"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Wednesday, July 24, 2013

Housing Number Trips up Gold

Today's strong new home sales number caught gold bulls off guard, as it once again fanned the flames of  "TAPERING" talk after Bernanke had put that to rest for a while. Traders had been expecting the recent rise in interest rates on the long end of the curve to impact new home purchases. When the number came out better than expected, it set off a wave of selling in the foreign exchange markets with all of the major currencies dropping off against the US Dollar.

The reason?  - the talk shifted back yet again to the US being the only major global economy in which long term rates were expected to rise. If those higher rates did not apparently impact the all-important real estate market, so the thinking goes, then rates have room to work higher and the Fed can indeed taper sooner rather than later again.

"She loves me; She loves me not; She loves me; She loves me not".   We may see the exact opposite tomorrow for all that any of us know. Once again, we are back to FED-WATCHING. Sigh.....

The proof of this was the sharp selloff in the Treasury markets that dropped the long bond down over a full point and also sent the yield on the Ten Year Note back above the 2.5% level once again. It is currently up above 2.60% as I type these comments.

A rising US Dollar and rising interest rates sent gold lower with the market retreating from the zone near the 50 day moving average and thus unable to build on its gains from Monday and Tuesday of this week. Interestingly enough, the HUI is down quite sharply today (nearly 5%) surrendering all of its gains from yesterday and coming quite close to matching this week's low. It is still trading above that breakaway gap however. We'll have to wait and see if some dip buyers come in later this afternoon. For now, some of the shorter-term oriented metals bulls have been spooked out.

Silver is struggling to hold its gains above that key $20 level. If it can do that and do it convincingly, it can be construed as a moral victory for the bulls considering the sharp selling that is hitting the soybean market and a large number of other commodities in general. That macro trade of selling commodities in the face of a rising dollar picked back up again today with that housing report. If that trend continues tomorrow, it is doubtful that silver is going to be able to stay above $20. It needs help from a "buy commodities" theme and that is difficult to see if the Dollar does not weaken right away.

Crude oil looks as it is breaking down on the charts but there has been a rash of fund type buying supporting that market and whether or not that crowd is ready to give up on it just yet is unclear. From what I can see of the chart, if the price breaks below $104.25 or so, we could see a fair number of downside stops being hit with some of the funds exiting the market.

Moving back to the Dollar - it is not down quite as hard against the Euro as it is against the Yen today. Some of that is due to the fact that some economic data out of Europe was decent today. That is tending to hold some support under the Euro for the time being although the general theme of Dollar buying is dominating today's forex trade.

We'll see how Asia reacts on this retreat in the gold price this evening. I should note that while the spreads on the futures board are fairly tight, the futures board is not in backwardation. Thus there is no signal being given from the futures market itself that there is any shortage of gold at this time. That could change however but for now, nothing doing.

If gold is going to continue moving higher and not experience a deeper setback, it will be imperative that the price find support near the $1300 level if it does dip lower. Failure to hold there and it will see $1280. To generate a renewal of the upside momentum, $1350 needs to be cleared.