"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, October 18, 2013

No follow through for Gold

Once again gold reminded us all of the serious obstacles it faces in generating any widespread interest outside of the usual circles comprised of gold bugs and other die hard fans of the metal. It puts on a spectacular upside spectacle one day and the next it just seems to wither up and die. That is what happens when you get a sharp burst of short covering - violent moves higher which quickly run their course - that cannot attract any follow through momentum based buying but instead runs into another round of eager sellers.

In other words, the metal is still stuck in a trading range unable to break out either way with much conviction. I think this goes to the point of what I have been saying of late - until or unless we see some sort of event/events which precipitate a change in the CONFIDENCE of the global investment community towards the monetary authorities and/or political leaders, rallies in the metal are going to be viewed as selling opportunities. Why? Because the investment community is convinced, absolutely, that there is no inflation nor will there be any for the foreseeable future.

Need proof of this - see the following chart (again - for the umpteenth time). Commodity prices are relatively stable and have been for some time now. If anything, the sector has a slightly negative bias to its chart as the index has been slowly grinding lower the last two years now.  This is the reason gold, and especially silver, are going nowhere. The momentum based crowd is not interested in chasing prices higher nor will they be until or unless there is solid evidence that the "BUY TANGIBLES" theme is back in vogue.

Much of this will depend on what the fortunes of the US Dollar are over through the end of the year. The dollar is weak but has not completely broken through technical chart support. I would only become concerned about the Dollar if it were to first mount a WEEKLY CLOSE below the 79 level but more so if it crashed through 78. That to me would indicate that a SHIFT IN SENTIMENT towards the greenback has indeed occurred. That would signal that LOSS of CONFIDENCE thing that I just mentioned. Should that take place, I do believe we would see a concern that inflation would result from the weakening currency and that would bring about the possibility of TANGIBLE asset buying once more on the part of the speculative community. That is simply not present right now.

What is present is the mania in US equities. This beats even the craze leading up to the 2000 fiasco if you ask me. The VIX or Volatility Index is plumbing multi-year lows as the S&P 500 pushes into one new record high after another. There is NO FEAR out there anywhere in sight. The only fear that I can see at this point is the FEAR OF MISSING OUT ON A MARKET THAT CAN NEVER STOP GOING HIGHER. Yes, indeed, the era of the never-ending bull market in stocks is firmly upon us.

Tell me something, how in the world is gold ever going to mount any sort of sustained move higher or generate the sustained buying (another way of saying the same thing) necessary to push it constantly upwards when the stock market makes one new high week after week  - This all the while the pundits and other talking heads assure us that stocks are still cheap! Who wants gold when you are guaranteed spectacular profits in a NO WAY YOU CAN LOSE MONEY scenario, all courtesy of the fools at the Federal Reserve who still cannot see a bubble if it walked up to them and slapped them across their clueless faces?

When even the perma bulls begin to say out loud what many of us have been saying for years now (this market is resistant to any bad news of any kind) you know you damn well have a mania taking place. The deal is however, that as a trader or shorter-term oriented investor, you have to put aside any reservations you have and go with the herd if you are going to make any money. All I can say however is that you had better be quick on the draw and be able to get the heck out of Dodge in a hurry if things turn sour. Until it does, enjoy the ride.

A quick look at the gold chart... This is a 4 hour chart. Notice the trading pattern - a broad range noted within the colored rectangles making support and resistance. Also notice that since the short covering burst higher yesterday on pretty good volume, that same volume just dried up as the price approached the top of the trading near $1330 - $1340. What that tells me is that speculators are not the least bit interested in chasing the price higher RIGHT NOW. For that to change, we will need to see something on the technical price chart where a overhead resistance levels gives way in convincing fashion. That will draw the momentum crowd into the long side. For now, they are either shorting the market or staying out of it altogether as they seek more profitable opportunities to deploy their massive capital firepower elsewhere.

One last thing - let me comment on something going around the web drawn from my friends over at GATA. This will probably not endear me to some but I feel it needs to be said as there is too much trading misinformation out there. It seems that some keep taking note of large sell orders hitting the gold market during relatively thin trading conditions taking price lower. This is made a big deal out of and offered as proof positive that some nefarious powers want to break gold lower in order to discredit the metal and is thus part of the manipulation scheme.

Let me first and foremost note that I firmly believe the powers that be here in the West carefully monitor the gold price and that they are active through the bullion banks to try to keep the metal under wraps and prevent it from careening higher. However, and this is key - this occurs during times when gold is in a strong, sustained uptrend especially when bullish enthusiasm and excitement is at its best. Gold does compete with the US Dollar and thus it is important that anything that tends to undermine confidence in that Dollar or more specifically in the political and monetary leaders of the US be kept under wraps as much as is possible.

That being said, when gold is moving lower, the bullion banks are generally buyers, not sellers. The sellers are hedge funds and other large speculators. Just take a look at the Commitment of Traders report if you doubt that. Here is a good question for those who keep incorrectly pointing to these large sell orders as evidence that the culprits (whom they always equate to the bullion banks/government ) are deliberately suppressing the price of gold - how come we never hear a peep out of you when the gold price is shooting sharply higher with massive buy orders driving up through series after series of previously placed stop loss orders?  Where is it written that the price can only be driven downward by some nefarious force seeking to maximize their trading profits? Can there not be those large capitalized traders who seek to push a market sharply higher and inflict the maximum amount of pain possible to short sellers when they spot market conditions that permit this?

Look, I trade a host of markets nearly round the clock and I can tell you point blank that in many of the markets I trade, especially the grains and the livestock markets, during the early morning hours here in the US, all manner of crap takes place. I have lost track of the number of times that some hedge fund or large spec has come in and jammed prices higher or lower, depending on which way there were positioned and then waited for the stops to get set off in order to make a quick killing. Every entity that pulls this sort of stunt is of course picking an opportune time in which to maximize the impact of their order placement. There is nothing the least bit out of the ordinary about this, even if one happens to believe it is certainly unethical as I do. ( I believe the exchanges' decisions to move to 24 hour round-the-clock trading in some markets was a huge mistake as it lends itself to this sort of legalized theft).

Gold therefore is no exception to this nor is there any reason for me to believe that anything occurring in there recently is anything out of the ordinary. Hedge funds, whom I believe have destroyed the integrity of our markets, are a like a plague of locusts that have descended upon us as they shove markets all over the place, many times without rhyme or reason. They are not the least bit interested in maximizing a selling price - they are interested in pushing price in the direction in which they are positioned.

Also, keep in mind that once upon a time, in a galaxy far, far away, large sellers or large buyers went about their business in as quiet and sophisticated method as was possible. They tried to hide their large sells or large buys so as not to alert other traders to what they were doing and thereby get in or get out before the herd came along. Those that followed such skilled practices are for the most part, long gone, dead or retired. The modern hedge fund has a computer that replaces the brains of the trader and it is programmed to sell a certain amount or buy a certain amount of contracts without regard to its impact on most occasions. In other words, they are brutally clumsy because the idea is to simply get out and get out FIRST before the next guy. Why wait and try to be sly about it when the entire trading strategy consists of responding to whatever the last price tic happens to be?

How I view this gold market right now then is that hedge funds, while still net long the market, have been increasingly interested in playing gold from the short side. That means they will be selling rallies or seeking to knock price lower when they feel like they can do so and have the greatest impact on price. What is necessary to prevent gold from succumbing to their selling then is for those who are interested in buying the metal to come in and make their presence felt with the same gusto/determination that the short sellers are exhibiting. If and when they do, we can pick that up on the price chart as it shows up as a SUPPORT level. If their buying is sufficiently large enough, they can force the price higher and in turn pick off the buy stops of other short sellers and turn the tables on them. That is what happened yesterday.

Let's see what next week brings to us and whether or not gold resumes its range trade and heads lower or if bulls can chase it higher and up and out of the top of that trading band.