"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


Tuesday, December 10, 2013

Gold Mining Shares having a Strong Day

Barclays, in one of their research notes today, named Goldcorp as one of their top picks for 2014. They cited an expected increase in gold production of some 33% by the end of the year 2015. This is the result of heavy cap-ex in 2013 to bring these various projects to a state of production. They expect that spending will drop considerably in 2014 while gold output increases. The study also cited an expected cost of production at $888/ounce compared to the industry average of $959/ounce.

GG is up some 3.4% as I type these comments. The HUI is actually doing better as it is up some 4.2%.

It is refreshing to finally see some notes like this hitting the beleaguered mining sector. Value-based buying could very well put a bottom in the mining sector. If, and this is a big "IF", the shares stop moving lower, gold, the metal, will not be far behind. I would keep an eye on the reported holdings of the gold ETF, GLD, to see if that bleeding finally has been stemmed and the reported holdings begint to rise. That would be a clue that the worst is over.

Again, the jury is still out on this in my view but the chart action looks encouraging for a change. Even Barrick gapped higher today and is currently up over 5% on the day! It opened sharply higher on a strong gap and then pushed through the 20 day moving average. That is the first time it has been above this level since October 30th!

Note that the ADX has turned lower from a rather lofty level indicating a pause or interruption in the ongoing downtrend. The market could move into a consolidation pattern at these levels with value based buyers perhaps cementing the recent lows just above $15 as a higher secondary bottom from the low made this summer. The stock could conceivably move up to as high as $21.00 or so and still be in a broader range trade. If it were to climb past that level, on decent volume, it would confirm a long term bottom is in.

Barrick's lousy performance has been a type of proxy for the entire sector as a whole so if this stock were to turn and begin a leg higher, the rest of the sector will more than likely go along for the ride as well. Don't forget that just because a stock stops going down does not mean it is going to immediately start a sustained move higher. It could conceivably meander sideways for some time before a catalyst of some sort kicks it up and out of a range trade.

The intermediate term Weekly chart still shows the bears in control of this stock so try not to get too slap happy. Remain objective ( if you can) but enjoy the respite from the selling barrage.

Grain Day

Lots of fireworks occurring in the grains today on the heels of a major USDA report. Currently all of the grains ( I am including beans in this category) are lower even though the numbers for corn and soybeans were initially considered supportive.

USDA lowered US stockpiles for both corn and beans based mainly on an expected increase in exports due to the lower prices we have been experiencing especially compared to last year. However, they did raise total global bean production, mainly due to an increase in Argentinian production. My reading of this report informs me that there is certainly not going to be any acute shortage of soybeans around. Usage has been strong however and that is keeping a floor beneath the market.

Expectations for beans heading into the report were for a reduction in the ending stocks; however, the number was within expectations and prices moved lower on a "buy the rumor; sell the fact" scenario.

Wheat stockpiles are growing. USDA raised the ending number by 10 million bushels above expectations catching some in the trade by surprise.

Overall the report seems to me to have taken the starch out of the recent move higher in corn and bean prices. It will take some further bullish demand news or some bullish supply side news to kick prices into any further strong rallies.

As many of you who regularly read this blog are aware, I keep a close eye on the grain markets, as well as the livestock markets, to try to get a sense of the overall direction of food prices.

Another thing I am taking away from this report - look for used farm equipment prices to get a bit of a shot in the arm from this data. The big banner money years that farmers had been seeing over the last few year years are over for a while. Corn prices are trading about 50% below their record price and while prices for both corn and beans are still good, they are no where near those historic highs. Maybe some good will come out of this in the sense that the hedge funds can stop buying up farm land in the Corn Belt and prices can bet back to more sane levels.

Shades of Harry Potter

Or better yet - look out for Klingon and Romulan cloaking devices....

This is a fascinating read...

Chinese scientists upbeat on development of invisibility cloak


And some wonder why American students falling behind the rest of the world in science is so hugely important....

Gold breaks Resistance

We are experiencing a nice upmove in gold in today's session which is also being participated in by silver.

There are a couple of things at work today. First, after expectations that the Fed was going to announce a tapering at next week's FOMC meeting, traders have now largely dialed that back.

Secondly, and more importantly, this is contributing to further US Dollar weakness. We saw that yesterday but it is more notable in today's session as the USDX slid under the 80 level.

The Dollar has been recently been trapped in a range trade of its own. The top comes in between 81.40 - 81.00 while the bottom of the range is 79.20 - 79.05. As the Dollar has pushed higher in this range, gold has pushed lower. Now that the Dollar is breaking lower and moving back towards the bottom of the range, gold is powering higher.

In the case of gold, its upward progress has been exaggerated due to the build in hedge fund short positions which are vulnerable anytime one of these overhead chart resistance levels can be violated. That brings on another wave of strong short covering, which coupled with bottom picking, results in some sharp moves higher.

It should also be pointed out that we are now at that time of the year when some traders are going to begin squaring books for the end of the year. Shorting gold has been a fantastically profitable trade for 2013 and many shorts will look at the recent price action and decide to actually book those profits before they slip away.

Remember the old adage in trading: Bulls make money; Bears make money but Pigs get slaughtered.

In looking at the chart there are two things to note. The first is that HUGE VOLUME that I have noted on the chart when gold went back down and RETESTED the recent low of $1210 on that payrolls number. As mentioned in a post that day, the price action caught my attention as it portended a possible exhaustion day of the bearish leg lower. Gold however was unable to extend past the initial resistance level noted on the chart which would have confirmed that $1210 region as a double bottom on the chart. It did so today however and that needs to be respected.

I have made some annotations on the price chart. Today's move higher does open the door to a move up towards what will be stubborn selling resistance near $1290 - $1295. Bulls will want to see gold maintain these strong early-session gains however as the day wears on to give the market a realistic shot at such a scenario.

If this move is for real, we will not want to see the rally being losing steam as the day drags on. That would indicate that the short covering burst is failing to attract FRESH NEW BUYING.

Also helping gold is the fact that the HUI has managed to recapture the 200 level.

I am noticing that interest rates are moving lower once again as traders dial back expectations on the timing of any tapering. That is why the Dollar is seeing selling pressure and why gold is moving higher as a result. Recent action in interest rates reveal that rising rates on the long end of the curve have tended to bring selling into gold. In the absence of any widespread inflation fears, traders have tended to see this as a reason to sell gold.

We'll keep monitoring price action and see if we can decipher what the market is thinking.