"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, November 30, 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 King World News Markets and Metals Wrap.


Thursday, November 28, 2013

Happy Thanksgiving to all my American Readers

I cannot do better than to recommend to you the following article which has appeared in the editorial pages of the Wall Street Journal since 1961.

I am also struck by the fact that in much of today's America, the very mention of the word "God" in context of a Christian expression of faith, would solicit howls of rage and protest from those whose chief aim is to rid the entire public arena of the very mention of His name.

Perhaps when that group gives thanks, if they do at all,  they give thanks to themselves. Those of us who are otherwise minded, know much better from whom our many blessings flow. We also understand that any nation intent on mocking the very Being who holds its destiny in His hand, should not be surprised when His many tokens of displeasure are to be seen in the land.

"Righteousness exalts a nation, but sin is a disgrace to any people".

The Desolate Wilderness

This classic editorial has appeared annually since 1961.


Wednesday, November 27, 2013

New Bacteria Killer Discovered

How about this... let's hear it for the Cicada who led the researchers to this amazing substance.

Germ-killing nanosurface opens up new front in hygiene
AFP - Imagine a hospital room, door handle or kitchen countertop that is free from bacteria -- and not one drop of disinfectant or boiling water or dose of microwaves has been needed to zap the germs.
That is the idea behind a startling discovery made by scientists in Australia


Tuesday, November 26, 2013

Holiday Trade in Many Markets

About this time of the year, many market participants who trade professionally begin to scale back and lighten up on positions as they look to take some time off from the day to day warfare in the pits. Typically, that means lower trading volumes on certain days oftentimes resulting in some pretty wild swings in price as the liquidity dries up. Floor locals look forward to this time of year as many of them can make some very big gains as they play in the sandbox while some of the larger bullies are no longer present. Stop hunting becomes a favorite pastime.

Do not be surprised therefore if we manage to see some strange, sometimes inexplicable price action. Deciphering some of this can be challenging at times as the thin volume makes price movement somewhat dubious due to the exaggerated nature of the swings.

Gold has moved higher over the last two days bouncing from $1225, which is a bit higher than where I had pegged support ( $1220 - $1215). After spiking as high as $1257.80, it quickly encountered a round of selling which knocked it well off of that level. As I type these comments, it is up $1.00 from yesterday's pit session close.

Meanwhile, silver clawed back over the $20 level and did what we expected it to do, namely elicit more selling. Copper also moved lower. Both metals continue to be sold on rallies.

I have already written some comments on the mining shares ( HUI ) but suffice it to say, expecting gold or silver to mount any strong rally on a day in which the mining shares are further getting beaten with an ugly stick is foolhardy. Another near 3% drop in the HUI puts it just a hairbreadth away from psychological support at the 200 level.

Since the shares have been prescient when foretelling the decline in the gold price, odds favor further weakness in gold to end the week. Much depends on how active the physical market is. Don't forget that gold deliveries for the December Comex Gold contract will begin shortly.

In looking at the price chart I still do not see anything at this point that would be considered to be the least bit bullish. Momentum continues moving lower with many indicators still not at extreme oversold levels. The ten day moving average ( noted on the price chart ) has tended to hold gold rallies for last month or so meaning that we are reaching a potential inflection point once again.

 Also I have noticed that the rallies in gold continue to be driven mostly by short covering which means that they will be limited in duration. You get a spike higher on some decent volume which measures the urgency to exit shorts whereupon the market then proceeds to drop down and begin a leg lower all over again.

What I can say at this point is that this week's low near $1225 had better hold or gold is going to test that support level I have noted above. If that fails, I can see it moving below $1200. At that point we will have to wait to see where more bargain based buying surfaces in sufficient quantity to absorb what is surely going to be momentum based selling by hedge funds and other large speculators.

Pressure in crude oil, even in the face of stronger products, weakness in the grains and bean markets today, was offset by a bit of strength in some of the softs and livestock markets with the result that the commodity complex was a mixed affair today. That is why gold did not do all that much nor did silver. Outside cues were mixed as well.

Continued Weakness Across the Mining Sector

While gold is experiencing a bit of a bounce over at the Comex, the mining shares continue their disappearing act as the selling is just relentless. What concerns me is the technical posture of this index. It is running out of time for the month of November to improve the deterioration showing up on the intermediate and long term charts.

The index is currently sitting near its session low of 203.04. As things stand at this moment, it is on track for the WORST WEEKLY CLOSE since November 2008. That is FIVE YEARS. As painful as it is for me to say this, another way of stating this is that the index has surrendered every single bit of its gains it made over the last 5 years. We are now talking about the potential for the index, IF IT BREACHES 200, to move to levels last seen at the very inception of the first QE program. Five years of wasted opportunity cost

I have said it before and will say it again, those mining companies that did not hedge any expected production when the gold chart broke down technically and the trend reversed from bullish to bearish, have done their shareholders a HUGE DISSERVICE. They willingly took on price risk leaving themselves open to downside risk in the price of gold. Businesses should not be in the business of speculation - that is for speculators such as myself. What businesses should be doing is managing price risk and locking in profits when they are available. That is what hedging is all about and why mining companies should act no differently than any other responsible producer.

Sadly, they are now being punished by the market for this folly. Perhaps we will see an end to this bearish trend in gold in the not too distant future and that will save their bacon, but that is no way to operate in an environment in which money flows are coming out of the commodity sector in general in favor of the broader equity markets ( to the exclusion of the miners ).

Here is the price chart as things stand for the moment. Note on the long term monthly chart that every one of the major Fibonacci retracement levels of the entire decade long bull market rally has been violated to the downside. The last one left is near 185. If the index falls through psychological support at the 200 level and does not immediately recover, odds unfortunately favor a move down to that final level of 185.

Saturday, November 23, 2013

Trend Analysis of Gold

As we draw near to the close of November, I thought it fitting to provide a look at the gold chart over several time frames, near-term, intermediate and long term, in regards to the trend of the market.

For this purpose, I am using an old but reliable indicator known as the Directional Movement Index, which is as good as any others out there when it comes to determining whether a market is in a trending phase or is moving sideways within a range.

Let's start with the Daily Chart first....

Notice, Negative Directional Movement ( the Red Line) continues to remain ABOVE Positive Directional Movement ( the Blue Line ) indicating that the bears are in control of this market. Further, the ADX line is rising indicating the presence of a STRONG TRENDING MOVE. Because -DMI is above +DMI, we know that the trend is therefore DOWN.

Let's now shift out to the intermediate or weekly time frame. There is one very noteworthy item that immediately stands out to any technician:  Negative Directional Movement has been ABOVE Positive Directional Movement since late November of LAST YEAR. In other words, the Bears have had control of this market for a full year now. That is why it particularly distresses me to read so much of the foolishness that keeps coming out of some quarters of the gold community talking about such things as BACKWARDATION, GOFO rates, COIN DEMAND, etc. It makes for interesting reading and such but is of no value when it comes to interpreting the language of the gold market itself.

Furthermore, the ADX line had been steadily rising since the beginning of this year indicating the presence of a strong trending move lower until the middle of July when the line turned lower indicating a disruption in the ongoing downtrend.

As the price of gold recovered from the spike low near $1180, it rallied up to near $1420 relieving the downward pressure for a bit. However, and this is important to note, the -DMI remained above the +DMI during this time frame. That means the rally was merely a pause in the ongoing downtrend and that the bears still had control of the market.

What gives me reason for concern with gold is the fact that the ADX is showing signs of turning higher once again. It is likely, not guaranteed, that line will show a definite turn higher if gold cannot close higher this next week. Also, the market is moving down into a dangerous area. If it cannot attract the same kind of buying that it did back in the summer of this year, when demand soared higher, chart support will not be able to hold. It is imperative for this market that demand for the physical metal ramps up significantly right away or there is the danger that gold could start yet another leg down in price.

The last time frame we want to look at is the monthly chart. Something that stands out to me on this chart is the fact that the ADX has never yet ( since 2001 ) moved higher while gold was in a corrective phase lower. In other words, on the monthly chart, we have not yet had a period during which the market was in a DOWNTRENDING PHASE. All corrections lower in price were just that, corrections, not changes in the ongoing UPtrend. As you can see, the Negative Directional Movement line remained BELOW the BLUE or Positive Directional Movement Line even in 2008 when we had the debacle in the market. Bulls were remained in control of the market, even if they did just barely manage that.

However, in March of this year, for the first time since the bull market in gold began back in 2001, the Red line or Negative Directional Movement crossed ABOVE the Blue Line or Positive Directional Movement. The BEARS had seized control of the gold market. Shortly thereafter, the ADX line began to rise for the first time in over a decade while the price of gold moved lower, indicating what looked to be an incipient trending move lower. However the price recovery off of that spike low when gold moved up some $240 or so in price, dented the downtrend and the ADX began moving lower once again showing that the market was going into a consolidative phase.

Significantly, with the fall in the price of gold from $1400 to its current $1242, the ADX is threatening to turn higher once again. It is not yet there but it is certainly not falling. Translation - gold is flirting with indicating a trending move lower on the LONG term chart.

This is the reason I have been bearish on gold now for some time - the charts are indicating that bearish pressure is building in the market and is hinting at building across all three time frames. It is imperative for gold bulls that the price recovers strongly before the end of this year to prevent heading into the New Year with a strong bearish bias. Index fund rebalancing might help somewhat but with hedge funds plowing money into the short side of the gold market, Asian and middle East physical offtake is going to have to be large enough to absorb Western-based selling.

What worries me about gold is that the hedge funds still remain NET LONG, even if that position has shrunk to relatively low levels. That means that there remains more than enough firepower to take this market lower if those remaining long positions have to be jettisoned in the event of a breach of downside chart support.
Keep in mind that the first chart to respond to any upside movement in the metal will be the daily time frame. Thus we will continue to closely monitor the price action so look for any signs of a market turn higher first on that chart.

Trader Dan Interviewed on 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 Metals Wrap.


Friday, November 22, 2013

Gold Squeaks Out only a Meager Bounce

Heading into the weekend, after a week in which the price of gold has fallen another $44/ounce, I expected to see a bit of a short-covering bounce as bears rang the cash register to book some good profits. We did get a bit of a bounce, if you can call a $5.00 move higher at one point more than a momentary blip on the radar screen. That being said, the market surrendered nearly all of those gains heading into the close of pit session trading so that it ended up a measly $0.50/ounce on the day.

I must say, and I do not like saying it, but that if this is all that gold can do, after a week in which it crashed through a critical level of chart support, then this market is headed for more trouble next week. I hope I am wrong about this but with the gold shares once again seeing even more selling with the HUI losing chart support at the 210 level, it does not look good for the yellow metal.

Adding to this bleak outlook, is this week's Commitment of Traders report which confirms the trend of large speculator selling of gold. Another week and another repeat of what we have been seeing since the end of October, namely, long liquidation by hedge funds as well as the institution of new short positions by this same category of traders.

Here is a partial chart showing the activity of the hedge funds since the month of June during which gold hit that spike low down near 1180. Can you see what took place? Once the market spiked down to that level, value-based buying of large size took place which drove out many of the newly placed short positions as new longs flooded into the market. That drove the market up to where it peaked near $1420 or so. From that point on however, the trend among long position holders has been lower or down while the trend among short position holders has been higher or up. In other words, the biggest speculators on the planet are selling gold, and selling lots of it.

The peak in hedge fund SHORT POSITIONS occurred in early July of this year when their combined futures and options positioned reached a substantial 80,147. This week's number is still well below that coming in at 62,589, but the number has been steadily rising since the end of October and this does not yet include the activity from Wednesday, Thursday and today, Friday, of this week. Look for this number to grow larger in next week's report barring some sort of upside reversal on Monday or Tuesday of next week.

What this translates to is very simple even if it is disconcerting for those bullish gold right now. The number of bulls continues to fall as more and more investors/traders flee the precious metals sector in favor of high yields in equities. Once again the DOW is over 16,000 and the S&P 500 has now broken firmly above the 1800 level. With those kinds of gains, who needs gold is the new trading adage.

Until something happens which derails equities and sends shock waves of fear throughout the financial system (something which rattles CONFIDENCE) it is difficult for me to envision gold moving higher other than occasional bounces from short covering. Look at the VIX or Volatility Index. It is stuck at multi-year lows. The complacency in the system is nothing short of astonishing. There isn't a care in the world in the minds of most investors/traders!

This no doubt will not especially endear me to some friends in the gold community, but the chart and the pattern is what it is. Wishing it were otherwise or complaining about it unfortunately changes nothing of the present reality. Until the bulk of market participants change their views regarding gold, the trend in the metal is down.

One last thing - hopefully these comments based off the COT report will put an end to any more of that foolish "FLASH CRASH" talk as if the gold market is being slammed lower by the nefarious bullion banks. They are NOT SELLING but are buying - the report confirms that as well. When it comes to gold, some simply refuse to open their eyes and see the reality of what is happening. The Fed has effectively herded the masses OUT OF GOLD and INTO EQUITIES. Their pals at the bullion banks no longer need to sell gold, hedge funds are doing that quite well by themselves. Any "FLASH CRASHES" are being caused by hedge fund selling; not bullion banks.

Let those who keep propagating this nonsense offer us solid evidence to prove their claims that it is the bullion banks that are behind this latest move lower in gold. Good luck with that however.

The overall NET SHORT position of the big commercial category has fallen to -12,312, their 6th smallest in many, many years. Swap Dealers also have been steady buyers since the end of October.  

December gold will enter its delivery period very soon. How much does one want to bet that it will be one of the bullion banks, namely JP Morgan on the BUY SIDE as a heavy stopper for their House Account? Hedge fund selling is being met with bullion bank buying. How do we know this? The report tells us.

Forbes Editorial Piece calls for Obama Impeachment

It is one thing for many of the more conservative oriented web sites and groups to call for the impeachment of Mr. Obama. It is quite another when a widely read establishment type of magazine such as Forbes allows an editorial calling for the same thing.

I agree wholeheartedly that the current occupant of the White House picks and chooses which laws/ parts of laws he intends to enforce or to ignore. That does not fall within the prerogative of the executive branch which is charged with faithfully executing the laws of the land. After all, that is why the Founders established an EXECUTIVE BRANCH of the government separate from the LEGISLATIVE BRANCH. The latter MAKES THE LAWS; the former ENFORCES the LAWS.

I find it most disconcerting that more members of Congress are not appalled by this lawlessness and are not jealously attempting to guard their Constitutionally-given power. The Congress is a CO-EQUAL BRANCH of the US government. It needs to start acting like it is.

Sadly, too many are more loyal to their political party rather than to that Constitution that they all took AN OATH TO DEFEND.

Keep in mind that any impeachment process basically works this way - the House of Representatives brings the charges. If voted on and agreed to by a majority, the "trial" then goes to the Senate where the actual guilt or innocence of the President is determined. Sadly for the nation, even if the House were to bring charges, party loyalty would trump Constitutional fealty and the case would die in the Senate graveyard.

Perhaps even more disconcerting for the nation is that so much of the electorate today is too dumbed-down to even understand the separation of powers and the system of checks and balances that our Founders, in their wisdom, bequeathed to us as our legacy of liberty.

Obama's Disdain For The Constitution Means We Risk Losing Our Republic
By M. Northrop Buechner

Since President Obama signed the Affordable Care Act into law, he has changed it five times. Most notably, he suspended the employer mandate last summer. This is widely known, but almost no one seems to have grasped its significance.
The Constitution authorizes the President to propose and veto legislation. It does not authorize him to change existing laws. The changes Mr. Obama ordered in Obamacare, therefore, are unconstitutional. This means that he does not accept some of the limitations that the Constitution places on his actions. We cannot know at this point what limitations, if any, he does accept.


Thursday, November 21, 2013

CME lower Margins on both Gold and Silver

As of the close of trading, this Friday, tomorrow, the CME Group[ will be lowering margin requirements for their flagship gold and silver contracts. Spec margins will be moving down to $7,975 from $8,800 for opening a contract while maintenance margins will be lowered to $7,250 from $8,000.

For the full sized Silver contract, initial margin requirements will be $11,000 from the current $12,375 with maintenance levels at $10,000 from the previous $11,250.

Volatility has waned somewhat in both metals allowing the computer to mark these margins lower.

The HUI closed extremely poorly today barely managing to maintain itself above all-important chart support near the 210 level. Owners of these beleaguered shares will not want to see this give way, especially to end the week. If it does, get set for even further losses in this bleeding sector in the near future. Where these things are going to find buying support and at what level is very difficult to see right now. Quite frankly, the entire sector has fallen completely out of favor with the mainstream investment world. Only the most die-hard of gold bulls remains holding them.

As mentioned in last night's post and many other posts, those miners which did not HEDGE expected gold production were quarreling against all sound wisdom as they have left themselves completely naked and exposed to downside price risk in the underlying metals. This could have been completely avoided had they instituted some decent analysis in their risk management departments, assuming they even have one.

Keep in mind, any economic data that looks the least bit rosy will feed ideas that the Fed is going to taper sooner rather than later. That will undercut the reason to hold gold or anything gold-related for the time being.

I want to also emphasize that even if the Fed were to taper, say something in the vicinity of $20 billion, that would still leave them purchasing $65 billion/month of Treasuries/MBS. While that is still an extremely significant amount, what the market is looking at is the expected IMPACT ON INFLATION. The way the market currently sees it, if $85 billion/month is not producing any measurable inflation, then any reduction in that amount should further lesson any inflationary impact from the overall bond buying program. That is why gold is paying such close attention to the Tapering/Non- Tapering debate.

I want to reiterate - until the market in general becomes convinced that inflation threats are rising, gold is going to struggle. Also, we will have to see NEGATIVE REAL RATES to bring some serious and concerted buying into the metal. Barring that, it is CONFIDENCE that is going to have to give way for the current bear market in gold to reverse course.

Some Good news for a Change

The following story detailing a medical treatment for some of these new and extremely dangerous antibiotic resistant bacteria is most encouraging...


Crude Rally is drawing some buying into Gold

Crude oil is currently experiencing a rather sharp rally as it is being led higher by the products, based on recent data suggesting the steep drop in prices is stimulating demand. Throw in a weaker Dollar, a weaker Yen ( no safe haven trade), a pop in grain and bean prices, and even a bump in cattle, and you have some buying hitting the general commodity sector. From what I can see right now, a goodly portion of this is short covering, with some bottom picking occurring across the sector. This is serving to lift gold from its worst levels of the session, along with silver.

Let's see where the dust settles by day's end to draw some conclusions.

Venezuela Selling Gold?

There is an interesting story from Dow Jones this morning mentioning Venezuelan newspapers reports about a swap deal between that country's Central Bank and Goldman Sachs in which the bank will supply 1.45 million ounces, (around 45 tons) of gold up to October 2020 for cash. We are talking about a duration of about 7 years (depending on when the actual gold swaps would begin) so when averaged out it means a bit more than 6 tons per year. That is rather mediocre in my view but I do find this story noteworthy in the sense that perhaps some Central Banks are souring on gold in the present environment.

Also, Thomson Reuters GFMS, estimates that gold production will reach a record 2,920 tons this year. Their report, which draws on data from the China Gold Association, states that China has produced 253 tons of gold through the first nine months of this year, an increase of 4.9%.

Gold currently has several headwinds that it is having to contend with. Among these are the lack of inflation pressures (energy prices and food prices at the wholesale level are basically flat, according to the PPI which came out this AM.) Additionally, rising interest rates here in the US, in combination with the low, official stated rate of inflation, have produced POSITIVE REAL INTEREST RATES, always a barrier to upward progress in gold.

Until investors here in the West become concerned with inflation,  gold and silver are going to struggle to maintain any rallies.

In looking at the VIX or the Complacency Index as I prefer to call it, it is once again down sharply today revealing the lack of fear among investors. Nearly every single dip lower in equities continues to be seized upon as the only fear out there is the FEAR OF MISSING FURTHER GAINS IN US STOCK MARKETS. It really is amazing watching this phenomenon. When it will finally end is anyone's guess at this point. In the meantime, one cannot fight the tape and expect to profit.

Wednesday, November 20, 2013

Longer Term view of Gold

As mentioned in a previous post this month, gold has fallen below TWO key Fibonacci Retracement Levels of the entire bull market that began in 2001 and ended in 2011. Using the low made in 2001 and the high made in 2011, and then the low made in 2008 and that same high made in 2011, we can construct two different sets of Fibonacci lines to see if we can any confluences which will give those regions/levels more significance should they not hold. The first level came in near $1298.60; the next level is at $1282.

These are not meant to be hard numbers but rather REGIONS where we can look for buying support to emerge. Thus far this month, both levels have fallen to the bears. If the bulls cannot recapture at the very least, the $1282 region, they are in serious trouble should this market end the month BELOW both levels.

I have noted a rectangle as Key Support. It begins near $1210 and extends down to the spike bottom near $1180 made earlier this past spring. It sure does look to me like gold is going to test at least the top of this range near $1210. If for any reason the market fails to rebound sharply from this level, the stage will be set for another test of $1180. If that gives way, this market will more than likely move all the way down to the 50% Fibonacci retracement level of the entire bull market move which comes in near $1086.

One could make the technical case that the price action over this year has formed a BEARISH PENNANT that has just failed to hold support. I would certainly hope not since the repercussions of this technical chart pattern would portend a move as low as $800, as inconceivable as that seems right now.

What I can say is that gold would be well below the cost of production were this to occur and last for any length of time. For that matter, even gold below $1100 is below the cost of production for many mines. The key will be, if it were to get there, how long it stays down there. It is one thing to spike into a region and then violently rebound. It is another for the price to languish there.

I have mentioned many times over the last few months that I believe gold miners should be using price strength to HEDGE portions of expected future production as downside price risk is just too high for any responsible mining outfit not to secure protection and at least lock in some guaranteed profitability on some production. It is a pity that more are not doing so as they would have been able to weather this storm in the gold price allowing their stock price to hold much better than many individual outfits are currently faring. I can only say that if gold were to violate that key support level, they had better be hedged. They can always lift some hedges at the time they sell some actual production but being naked and exposed to the vagaries of the market is simply asking for trouble.

As far as overhead resistance goes, in order for the bulls to dodge the proverbial bullet, the very least they need to do is to push price back over $1300 and change the handle. Even more however, would be to best this month's high which is near $1320.

FOMC Minutes Spooks Gold Bulls

The release of the FOMC minutes this afternoon, contrary to my expectations, did contain segments that seemed to be a surprise to the market. The tenor of those remarks leaned heavily in the direction of hawkishness and that is what gold sharply lower. It even dented the euphoria in the US equity markets as the S&P 500 initially shrugged off the comments, only to then weaken further as the reste of the session wore on.

The big beneficiary of this hawkish tone was the US Dollar, which in conjunction with speculation that the ECB will move to negative interest rates, soared against the Euro which seemed to fall into an abyss.

All in all, there was quite a bit of commotion across many of the major markets including the bonds which also saw more selling pressure. The all-important yield on the Ten Year Treasury note hit a high of 2.795% today.

I would keep a close eye on that as I feel very strongly that if this thing starts grinding back up towards the 3% level once again, we will be treated to a cacophony of noises coming out of various Fed governors, all of them extolling the virtues of continued QE in full force and warning of the fragile nature of the economic "recovery".

Before getting into gold, I have to make a comment about silver. Losing chart support down between $20.25 - $20.00 has inflicted some heavy chart damage. Barring some sort of news that can be construed as favoring inflation, momentum is to the downside with $19.20 - $19.10 as the next target region.

Moving to gold - I wanted to illustrate something to those who are perennially bullish gold. Notice where the greatest volume in gold has been recently - Yes, on DOWNSIDE MOVES. The only exception to this was the day on which Janet Yellen's testimony statement was released in which we learned ( as if we did not already know this ) Ms. Yellen was extremely dovish. That spooked a short covering rally but as with all recent rallies in gold, it was merely viewed as a selling opportunity.

More later ....

ECB to move to Negative Interest Rates

Several news sources are reporting that the European Central Bank is considering moving to Negative Interest Rates in yet another attempt to combat sluggish economic growth in the Eurozone.

Keep in mind that this comes on the heels of their surprise interest rate cut two weeks ago which caught the markets completely off guard. That hit the Euro hard back then and once again, it is getting slammed today as a result.

Gold seemed to catch a bit of a bid on this news but the moves higher are running into selling thus far.

One way of looking at this is that DEFLATION fears are becoming so serious to monetary officials that they are effectively nocking their last arrow on the string to fire. If this move fails to generate any lending/economic activity/growth, what then??

Here is a good story to read dealing with the news....keep in mind that this is not a done deal, yet... the idea is probably being floated to gauge market reaction.


Gold Crashes through Chart Support

So much for quiet trading ahead of today's release of the FOMC minutes from their last meeting! Volume had just dried up with the market killing time as the hour of the release drew near when a batch of large sell orders came out of nowhere and caught the market sleeping. The intention was to run the stops sitting down below yesterday's lows - guess what? They got them!

The surge in volume caused a temporary halt in trading. When trading resumed, momentum based selling then entered in large size dropping gold further. It fell through $1258 which was acting as a temporary floor.

Here is another example of how hedge funds can push price by taking advantage of lulls in liquidity. I am sure some in the gold camp will once again credit this "takedown" to the big bullion banks but that is simply not the case. They continue to lift their existing short positions and add to their exposure on the long side of the market. It is hedge funds who continue to reduce long side exposure and add to their growing, and profitable, number of short positions.

We will get to see this as the December contract enters its delivery period soon. I suspect we will see J P Morgan taking delivery of a rather large amount of gold. Either way, we will see.

One bummer is the fact that this move lower through support occurred today, Wednesday, so unfortunately this week's CFTC report ( Commitment of Traders ) will not pick up the positioning of players.

Silver is dangerously flirting with the $20 level. If it loses support there, another 50 cent drop will come rather quickly with potential for further losses down towards $19.

More later today after the release of the FOMC minutes. Let's see what they might say and whether or not it has an impact on the markets or if they have correctly anticipated the contents.

Crude oil is sinking further today having bounced back above $93 yesterday. That seems to be a general pivot region with the market oscillating around this level.

Tuesday, November 19, 2013

Gold Waiting on Bernanke Speech and FOMC minutes

Dull trading in gold today as most players remain hesitant to place any large bets ahead of this evening's speech by outgoing Fed Chairman Ben Bernanke. Additionally, the bulk of market participants are waiting for the release of the actual FOMC minutes from their most recent meeting. The idea is that it will give them a better or deeper look into the thinking occurring among the majority of Federal Reserve voting and non-voting members and thus some clues into their next move in regards to the timing of any Tapering.

I think some shorts rang the cash register and took partial profits ahead of the speech/minutes just in case there might be some surprises although I personally am not expecting anything other than what we have already been conditioned to think based on the recent comments by some Fed governors.

Volume was mediocre at best; lackluster is another word I would use to describe it.

Wonder of wonders, we actually got a wee bit of downside follow through in the S&P 500 pit today. Maybe it was selling related to Maria Bartilomo's reported move over to the Fox Business Channel. Now, if Rick Santelli would make a move over there, we would have no reason whatsoever to watch CNBC.

Even with the follow through to the downside, there is no significant chart damage other than the most short term of signals, which is more for scalpers and other short-term oriented traders.

By the way, did any of you readers see the report talking about how the payroll numbers were deliberately distorted (upwardly of course) just prior to the presidential election back in November 2012? Some of us were marveling how it was nearly inconceivable at the time that the unemployment number would miraculously get down below the all-important threshold  of 8% that Obama had set for judging the success of his measures to supposedly improve the economy. It undercut Romney's argument that the economy was flat and that job growth was anemic just in time for voters to make a decision before heading out to the polls. Pathetic isn't it....

Many talk about gold, silver, platinum being "PRECIOUS" metals meaning that they are relatively rare in comparison to more commonly found metals. Methinks the MOST PRECIOUS COMMODITY out there right now is the TRUTH. There certainly isn't any coming from the current administration about much of anything.

I am not going to post any chart of gold up today as it is basically meaningless until we get through the release of the FOMC minutes tomorrow. Barring any unforeseen developments elsewhere, I expect gold to tread water until then.

The Goldman Sachs Commodity Index (GSCI) continued to head lower today even with a bit of mild weakness in the US Dollar. The same theme of general selling across the complex continues.

The biggest move in the markets that I trade regularly that I noticed today was in the cattle which were slammed lower, especially feeders as high priced beef seems to be choking off domestic demand right now. Corn popped higher again, along with wheat as the usual chatter about low prices stimulating demand showed up once more. Beans continued to see selling as S. American planting weather seems fairly benign at this point. Traders are looking for large acreage numbers again down there. Demand for the grains/beans is going to be the big wild card and the big unknown. Compared to the prices of last year, both beans and corn are bargains right now. It is not a question of whether demand will pick up at these lower prices - It most certainly will. The question is whether this demand will be strong enough to absorb the big supplies of both and whether or not farmers are going to let go of stocks or hang on until after the first of the year.

Monday, November 18, 2013

Big Test Ahead for Gold

Gold continues to follow its recent pattern of experiencing a sharp move higher due almost entirely to short covering only to then consolidate a bit and sink lower once again. We have pointed out that hedge fund short positions are growing while their long positions are slowly being reduced. As more of these large speculators position on the short side of the market, it will be vulnerable to these short-duration rallies whenever any news comes out that can be construed as friendly towards the ongoing QE program. The flip side is that any news, such as what happened today, which can be construed as bringing about a Fed Tapering sooner rather than later, generates strong selling pressure in gold. These same hedge funds begin leaning on it once again, especially if it has popped higher and moved into a technical area of resistance on the price chart.

Gold's inability to garner much in the way of concerted buying today, in spite of general weakness in the US Dollar and some late session pressure in the S&P 500, has to be disconcerting if one is a gold bull. If gold for any reason, loses support down there at the region I have noted on the chart as "Key Support", it will be at $1220 before one can blink. Asian demand had better be strong is all that I can say.

Adding to its woes is another plunge in the price of crude oil as it broke below $93 barrel. As a matter of fact, this is the first time it has CLOSED before that pivotal level meaning odds favor another leg lower in this market. Keeping it somewhat supported is ideas that talks with Iran are going nowhere. If however, we do see some sort of agreement over there, look out for crude as that will bring Iranian supplies back onto the world market, a market already swimming in supply.

There was also weakness in nearby futures pits such as silver and copper. Cattle were pummeled lower today and hogs were also weak. Corn dropped over 2% in price as the apparent lowering of the ethanol mandate effectively undercut some of the demand from that commodity, a commodity which I might add, needs all the demand it is going to get seeing that we are looking for a record corn crop. The all-important feed grain hit a 38 month low today. Does that sound remotely like we are having inflation fears in the commodity/food/energy sector?

All in all, there was a general trend of selling across a wide gamut of the commodity sector as headlines such as "DOW 16,000" were blaring pretty much across any financially related web site out there.

Meanwhile we were treated today to the Dueling Banjos from Deliverance. Not really but it makes a nice lead in sentence. What I am referring to is contrasting speeches from two Fed governors, Charles Plosser and Bill Dudley. Dudley loves QE stating its advantages outweigh its disadvantages ( by that he must mean its destruction of safe, risk free investment alternatives for seniors and those on fixed incomes, retirees, and those contemplating retirement). Plosser on the other hand, whose idea is more to my liking, says the Fed should cap the bond buying program and state clearly how many bonds/MBS's it intends to buy. Strangely enough, both were in agreement that the US economy is slowing improving in their view. That last part should be classified under the category "Fiction" on the financial websites and broadcasts covering their remarks.

The S&P 500 generated another one of those short term sell signals today, not that it will mean a single thing since that market has become an example of life in the international space station where gravity does not exist.

Gold shares, as evidenced by the HUI has better generate some buying in tomorrow's session or that index risks moving back down towards the 210 level. I noticed that Barrick was hit again today as it was down over 2%.

We'll see if we get any followthrough to the downside in the S&P although I doubt it. The mania continues with nothing that can seemingly derail it. The only FEAR that I can see anywhere at this time is the FEAR of missing the bull train in stocks or more comically, fear of missing being a part of Bitcoin.

Saturday, November 16, 2013

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.


Deflation Fears in Europe

In my reading this morning I came across a rather revealing story on the Dow Jones wires concerning that surprise interest rate cut over it the Eurozone last week. Do you remember? That was when we learned that the ECB had cut its main interest rate down to paltry 0.25%, which by the way is a record low.

Now come some comments from one of their council members, a Luc Coene by name who tells us why the bank acted with no advance warning.

The actual story was reported in a Belgian newspaper, L'Echo. In it, Coene states that recent low inflation figures had greatly concerned the members of that council.

here is a quotation: "Once the first signs of deflation are showing, it's already too late to do something. So we've avoided playing with fire".

This confirms my suspicion that the bond buying programs of the Central Banks are losing efficacy.

Here is the problem - what happens when or if the economy no longer responds to ultra low interest rates, Quantitative easing/bond buying programs, government stimulus measures etc?  Then what?????

I have said it before and will say it again - the problem is excessive levels of debt combined with deep-rooted, systemic structural issues that MUST be dealt with. Monetary policy cannot in and of itself CURE ANYTHING. All it does is to create huge imbalances and distortions in certain asset classes. We are witnessing this first hand in the ever-inflating bubble in the equity markets.

The Yellen-led Fed will do absolutely nothing to slow this process.

Friday, November 15, 2013

Gold Knocking on the Door of Overhead Resistance

Take a look at the chart below and you can see that gold is trying to clear chart resistance near $1290 but thus far has been unable to do so. Incoming Fed Chairperson Janet Yellen's testimony has put to rest any fears of bond tapering in the immediate future and this has spurred a round of short covering once again in the gold market.

It seems as if every single time the Fed either seems to shift gears and become more dovish or economic data comes in worse than expected and dispels Tapering fears, we experience a round of short covering in gold. However, these rallies have tended to be fleeting at best as they are viewed as just another opportunity to establish fresh short positions by some of the larger speculators. In other words, the bearish chart posture in gold has traders selling rallies and not looking to buy dips at the present time.

Notice how gold tends to spike higher, followed by a period of a narrowing range only to then drop down and form a fresh new leg lower.

Bulls need at the very minimum to push past $1290 and reclaim a "13" handle in front of the metal or bears will quickly reassert themselves and press for another leg lower. 

Note the sentiment among the large hedge funds when it comes to gold of late. Can you see the rapid build in short positions? In the last two weeks alone, hedge funds have added a massive 34,800 brand new short positions while they have dumped or liquidated 10,450 long positions. That is a sizeable swing no matter how one measures it and reflects the increasing bearishness that is gripping the gold market.

If support at this week's low does give way for any reason, look for additional fund long liquidation and even more momentum based selling to take hold.

The flip side to this is that any breach of overhead chart resistance will have some fuel to run as short positions will be vulnerable.

Frankly, QE expectations/lack of tapering seems to me to be losing its impact on the price of gold. My own view is that it is not proving to be inflationary in the least bit ( the money is not making its way into the broader economy) and therefore gold is beginning to have only fleeting responses to talk of uninterrupted continuance of the bond buying program. I continue to maintain that until CONFIDENCE is lost that gold is going to struggle, QE or no QE.

Look at the VIX, or Volatility Index. I prefer to call it the Complacency Index. It remains parked down near multi-year lows indicating a near complete absence of any fear or concern in the marketplace when it comes to stocks. The very concept of "RISK" has literally been rendered obsolete as Wall Street gorges itself on the liquidity being provided by the Fed. The addiction is hopelessly incurable in my opinion as the Yellen-led Fed will undoubtedly do nothing to upset this new normal.

Wednesday, November 13, 2013

The Bubble Keeps Getting Bigger

It is almost comical watching stocks soaring into the stratosphere negating one negative technical warning after another and reaching levels that defy rational thinking, yet here we are.

The investing world has been perfectly conditioned by the Central Bankers to buy every single dip, throw caution to the wind, make the word "risk" archaic, and continue to shove stocks higher and higher and higher with no end in sight. It is absolutely astonishing to watch this thing unfold.

Apparently all that is needed to make the very concept of a bear market in stocks obsolete is for endless money printing. There appears to be no consequences whatsoever to this madness as it is now the new normal.

Maybe we will see 1800 in the S&P 500 before the month is out. Who knows? As a trader you have to go with the money flow and the chart but as an observer with a sense of history, you have to shake your head in both bewilderment and sadness. Bewilderment that so many otherwise intelligent individuals see nothing wrong with a near-permanent money creation scheme and sadness, that so many can be herded into something which has no rational basis other than the fact that it is going up.

I do need to make one quick comment - I have stated that the broad universe of investors see no inflation signs whatsoever. Yet, one thing should be very evident - the stock market is a perfect picture of near runaway inflation but in paper assets.

Dovish Yellen performing as Expected

Gold is popping higher in extremely low volume late this afternoon as the prepared remarks from incoming Fed Chairperson Janet Yellen make the rounds through the news wire service. While the tone is extremely dovish, frankly I do not see any cause for news here as it is no secret that Ms. Yellen is perhaps one of the most dovish members of the current FOMC.

In spite of that, the typical knee-jerk reaction is taking place in gold and in the US Dollar, which was undercut by the comments within the statement. Those looking at the remarks are drawing the conclusion that the Tapering will be postponed until sometime next year. Recently, some have begun anticipating an earlier scaling back of the bond buying program.

My suspicions are that this rally is going to be viewed as a selling opportunity and not the start of a new leg higher. We'll see about that however. The volume on the move higher is extremely low as the news surfaced basically early in the kangaroo session in which many were not even paying attention or even trading while they waited for Asia to kick in and lift the liquidity a bit more.

I do find it rather interesting that crude oil is not moving higher on the news however. Crude has tended to be a decent proxy for the inflation expectation trade as in the past it has moved higher with a lower US Dollar and moved down when the US Dollar has been strengthening. Lately however, that market has been moving more in sync with its actual fundamentals and the facts are that the US has large supplies of crude with weakening demand due to the sluggish US economy.

Let's see what happens when the dust settles tomorrow and draw some conclusions then. From a technical perspective, the zone noted as "Key Support" has thus far held. If bulls can take the metal back up through $1300 and change that "12" handle, then we go back into the wider range trade which has marked gold for some time now. If not, and sellers sense weakness, look for another test of the recent low.

My own view of this QE stuff has evolved as I have watched the impact over the last few years. Frankly, I do not see what another month, two months, six months, or even a year is going to do other than keep the stock market bubble inflated. The money is simply not making its way into the larger economy in size. Velocity of Money is going nowhere. The reason is very simple - too much debt is in the system and there are too many structural issues in the US economy, most recently the fiasco being caused by that job-killing obamacare.

The one saving grace of this entire mess is that the deflationary impact of falling energy prices has helped consumers, especially those whose health insurance rates are now soaring higher. Grains, sugar, coffee, etc have also been moving lower, thankfully, but the verdict is out on whether the harvest lows are in for the grains or this is just another bounce in a wider bear market for some of the ag products.

Tuesday, November 12, 2013

Silver on the Ropes

Silver Bulls had better flex any muscles they might have very quickly as the Bears are out growling and seem quite determined to go a stop huntin'.

The rectangular area shaded and marked support is an important inflexion point for the metal. If it does not bounce from this region and head back up again, in effect reinforcing its range trade, odds will favor a continuation lower to $20 and possibly down to $19.

The 50 day moving average is resuming its downward trend after having leveled off back in late August. It should now serve as an overhead cap to price on any rebound higher unless there is a solid, discernible change in the fundamentals and more important, in sentiment, towards the precious metals.

Gold has also lost an important level of chart support in today's session. This level, $1280, was very important as the price has tended, since August, to uncover some decent buying down here. In the middle of October, it did fall below this point, but its stay down there was only a couple of days in a row at best. If gold can recover in Asia this evening or by Thursday of this week, it will have dodged a bullet. If not, look for the next key support level to come under a test. If the Dollar takes out 81.50 on the USDX, gold is going lower.

Long Term Monthly Gold Chart

Can you see the significance of the 1280 region? It is the 38.2% Fibonacci Retracement level of the entire rally from the secondary low made back in April 2001 and the peak above $1900 made in September 2011. On the monthly chart, the price fell below that level reaching 1180 (1179 to be exact) but it did not see any downside followthrough the next month as it immediately rebounded eventually pushing back above $1400 before failing once again.

Now it is back to testing that level and though it is early in the month of November still, if gold closes out this month below that level, December will be a critical test of the resolve of the bulls. Failure to stay above $1280 on a month ending basis on TWO CONSECUTIVE MONTHS, would increase the likelihood of another test of that spike low near $1180. Were that to fail, the next critical target for gold would be near the 50% retracement of the entire decade long bull market in gold ( 2001- 2011).

That would probably represent a good area for longer term oriented players to begin buying as you are talking about prices below the cost of production for many gold mining companies.

I am not predicting a move to this area as of now, I am merely setting up some possible scenarios IF PRICE PERFORMS AS I MENTIONED ABOVE. Remember, we are trying to listen to the voice of the market only and tuning out anything else. That is the only way to ultimately be successful as a trader/investor.

One thing that this chart also shows us is that in order for the bulls to turn this chart to their advantage, they MUST take price at a bare minimum back above the $1400 level and hold it there.

Much of this will depend on market expectations in regards to the overall inflation picture. Today, crude oil is falling sharply again having neared $93. If it fails to secure a foothold near this level, steeper losses are ahead. It is most difficult, if not impossible, to make an argument for inflation if energy prices are sinking.

On the food side of the ledger, soybeans are moving higher and have been since that USDA report last week but that is coming mainly on the heels of reported sales to China. China is notorious for booking sales but then cancelling those sales later if prices drop so beans need some more time to see how the demand is going to hold up at these higher levels. Corn appears to have found a short-term interim bottom but it is difficult for me to get bullish on corn when a record crop is still coming our way. Much depends on the S. American growing season. If it continues to get off to a good start, both corn and beans should stop moving higher sooner rather than later. I am monitoring both charts to get a sense of these all important foods, not to mention wheat, which also has stabilized. That however seems to me to be more a function of spillover buying from the corn and bean markets than any outright bullish wheat fundamentals.

Stay tuned...

Friday, November 8, 2013

Gold Falls Under $1300

The combination of rising interest rates here in the US on the heels of a stronger-than-expected headline number for the jobs report and a higher Dollar left gold without much support in today's session.

Technical and psychological damage was done, first by losing the "13" handle and secondly by failing to hold near $1296.

The 1280 level did hold the metal today but I suspect it was more a case of shorts ringing the cash register after having a good week than it was a concerted buying binge. After all, if the US Dollar is prone to further gains in the week ahead, why would there be any rush to jump into gold in a large way? Why not wait for some further weakness to see if that develops and pick it up at a lower level? That would seem to be more prudent would it not?

What gold does early next week will be important. If it drops lower and fails to hold again at or near the $1280 level, odds favor a further move down to test the swing low near $1250. Bulls need to rapidly regain the "13" handle to re-establish the range trade that had been ongoing between $1300-$1305 on the bottom and $1320 on the top. Only if they can best the $1320 level do they have a shot at taking price backs towards $1338-1342.

Oh and by the way, the CFTC has gotten caught up on the Commitment of Traders data and we are now current with today's release covering the price action through Tuesday of this week.

Can we use this report to PLEASE, PLEASE but an end to this nonsense of "FLASH CRASH" chatter that is the latest fad among too many in the gold community seeking to affix the blame for a poor showing in gold to the nefarious bullion bank crowd. The data (again only thru Tuesday of this week ) shows that the brunt of the selling in gold has been originating from the Managed Money or Hedge Fund crowd.

Based on the Futures Only data, hedge funds sold a total of 10,319 futures contract in the period from Wednesday, Oct 30 - Tuesday, Nov 5. Using the Futures and Options data combined, that number grows to 13,018. Over that same period gold declined in price $37 from $1345 to $1308. This does not even include the further declines seen Wednesday thru this Friday where gold reached a low of $1280 before bouncing slightly. Clearly, the selling hitting the gold market is coming from hedge funds so let's put this latest sensational but utterly wrong concept behind us and move on to get to the truth. Note - the little bit of selling that we did see from the Commercial/Producer side of the equation came from long liquidation and not fresh short selling.

Do you not find it exasperating to see some continue to promote this ridiculous theory all the while  the largest gold ETF, GLD, continues to lose gold as Western based investors sell their holdings of the metal and buy stocks instead? What is so hard to understand about this? Investors and fund managers are looking to maximum returns. If they are long only funds, they will buy things that go up, namely equities. If they can go long or short, they will sell those things moving down, or at least failing to go up in the hopes of making some better profits on the way down. It really is as simple as that.

The question that none of those who keep promoting this rubbish can answer is what nebulous force is compelling investors to sell out their gold holdings in the ETF and gobble up equities instead? Is this same compulsion moving their fingers to hit the sell button when it comes to their gold shares as well? Is it Sauron who has returned in the form of the Necromancer and whom has cast a spell upon them all? Maybe it Darth Sidious who is using the dark side of the force filling them with an irresistible urge to sell?

Seriously, this is the sort of thing that gives many otherwise fine people in the gold community a bad name and discredits them when they really do have some good data to present that is worthy of note and thoughtful consideration. But when nearly every single move lower in gold is blamed on the bullion banks and the powers that be, it really becomes somewhat tragic.

US Dollar Strength Derailing Gold

One look at the following weekly chart pretty much says all that one needs to know about what is happening to gold and why. This week and last week, the US Dollar has been higher. Guess what happened to gold over those same two weeks? Yep - it went lower.

The two weeks previous to those the US Dollar was weaker. Guess what gold did back then? Yes - it went higher.

It is all coming back to the US Dollar once again. Simply put, rising interest rates in the US tend to favor additional strength in the US Dollar as traders fear that apparent stronger economic readings will bring the Fed back in on the TAPER SIDE of the QE equation.

When you toss in the fact that Euroland just got hit with a surprise rate reduction yesterday, is it any wonder why traders are favoring the US Dollar right now? It is also helping the greenback immensely that foreign investment appetite for US equities which continue their one-way trek higher is boosting demand for the US currency as well.

All of this adds up to some very difficult headwinds for gold to overcome.

You can see on the chart that the US Dollar is in a slight, but observable upwardly moving price channel. Moves down into support at the rising bottom trendline of the channel, are keeping the greenback above the rectangular support zone noted.

Also, note that the indicator is at levels commensurate with rallies.

By the way, for the ag guys out there such as myself, today's USDA report was considered friendly towards corn and bullish for beans while bearish for wheat. We might have seen an interim bottom in the corn market although we are still talking about a record US corn crop. USDA reduced the harvested acreage number but kicked up the per acre yield. However, the emphasis on this report seems to be on the demand side of the ledger with the agency expecting that to increase due to the low cost in comparison to previous years. Recent  export sales have moved up significantly over the last couple of weeks leading some to expect additional demand to surface.

More on this later....

Bulls Buy the Dip in Stocks - Get Rewarded Once Again

Pavlov's Dogs could not have been conditioned any better than those who have used every single bout of weakness in US equities to reload the boat and secure more stocks.

The stronger-than-expected jobs number ( combined with upward revisions to previous months ) initially jolted the market as TAPERING FEARS were running rampant as soon as the numbers hit. Down went stocks as traders began crying that the punch bowl was going to be taken away. Not to fear however; dip buyers began talking up the numbers as a good thing and thus positive for stocks ( Heads - I win; Tails - you lose). The technical support zone held and back up they went.

Note that the volume is very large on the move higher which no doubt is a great deal of short covering as once again attempting to short this market has proven to be a fool's errand. At some point, and I honestly do not have the faintest idea when, the bulls will go to the well once too often and we will finally see this bubble pop, but for now, it continues to shrug off any warnings of internal deterioration.

Each time this market has moved lower, bulls have moved in, bought the dip and then been rewarded by a move to yet another all time high. However, this time around we do have the POTENTIAL for a double top up above 1770. Shellshocked bears are going to be watching very closely for any signs of this market stalling  out. They have gone back into hibernation today but will awaken in a surly mood if the technical chart tells them to pounce.