Talk about a stark contrast from one day to the next! Yesterday we were all sifting through the inner parts of the FOMC statement and noting the dovish tone and the more downbeat assessment of the US economy from the Fed. Today the ISM (Institute for Supply Management) number for the month of July hit the wires and boy howdy was it a shocker.
Activity for US manufactures took a big leap upward to 55.4 from June's 50.9 reading! That was the best reading since June 2011.
If that was not enough, the employment component of the data jumped to 54.4 from 48.7. That, coming on the heels of today's jobless claims number, which came in at 326,000 versus an expected 345,000 got the attention of traders in a big hurry. With that, stocks were off to the races, bonds plummeted and the Dollar soared against all of the majors.
Guess what, gold barely moved! I find that rather remarkable considering the fact that we had a HUGE MOVE UP in the Dollar based on talk that the TAPERING was back on. Normally, with tapering talk back on, a surging Dollar, rising interest rates, etc. gold could have been expected to get knocked for a loop. It is holding steady as I type these comments and is oscillating on both sides of the unchanged level.
The metal had a strong move overnight as yesterday's dovish FOMC put the kibosh on the gold bears and had them second guessing whether or not they should aggressively sell in the face of such a dovish statement. However, it did run out of buyers up near $1330 and then retreated back down towards $1308 where once again, just like it has been doing of late, buyers showed up in a big way.
So here we are back near the bottom of the price range again and that means one thing from a technical aspect - the support zone I noted on yesterday's chart is intact but it MUST HOLD to prevent a drop to $1300. If that gives way, gold will move towards $1280.
Can you notice how the bears are selling up against that downtrending 50 day moving average? Can you also see how stubborn this overhead level of chart resistance is?
What is weighing on gold today, in spite of its strength, is the fact that the miners are moving lower once again. This is making some longs nervous because the shares seem to have gone back to leading bullion whether it is higher or lower of late.
Let me comment here also a bit further on the backwardation thing - I mentioned that I would keep us posted if the delivery month contract, August, were to move to a premium over the next month contract, which for all practical purposes is the October. Currently, as of this hour, the BIDS for August are running about $0.40 premium to the bids for October and are actually on a par with the December. They are also a mere $1.00 discount to the February 2014 gold contract. NOW, we have the beginnings of a true backwardation structure on the futures board that we have not previously had. It is not completely there yet but for today, it certainly is moving that way.
Now whether or not this translates to a higher price is uncertain. So far, as mentioned above, even with the August contract moving out to a slight premium to the October, gold is failing at overhead chart resistance. It has not broken down technically but it also has not broken out to the upside either.
I have written repeatedly here that PRICE ACTION is the ultimate arbiter of whether or not a development is bullish or bearish. Gold thus needs to prove itself.
Let me give you an example using corn... just today the BASIS for cash corn in Cedar Rapids, Iowa is a whopping + $1.20. That is huge! It means that old crop corn in that location is fetching $1.20 more than the nearby September futures contract which is currently trading at $4.87 as I type this. Cash buyers of corn at that particular elevator are therefore willing to pay, as of today, $6.07 for a bushel of corn when all they have to do is to wait a month and they could get it for $4.87! Someone must need it quite badly.
However, here is the point, while the basis is positive the corn chart is awful....
the price is sinking lower, the basis is positive. In other words, a FUTURES TRADER who moved to buy corn based SOLELY on the positive basis, would have ended up losing a huge amount of money, not to mention the fact of lost profit potentials from using the price action to dictate a short position instead.
I understand that corn is not the same as gold mainly because we have TWO different crop years we are discussing right now and are trading off of in the futures markets, but the main point that I am trying to make, AS A TRADER, is that PRICE ACTION DICTATES whether or not any event has significance to market participants. Never forget this concept if you are to be successful TRADING.
The delivery process for the second day in August gold futures was relatively quiet compared to the large issues from Deutchse yesterday. Again, Morgan was a large stopper with the house taking the bulks of the sales while ABN AMRO was the large issuer. Not much to take away from this right now. We'll keep an eye on it as the delivery process unfolds.
Incidentally, let me take a bit of time to bring up a topic that some might find a bit odd but I feel needs to be addressed in a more public manner. It concerns some of the things being said about King World News here among posters at my site.
First of all, Eric King and his lovely wife Lizz are personal friends of mine. They spend long hours working to bring us interviews from some very smart people many of whom share the same economic world view that I do. While I may not always agree 100% with some of their views, my long term view on where the US is eventually heading is the same as the majority of the guests that appear there.
It needs to be kept in mind - I write primarily as a TRADER. that is vastly different than someone who has an INVESTOR mindset. Traders by nature have to be more short-term oriented if they are to survive in these leveraged markets. An investor can take a longer term approach and not be as concerned about the ups and downs and vagaries of a sector that they have invested money into if they have done their homework or due diligence and are settled in their convictions. Nor do they generally have the exposure to the kinds of leverage that we traders must take on.
What this translates to in real life is that a trader can have a longer term, fundamentally based view of a market while simultaneously understanding that same market can be moving in the opposite direction of that long term view. During such times, prudence dictates that one go with the flow of the money in order to be successful. That means one can be short term or even intermediate term bearish while maintaining a long term bullish view. The opposite is also true - a market can be moving higher while the long term fundamentals suggest it is heading lower.
I know this seems to confuse some who read this site but as I have often said, I wear TWO HATS over here - one of a TRADER and the other of an INVESTOR.
That being said, KWN is not and never has claimed to be a "Trader's Website". It is more of a big picture view of things and thus tends to have a longer term perspective on the precious metals. There are some guests there, myself included, who tend to focus more on the technical aspects of the gold and/or silver markets on a weekly basis and analyze price action accordingly. That means there are times when I am going to be in a bearish posture while some of the other guests are going to be bullish. Please understand this.
So I am asking those who post here to please keep this in mind and to cease from making any derogatory comments about the network or its guests. I personally have no problems if OPINIONS are debated or questioned as there is always two sides to any markets, bull and bear, but I do have a major problem with insulting someone's character or denigrating them personally because of a difference of market opinion. That honestly serves no useful purpose.
My purpose in spending time writing at this website and doing interviews over at KWN, is to try to teach others some of the things I have learned over a lifetime now of trading so that they can make their own INFORMED decisions as to what they want to do with their money. You know the old saying: "Give a man a fish and feed him for a day. Teach a man how to fish and feed him for a lifetime."
For so doing that, some of the personal emails I have received in private of late are downright vile merely because I have chosen to differ from some others who are prominent among the gold community.
Look, we are all human and we are all going to be wrong from time to time. That should not come as a news flash to any decent individual who is honest with themselves and others. If any of us were omniscient, he or she would have more money that Bill Gates. I would like to be able to boast that I have never had a losing trade. In my dreams only is such a thing true. The idea is not to be 100% perfect; it is rather to be right MORE OFTEN that you are wrong. If you can do that, and do it on a consistent basis, you can make money as a trader and as an investor because even investors with long term horizons must deal with unforeseen events or circumstances that alter the fundamentals behind the assumptions that moved them to invest accordingly in the first place.
Humility is a grace/virtue that all of us, myself included, would do well to pursue as we remember our own foibles and weaknesses. That does not mean we cannot be passionate about our beliefs nor go after falsehood or error; but unless we have firsthand evidence, that is plain to all thinking folks with common sense, that someone is corrupt, attacking them personally and denigrating their character merely because they have a different opinion on a market is not something that any of us should be in the business of doing.
So posters here - please keep this in mind as I am going to try to be a bit tougher on things if I see them getting out of hand. Exchange of ideas and views is welcome, not character attacks....
"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
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Thursday, August 1, 2013
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