"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, December 4, 2013

US economic data spurs Commodity buying; Equities weaken

We were treated to several pieces of economic news in today' session. The ISM number, private jobs numbers from ADP and New home sales.

New home Sales numbers were up 25% in October compared to September. The spike was the sharpest monthly increase in more than 30 years. It should be kept in mind however that the September number was especially low.

Some things I am taking away from this report - first, the average price range of the homes sold was lower. Second - home mortgage loan rates have been rising. That is pushing down the price of the home that many buyers can afford. They are obviously opting for lower priced homes.

Regardless, that coupled with the news from ADP that 215,000 private sector jobs were added last month ( the market was expecting 178,000) brought in a significant amount of buying into the copper market. That yanked silver higher as those two metals have recently been moving more or less in tandem.

Later in the session gold then seemed to finally catch up as we got yet another one of those sharp, short covering rallies that gold has been famous for over the last few weeks. We'll have to see how long this one lasts. AT least the mining shares as evidenced by the HUI stopped moving lower today as well. For once we seem to have those going higher alongside of the actual metal on the Comex. That is always helpful to the bullish cause.

I am really not quite sure what the catalyst was for the pop higher in gold other than the fact that it managed to hold above an important chart support level near $1200. Also working in its favor is the fact that crude oil prices have been moving strongly higher now for the last few days. Traders continue to anticipate that the opening of that new pipeline from Cushing down to Port Arthur is going to relieve the burgeoning crude supplies at that key point even though stocks of the black liquid remain extremely high. Notably, refinery runs are very strong and this is helping to pull down the number of barrels in storage. Traders are expecting these newly refined products to be exported out through the Gulf of Mexico. This continues to put a floor under the unleaded gasoline market which had been dropping rather precipitously of late. Heating oil prices are firm. Lots of cold weather around.

We also had another burst of money flowing into the soybean and corn markets this morning. In effect, we had higher energy prices, some higher grain prices, a rise in cotton, a rise in the base metals, etc... It seemed as if the play for today was to generally buy commodities once again. When you get the kind of rally that we witnessed today in copper, and then in silver, it is going to be hard to press the gold lower. That means short covering as shorts do not want to lose profits or if they have sold near the bottom, develop large losses.

Interestingly enough, the sharp spike in interest rates did not offer much in the way of support to the US Dollar. It basically floated around the unchanged level for most of the session. That makes the strength in some of the commodity markets all that more notable.

I keep watching this S&P 500 and it keeps looking the same to me, namely "toppy" but so far it continues to hold up. I am once again noticing a higher day in the VIX. With the yield on the Ten Year note reaching a high thus far of 2.852%, we might be seeing a general round of NERVOUSNESS beginning to creep into these equities. I remain of the view that equities are going to have to break down to give us a SUSTAINED move higher in gold.

I mentioned that I would be watching the gold delivery process as it unfolds for the month of December. As expected, JP Morgan continues to be the standout LARGE STOPPER for their HOUSE account. Morgan has been buying the physical against hedge fund selling.

Gold's bounce up and away from that critical chart support level down near $1200 has been impressive. No doubt there will be some technical chartists looking at this and calling a double bottom on the intermediate term chart. I will need to see the metal scale $1280 at a minimum however and RETAIN those gains before concurring with that view. I would also need to see some more definite signs of a solid bottom in the HUI as an additional confirmation.

Also, the big test for gold, will come this Friday as we await the next payrolls number. If the number comes in stronger than expectations, look for that TAPERING chatter to start up again which would likely pressure the gold market as it should bring some strength into the Dollar.

The problem that the Fed has however is the same as it experienced this past summer. Rising interest rates threaten to crimp consumer borrowing. The Fed gets extremely nervous as a result when the yield on the Ten Year starts creeping closer to that 3% mark. If the bond and note markets react to the number by pushing lower and thus kicking rates higher, Fed officials, especially the more dovish ones, may not welcome the higher long term rates. I would expect them to hit the microphones and beginning tamping down any tapering expectations if that is indeed the case.

Keep in mind that as traders we are watching for a change in inflation expectations/sentiment to occur in the market. Once that occurs, the metals will respond accordingly. Until it does however, rallies will be viewed as shorting opportunities. Stay nimble and do not get married to any particular view. Let the market tell us when things are changing.