"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


Friday, June 7, 2013

Gold Specs Washed out and Wrung on Friday

Once again we get a Friday with a payrolls number and once again we get a wave of selling in the gold pit. It does seem as if this has been pretty much the norm for as long as I can remember.

The catalyst was the "Goldlilocks" jobs number of 175,000. I have no idea where this kind of rubbish comes from but somehow, "analysts are in agreement" that the number was not too hot and not too cold, but just perfect, at least for equities (when is anything not perfect for equities these days?).

The talk was that a stronger number would have meant the Fed was going to dial back on its bond buying program or TAPER sooner than expected. A weaker number would have ensured more QE but would have been regarded as disappoint for the overall economy. It seems to me that when it comes to equities, it is "HEADS - I win; TAILS - You lose".

Perversely enough, equity perma bulls were cheering the number as being conducive to no cutting short of the current round of QE but gold bears were crying up the number as proof positive that the economy was coming around and that the Fed was going to indeed begin tapering? Seriously, both pits looked at the same data and came up with two completely, antithetical hypotheses.

Bonds got in on the action as well as traders in that pit seized on the 175,000 number as evidence that the bond buying was going to taper off. Down they went once again and up went long term interest rates. AS a matter of fact, the yield on the Ten Year Note closed at 2.161%, fully 4% higher on the day.

The bond chart is increasingly looking like it wants to break down further as rallies cannot seem to stick. If they take out this week's and last week's low anytime soon, they could easily drop another 3 full points. Both the Fed and the Bank of Japan are now experiencing something that I am sure is not set down in their playbook, mainly how to deal with rising long term interest rates in economies that are not strong enough to handle them.

That brings me back to gold - with safe havens being jettisoned so that money can be put to work in equity markets, "gold is looking for love in all the wrong places; looking for love in too many faces," to quote an old Johnnie Lee song. Any of the readers who ever had a chance to visit legendary Gilleys down in Pasadena, Texas, before it burned down, will remember Johnnie. The metal just cannot seem to engender any sustained speculative buying. All that money is chasing equities instead of no yield gold.

While this week's COT report shows some short covering on the part of the hedge fund community, rest assured that they were selling quite vigorously today. We saw some light covering on their part with the pop through $1400 but when it stalled out, they were back to selling.

I have said it here many times recently and will say it again - specs are looking to sell rallies in gold. They will do so until it can convincingly clear $1420. Those who keep talking "Bullish" on gold while the specs are in a selling mood, simply are not experienced traders. Specs drive markets; not commercials. When the speculative selling trend reverses course and they move to buy dips, then and only then will gold make a SUSTAINED move higher. If anything, gold's poor close this week will further embolden the bears early next week. It will be up to Asian buying to save the day for the yellow metal.

The gold shares, as evidenced by the HUI, cannot find any strong sponsorship. Technically, until the HUI can close the chart gap between 285-301 or so, they are stuck going nowhere. That gap is critical to the future of the mining shares. It will either be filled and have a close ABOVE IT, or it will continue to act as an overhead barrier blocking all pops higher from becoming a sustained trend higher. I am hopeful that the bottom near 244 does not fail; if it does, the gap will have been proved to be an ISLAND GAP lower and the index could fall all the way to 200. At that point my guess is that even the long term holders of the gold shares will curse the day they ever thought of owning any of these things and will probably never return to the mining sector as traders or investors as long as they live.

The Dollar looks to have been stymied in its upward march at the 84 level on the USDX. Perhaps it is carving out a trading range; I am unclear. It will take a weekly push past 84 now to reignite the uptrend that has been in place for nearly a year now. Support lies at every round number interval on the way down; first at this week's low near 81 followed by 80 and then by very strong support near 79.