find some recruits for their side in a real hurry.

Great Googly Moogly!

WOW!  What a day in the precious metals complex! The entire sector was firing on all cylinders in today's session with the HUI breaking out above the recent swing high and generating solid buy signals across a wide number of the individual shares. If that was not enough, silver, which is the KING of the precious metals complex of late, smashed through $22, then $22.50 and then $23 before it set back. Meanwhile, the yellow metal took out a serious band of overhead resistance on its price chart as well.

Early in the session, gold was lower as the unemployment number brought on the talk of tapering once again. However, around mid morning here, it reversed course with many citing the rapidly deteriorating situation occurring over in Egypt as the catalyst. I agree with that assessment as events in the Middle East seem to be going from bad to worse. Brent Crude has certainly taken notice!

It also seems as if the unrest in that region has been an excuse for some to take some profits out of the equity markets as well. Incidentally, the US Dollar, instead of seeing a safe haven flow on a day like this, especially with the rising yield on the Ten Year which is now near 2.78%, ended up being the whipping boy today against a host of majors. The Swiss Franc definitely saw some safe haven buying.

I keep wondering if forex traders are beginning to grow concerned over the upcoming US budget battle and burgeoning debt levels once again.

When you get a day like this, with so many huge moves taking place ( even in the grains - more on that later), it is a sign that money managers are reallocating some investment funds and moving into and out of various sectors. With all the short positions we have seen in the gold market in particular, there is not a lot of exposure to the precious metals by this group compared to what we have seen at some points in the past. The technical showing has them not only covering shorts, but some are moving onto the long side of the market. THAT is exactly what this market has been missing for a very long time now. I will say it again and again - it is not the bullion banks that bother me all that much  (they have been buying of late anyway and yes I do believe that they work to cap rallies) - it is what the large speculators are doing or not doing as has been the case for the metals of late and what they have not been doing is buying. It now seems that they are.

It is perhaps ironic that the big move higher in the metals has come just after news was released that famous hedge fund manager Paulson had cut this holdings in the ETF significantly. OUCH!

I want to mention here just in passing that this sharp move higher in gold has not changed the futures market structure as far as that backwardation/contango situation goes. The spreads remain tight with the August bid at the same level as the December and the October exactly 10 cents above the December. A friendly structure but not a full bore backwardation either. December remains at a 90 cent discount to the February 2014 contract and about a $3.00 discount to the June 2014.

Let's start with the star of the complex of late, and that is silver. One look at the chart says it all. Silver can now be officially labeled as having rallied over 20% off its recent low. For definition purposes, that is considered a bull market. It does not mean it is going to the moon; it does mean that the bear market is over barring any subsequent sharp price collapse in the metal. You will also notice that on the Directional Movement Indicator the ADX is now beginning to turn higher. It was rising strongly since early February indicating the presence of a sustained DOWNTREND. The line then turned down for good in late JUne/early July indicating that the downtrend was halted. That was followed by a period of sideways trade or consolidation. Now the ADX line is rising indicating that silver is in the incipient stages of a trending move, this time however, to the upside. As you can also see that is confirmed by the fact that the +DI (blue line) has now crossed solidly above the -DI ( red line) which is moving lower.

Downside support in this market remains near $20.50 which is also not far from the 50 day moving average of $20.25 and is also beginning to rise, albeit slightly.

More later - markets beckoning...

Wednesday, August 14, 2013

Gold Shares - Big Technical Juncture

A quick update on the mining shares - The strong performance on Wednesday has set them up for a real shot at beginning a trending move to the upside. They are right at the top of the range that has been containing them for a while now. Just like Silver was knocking on the door of the $20.50 level prior to its nice move above $22, the shares are at a technical juncture. If the bulls can hold firm tomorrow (Thursday) they have a real chance at flushing a fair number of short sellers out of this sector.

Tuesday, August 13, 2013

Gold sets back from $1340 once again

Gold retreated from that stubborn band of chart resistance up near the $1340 level having failed to maintain its footing up there yesterday and today. There exists some very strong selling at that level, which adds to the significance of that zone. If and when it is broken, it will signify a strong shift in sentiment towards the metal. We will continue to closely monitor it.

Working against gold were several items today. The first is the strength in the US Dollar, especially against the Yen which is down over 1.5% against the greenback as I write this. Also lower are the Euro, Pound and Franc with the commodity currencies also lower. King Dollar is back, at least for today.

The second is the sharp selloff in the US Treasury market which is pushing yields up once again. Today the yield on the Ten Year which is at 2.715% and is knocking on the door of that recent spike to a TWO YEAR HIGH. Recently, a rising interest rate environment in the US has tended to quell gold buying.

Thirdly is the mining shares failing to extend past the top of the recent trading range and drifting lower.

Fourth was news out of India that they are back to slapping additional import taxes on gold and silver in an effort to get their widening current account deficit under control. Gold traders in particular viewed that with alarm fearing a drop in gold demand. However, and I think this is important, China is on its way to replacing India as the largest demand source for physical gold. Just yesterday we got the news from the China Gold Association that Q2 demand hit a record of 385.5 metric tons. That is double from the previous year! It also continues to explain where a great deal of the gold being dishoarded over in the West is ending up.

In a sense, it was a trifecta plus ONE against gold in today's session but all in all the metal is holding fairly well. I personally think that the Chinese news is really positive for the metal especially when you hear reports of gold mines being shuttered and low grade ore deposits being drained. At some point the supply/demand equilibrium becomes unbalanced and price needs to rise to adjust it.

Please realize that this is longer term oriented but it is something that those who have an investment horizon of that nature should keep in mind.

For the shorter=term oriented traders - gold is knocking on the door at the very top of the range but still has not forced it open. IF (note the emphasis) the market can stick around here closer to the top of the range and stay above $1300, the onus is going to be on the bears to cap it off because the seasonal tendency for the metal to rise heading into the 4th quarter is going to make life tougher for them.

One has to wonder if the fact that the yield on that 10 year is going to get the Fed governors back out to the microphones for a little "verbal intervention" soon. The last time we had mortgage rates kicking up recently, some realtors were already making noise about the rise hurting the sales of higher-end homes due to the inability of buyers to qualify for loans now that interest rates had gone up. not only that, but it is the BORROWING COSTS of the Federal Government that keeps the Fed awake at night.

Over in the grains corn was whalloped lower today after staging a big short covering rally yesterday on immense volume. USDA came up with some goofy number that I certainly do not believe for the final yield but it was enough to send a large contingent of shorts heading to the hills. Today, after some time to digest the number I think the market began pooh-poohing it and back in came the selling. Hey, gasoline is expensive at the pump but maybe I can afford to buy a box of Corn Flakes at the grocery store soon without having to leave a pint of my blood as a surety.

Silver remains impressive as does copper, both of which got a lift today on the news that Germany's economy is doing better than was expected. News that the Eurozone's largest economy has perked up is good for copper usage and silver usage as well. Remember, silver has been moving quite a bit in sync with the base metals recently having launched higher last week on the Chinese trade data. As long as the base metals are firm, silver bears are going to have to look for something else as an excuse to aggressively sell it.

I still need to see silver trading through $22.00, preferably through $22.50 or so to feel like it has a solid shot at beginning a more exciting trending move.

Monday, August 12, 2013

Mining Shares Leading the Metals - Silver Strong

Silver is pulling gold higher today in a continuation of what the grey metal was doing late last week. It appears that the market is still keying in on the stronger-than-expected Chinese trade data from last week.

I should also note that the Goldman Sachs Commodity Index or GSCI has been higher the last two trading sessions with some short covering in the soybean market helping pull the grain complex a bit higher as traders attempt to balance today's USDA crop numbers with previous market expectations. It never hurts silver to see the broader commodity complex ( as a whole ) moving higher.

However, in the precious metals sector, what has my attention is the fact that the mining shares continue to lead the bullion higher. This is important as far as I am concerned because whether or not we like it or agree with it, the shares have been pretty accurate over the last two years in leading the metals lower. Now, if they are indeed reversing course and putting in some long term bottoms, then they should once more take the lead in the precious metals sector but this time to the upside.

Take a look at the following chart of the HUI. I am always fascinated by the price action of various markets that I track/trade but this HUI chart, especially that GAP REGION is incredibly interesting to me. So much of the price action over the last two months has revolved around this gap on the charts. It acted as a ceiling for the better part of a month beginning in late June until it was broken in the second half of July. Then it was giving a hint of something greater for the bulls but the miners promptly surrendered their gains leaving the index to plunge back through it to start this month.

Back up the index went into the gap last week on the Chinese news but it was unable to hold its gains into the bell Friday so that it closed within the gap. Today, it GAPPED ABOVE THE GAP - same exact thing it did back late last month.

Now the question is, will the bulls be able to finally drive the bears out of the shares cementing a solid, long-lasting bottom and the beginning of a sustained uptrend or will it run to the TOP of THE RANGE near the 260 level and sell off again signaling that the RANGE TRADE is alive and well? Who knows for certain but one has to be impressed thus far with the price action in that the last setback in price the first week of August uncovered willing buyers above the recent panic selling low down under 210. That tells us that buyers were more eager to get in than they previously had been...

Gold Futures' Spread Continue to Tighten

I wanted to provide a quick update for those who are following the "backwardation" talk out there.

I am currently showing the August, October and December gold futures contract all at the same exact bid. Also, the December has a mere $0.80 discount to the February. The futures market has still not entered a backwardation state but it is just about there. I will continue to monitor this and report on it should it occur.

Also, thus far I have not seen anything that would signal any problems with the delivery process for the August gold contract but one thing that does stand out is that J P Morgan continues to be the consistent, large stopper of gold for their "House" account. Morgan is acquiring a lot of gold.

It is going to be interesting to see whether they retender it before the month ends or at some point during another delivery month process but either way, they are acquiring it right now.

I am still watching that $1340 level in the December gold contract. So far it is proving to be formidable resistance. Strength in the gold shares is helping keep a very firm bid in gold but it is silver that is really proving a great degree of lift to the yellow metal.

That push through $20.50 is squeezing the shorts and it now looks as if the metal has a decent shot at testing $22.00.

Downside support for silver is first at $20.50 followed by $20.

Incidentally, gold is moving higher in spite of the fact that the US Dollar is stronger today.

Saturday, August 10, 2013

Friday, August 9, 2013

Trader Dan on NPR - talking Zilmax and Tyson

Please click on the following link to listen in to my comments on the Tyson decision to refuse cattle fed with Zilmax. The announcement rocked the cattle markets this week.

Peggy Lowe was kind enough to interview me to get my thoughts on the matter.


Thursday, August 8, 2013

HUI rebounds off of chart support

A very strong day in the mining universe today with some nice upside moves among the various miners. For once, instead of acting as a drag on gold, the shares helped lift it higher.

That being said, nothing much has yet changed from a technical chart perspective. The bulls have made a valiant effort here and have prevented the bears from kicking off another leg lower in price but all they have managed to do, thus far, is to secure that downside support level and keep price contained within a well-defined range.

For a trending move of any magnitude to develop, one side or the other needs to violate the range and take control of price. It is difficult for me to see the mining shares undergoing another leg lower in price unless gold were to violate that spike low back at $1180. Thus the bulls have held the range but they cannot yet prove that they are in control of the market. That they will not do unless or until they take the index conclusively through 260, preferably on a weekly closing basis.

I think that there are two things going on in the gold mining world that could be engendering this buying. First, is the fact that the vicious beating the shares have undertaken have finally got the attention of management. For way too long these guys have not run a tight ship but have let costs get out of control and done little if anything to mitigate that. The result of poor cost control in combination with a sinking gold price had investors shirking the entire sector with the result that some of the better managed companies were taken down in a sort of "throw the baby out with the bath water" mentality.

Now, that the sector looks to be getting serious about controlling costs and getting lean and mean, value-based investors are taking a second look at them.

Second - and I think this is important - I have been mentioning of late that any serious miner would, by necessity, be forced to re-examine its view towards hedging or locking in prices for some forward production. TO NOT DO SO, in an environment which is so confusing for so many investors, with so many cross currents, with so many conflicting data points, and with so much uncertainty regarding Federal Reserve actions or lack thereof, is fraught with danger. Only the most foolhardy would turn their company's profits into a slot machine and bet the wad on the farm.

Look, you can be bullish gold for the longer term and still be realistic enough to understand that there is no guarantee that the price is going to rise sharply in the near term. If you can dig the metal out of the ground at a profit, it only makes sense to lock in a reasonable profit and leave the risk to someone else, namely a speculator. After all, that is what a properly designed hedge is supposed to do, eliminate or at the very least, mitigate price risk for your finished product.

That some miners are doing both; cutting costs, getting leaner and meaner, and eliminating the uncertainty of  effervescent profits by instituting some reasonable and sound hedges, has some investors feeling more comfortable about holding them for the long term. This is good for the industry.

China, China and more China

Is Gold the Bull in the China Closet? I ask that silly question merely because it sounded catchy. Seriously, the big news today was the ENORMOUS SUPRISE coming out of the Chinese Export/Import Data. It caught everyone by complete surprise especially with all the recent talk about the Chinese authorities mandating production cutbacks to deal with what they regard as an oversupply and excessive product output. When was that - a week ago? - then it had everyone in a panic and totally pulled the rug out from beneath the base/industrial metals. Today, it is the exact opposite. Now the base/industrial metals are flying higher, along with gold. Tomorrow - who the hell knows what to expect out of that nation?

Either way, for today, the news of the gigantic surge in imports sent silver and copper higher with gold getting pulled alongside them both. Also helping gold was the rise in jobless claims fanning talk that the TAPERING is back off. Yesterday it was back on thanks to Plosser. Today it is dead.

"Long live the Tapering!".  "Death to the Tapering!" "Long live the Tapering!". " Death to the Tapering!". and on and on and on and on and on it goes.

As if we did not have enough confusion already in these markets with the contradictory statements coming out of the various Fed governors and the bizarre, often polar opposite pieces of economic data coming out of the US, now we have to deal with a BI-POLAR China. So which is it sirs - are you ordering your mandatory production cutbacks or not?

My suspicions on that big import number from China is that the Chinese are stockpiling and picking up materials at these lower costs. The Chinese are masters are acquiring replacements for their national stockpiles when prices are cheap. That does not mean they intend to use them anytime soon. It merely means that they have the storage capability to hold these in reserve and release them in the event of any shortage as they can then alleviate rising prices. My own view therefore is that the import numbers are due to strategic acquisitions and not for immediate consumption. We'll see if this is another one of those ONE DAY wonders or something more lasting.

Chatter in the gold pit was that the Chinese data means more gold buying from China which by the way is on course to supplant India as the world's largest buyer of gold. Again, we'll see if we get the kind of sustained physical offtake out of Asia to counter the continued investment-related selling of gold over here in the West.

Bulls have managed to stave off a deeper price setback by taking price back above the important $1280 chart level of support and thus returning the metal to within its recent trading range. Helping their cause has been the rally in the HUI/miners which are also exhibiting schizophrenic type behavior of late. Sharp plunges down 6% on day, followed by a rise a couple of days later of over 5%. Trading these things is something best left to those who are masochists and self-flagellators.

Note on the gold chart that the market has merely rallied back up into the recent zone that has contained the range trade for some time now. It is a nice recovery off the support zone after briefly plunging through that level so the bulls have bought themselves some time but they still need to clear that downtrending 50 day moving average AND take the price out above the TOP of the range if they are going to spook any of the deeper-pocketed shorts.

The ADX still is moving lower indicating the lack of any clear direction.

It is the Dollar however that is setting the tone for gold as it is getting beaten up against the majors today in a big way. There is a band of support near the 80.50 level on the USDX chart that looks like a magnet right now. Apparently, the world, having fallen in love with the Dollar due to the rising interest rate environment and its one way stock market, is having thoughts of a trial separation due to incompatible differences.

Big news in the cattle market today as Tyson announces that it will no longer accept cattle finished up on Zilmax. That has sent the industry into convulsions this AM. Tyson claims it is an animal welfare issue but that is more than likely a smoke screen to endear itself with the animal rights people and the Politically correct crowd. My own feeling, and that of some others, is that it is a ploy to gain additional overseas export business at the expense of some other packers. Tyson may endear themselves to PETA but they do so at the expense of angering the entire cattle industry, which is the folks who raise the cattle that they put down for meat. All I can say is that Tyson had better be prepared to put higher cash on the table for these cattle in the future to compensate their producers for the higher costs and lower per head profits that they are now going to have to face thanks to this idiotic decision.

Crude is getting hit quite hard today and is down nearly 2% as I type these comments as it works closer to the $100/barrel level. The recent rally in crude up towards $110 had me as a big skeptic, Egypt, Syria, etc., notwithstanding, because my view is that the US economy is far too weak to support higher energy prices associated with crude at those levels. When you get a payrolls number like we got last week and then you get another confirmation of a pathetic jobs market like we got this morning, just who in the hell is supposed to be able to afford to pay these kinds of prices for unleaded gasoline and maintain demand at sufficiently high levels to justify them up here?

This is why I maintain that it is the US Dollar that is the main driver behind gold today with some help from the base metals. Look, we are seeing crude oil breaking down on its chart and we are seeing the grains moving lower (except for today) meaning food and energy costs are mostly going down (yes, there are some exceptions but I am speaking mainly in generalities).. That means we have the possibility of lower energy costs, lower food costs all in combination with a jobs market that is going nowhere fast.

Where is the INCREASE in the VELOCITY OF MONEY going to come from to fuel the fires of inflation in that sort of environment? This is why I think we will need to see gold's focus almost entirely on the currency markets in order for it to generate sustained gains. It will not be inflation anytime soon in my view that will bring buying into gold. Instead - It will have to be a loss of confidence in the currencies.

Gold has recently been moving lower in terms of both the Yen and the Euro but it is moving higher in these terms today. It will be interesting to see whether or not this is a reversal of the recent trend lower and the start of something else or a one or two day event that fades. For now, the world is back in love with the Yen and the Euro as the shorts get squeezed out by the dealers.

Tuesday, August 6, 2013

Gold Continues under Pressure in Asian trading

Once again, just like we have been seeing recently, gold is coming under selling pressure as it moves a bit further into the Asian trading session. I find this rather disconcerting if one is a bull because Asia has tended to be the region of the globe where gold has been rather buoyant. If the market is losing sponsorship from this region of the world where physical demand is key, it bodes poorly for the metal's prospects in the West in particular.

During the N. American trading session today, gold moved down towards the bottom of the range I have noted on the chart. That is near $1280. It managed to bounce higher as buyers entered down at that level and kept the range trade alive. However, here in the Asian session, the sellers are back out in force and have taken it down through the bottom of the range below $1280. It is imperative that the bulls take this market back above that level or the bears are going to target another $20 drop in the metal into the next region of support on the chart near $1260.

I am also viewing the ADX line ( dark purple) which is slowly flattening out and looks like it is trying to rise again. If it does, and this is not a done deal yet, it will signify the RESUMPTION of the EXISTING DOWNTREND. In other words, the -DMI has not crossed below the +DMI through this entire bounce higher indicating that the bears still regained control of the market, even though it had made a significant recovery off the spike low at $1180. The downtrend, as a result, had been interrupted but is very close to being resumed again.

If that occurs, you will see intensifying sell pressure on the metal as the specs pile on the short side. Meanwhile, the bullion banks will be more than likely moving onto the net long side of this market.

Just like it has been doing of late, the HUI, the mining shares, are simply sucking the life out of the metal's prospects. No one wants to be an aggressive buyer of gold when they can see the gold mining shares going nowhere but further down. To witness a 6% plunge in that index in one day is unnerving to all but the most deep-pocketed, long standing gold bulls. The gap area that had initially been serving as overhead resistance has now been completely closed from the top side moving down meaning it has failed to serve as chart support. That would indicate that the next gap on the chart, ( the red rectangle zone ) will more than likely be tested soon.

Monday, August 5, 2013

Gold Chart

Gold was under pressure throughout the entirety of the regular trading session on Monday flirting with psychological support at the $1300 level before managing to push back above it and close out the pit session above it.

As trade has moved into Asia this evening, the market is coming under pressure once again and has now fallen below $1300 moving as low at $1288 before managing a wee bit of a bounce. The market simply looks heavy as it is now backing down to the bottom of its range.

Remember, the $1280 level is where it was jammed lower last week just prior to the release of the payrolls number on Friday. If the market does not rebound back, it will move towards $1260.

Weakness in the mining sector continues to undermine the metal. Also, the grains are weaker undercutting the inflation from the food sector side of things.

Saturday, August 3, 2013

Silver Chart by Request

Current action in silver is as follows:

The market is in a trendless phase - the downtrend has been interrupted but rather than an uptrend starting, the market is consolidating (moving sideways) with a negative or bearish bias.

That is because the -DMI is trading above the +DMI while the ADX line is moving downward from a very lofty level above 50.

Also, the price remains below the 50 day moving average which continues heading downward.

Price would need to clear at a bare minimum the 50 dma which currently comes in near 20.55 but ideally the $22.50 level to generate any stronger upside action.

Commitment of Traders reports show every major category of speculators trading COPPER from the short side meaning that it will take a shift in sentiment among this group that the fortunes of the base metals are going to improve to move them more aggressively into silver, which at this time is still being heavily influenced by its industrial metal role.

Without a rising copper, palladium, aluminum, tin, zinc, price it will be up to gold to bring buying into silver with those who do so focusing more on its role as a monetary metal.

While talk that inflation pressures remains subdued dominates current thinking, the grey metal will underperform gold.

I still like to watch copper prices to get a better sense of what silver might do.