"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, September 13, 2013

Surprise Late Session Rally in Gold

I just completed my weekend interview with Eric King over at King World News for the Metals Wrap. We were discussing the very late in the session price action in gold and talking about the impact of the news story that he broke with Andrew Maguire about the whistleblowers from Morgan and the gold price manipulation scheme.

I remarked at how unexpected the late-in-the-day rally was to me and was wondering what might have caused the surge in volume late on a Friday to produce it.

It certainly appears that as the story made the rounds, a lot of interest was generated in buying both from fresh longs now looking for a bottom as a result and some nervous bears who were unsure how the market would react to it.

We now await the open of trade in Asia Sunday evening to see how traders over there will react to the story and whether or not gold can at least clear the $1330 level to signal whether or not another short term bottom is in the market.

I am putting up a THREE HOUR CHART, to show you the spike upward during the last three hours of trading. I also noticed that for a Friday afternoon, the volume was unusually high. Normally, we see hardly any volume whatsoever that time of the day on a Friday as most traders are long gone for the weekend.

Should be interesting Sunday night - just not sure what we are going to get....

Same Play; Different Act for Gold

Nothing has changed in the least iota for gold - it continues to drop through one support level after another as traders/investors simply have no incentive/desire to chase this market higher. If anything, they are shorting it.

This is why I have been trying to publicly rebut that nonsense out there that gold is in backwardation and is therefore wildly bullish. Guess what? The market action tells me that it could care less about that sort of claptrap. You will get some who should recant this stuff but instead they will blame it on the nefarious bullion banks instead.

Also, while JP Morgan was the big buyer/stopper during last month's gold delivery process, this month they have been issuers/sellers out of their House account, albeit not to the same extent that they were buying last month.

Look, I agree that the feds have a vested interest in keeping the gold price under wraps as it competes directly with the  US Dollar but we have a proven track record of the Commitment of Traders for over 12 years now detailing that the nasty bullion banks are always selling DURING UP MOVES... if they do anything while price is breaking lower, they are covering shorts or buying. The current wave of selling that has been occurring in the gold market this week is largely due to hedge funds, not the bullion banks.

We will get this week's  report later on today and I can analyze it then but it should be noted that it will not include the price action from Wednesday through today and I can tell you fairly confidently that it was not bullion bank selling that took the market down through $1360 - $1350 and again through $1320. It was hedge funds... what the bullion banks were doing was selling up near $1400 as the remaining vestiges of hedge fund shorts who were exiting were buying. They provide the cap and then let the hedge fund computers take over but they DO NOT CHASE PRICE LOWER. PERIOD!

Arguing against the price action is a fool's errand and is the last refuge for those who are wrong and cannot admit it. As I have said many times, there is nothing to be ashamed at when one is wrong about a market's direction. We all have been there ( I surely have many times) as we are all mere mortals and are not omniscient (there is only one Being that is). The key is to quickly admit that the market does not agree with you and take corrective action if you are a trader so as to avoid suffering serious losses. Doggedly refusing to acknowledge the obvious however is a recipe for disaster especially in the futures markets where the extreme leverage can inflict such carnage in such a short period of time.

What I am taking away from the recent price action is that gold is back to experiencing "Tapering" jitters. Hedge funds apparently are more and more losing their concerns about the degree or extent of any Fed tapering and thus are becoming emboldened to play gold from the short side as there is yet no solid evidence of widespread inflation issues. Just today Goldman came out with a recommendation for investors to use any bouts of weakness in the equity markets to accumulate stocks as they see a "dovish" tapering of only $10 billion per month if the Fed moves in that direction.

While that may be good for stocks in Goldman's view, apparently gold is getting increasingly nervous about it.

Incidentally, one has to marvel at how the Dow people included Goldman and Visa in the Dow "INDUSTRIALS". My suggestion is that they just scrap the entire term and replace it with "those stocks which go up". I am waiting for them to throw out another one of the Dow 30 and replace it with Tesla.

There is a mixed signal coming from the food sector where the grain markets have become a two-sided affair. On the one hand, the corn market finally experienced an epiphany today as it comes to terms with what looks like a record breaking corn crop. Corn prices scored a THREE YEAR LOW today. Corn is such an integral part of the protein side of our diets as it is the main feed ingredient for cattle, hogs and poultry. With falling corn prices hopefully comes cheaper meat/poultry over the longer term although near terms issues will dictate current price levels. That will tend to keep food prices a bit tamer than they would have otherwise been thus pulling away a key part of the inflation picture.

On the other hand, soybeans have been on a tear of late as the recent bout of hot/dry weather over large parts of the Midwest have turned what at one time looked like a record breaking crop into a much lower than originally expected national yield. This will impact poultry producers and hog producers to a certain extent but not nearly as much as corn will impact them in the other direction in my view.

All in all, I do not see the same upward price pressures in the food sector looking out as I did at this time last year. It could be some of the eagerness to press gold lower is coming from this concern. For whatever the reason, the gold market is simply not attracting sufficient buying interest from Western investors to drive it higher at the current time.

About the only positive that I could see in the gold sector today was the fact that the HUI did not implode even though it remains lower as I type these comments.

The yield on the Ten Year remains just shy of the 3% level having backed off from that key point this week. Still, when one considers that at the first of May the yield was 1.6%, that is rather stunning for the degree of increase in less than 5 months. After all, it has almost doubled!

As far as the gold chart goes - it is the same from yesterday except the price is lower. Gold is perched quite precariously right at a chart support level, which if it does not hold, will allow the market to fall through psychological support at the $1300 level. It barely held on today moving to within less than $5 before rebounding somewhat. It is trying to hold here in the afternoon which is constructive but I need to see this market push back above $1330 before I would be a bit more comfortable or optimistic about it.

The thing that gets my attention is the fact that the ADX line is continuing to rise as the price moves lower. This is indicative of a market that is entering a trending phase but as I stated yesterday, I generally like to see the ADX ABOVE the 20 level to confirm that. The indicator does however show the bears currently in control of the market with the market unable to stay above the 50 day moving average as it did yesterday. The prognosis near term is for further weakness unless the bulls can come out swinging Sunday evening and force some sort of abrupt turnaround.