"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


Monday, May 5, 2014

Today's Comments

Last Friday's move higher in gold continued overnight when Asian trade resumed and is continuing in today's trading session. On moderate volume last Friday, open interest rose but rather insignificantly considering the extent of the volume, indicating strong short covering was behind the move higher on Friday. That confirms the move lower in reported holdings from GLD.  Also, spreaders seemed to be active as well. Ukraine events are making it tough on hedge fund computers which are being whipsawed as fears rise and fall.

A couple of things are worth noting in today's session. First, there were safe haven flows into gold and back into the yen today, but the yen's gains were rather mediocre and bonds actually dropped today with a corresponding slight uptick in interest rates on the long end. Stocks also moved off of their worst levels. I am watching this closely to see whether or not the market has "baked into the cake" the current events in Ukraine. Events over there are driving gold at the moment meaning that the situation will need to continue to worsen in order to keep driving the price of gold higher and higher. That is entirely possible as the market waits for a presidential election later this month.

That is the nature of a market responding to geopolitical events. It is also the same nature as the grain markets reacting to a weather forecast. Price will move higher accounting for the events/ forecast and then stabilize while traders take a "wait and see" attitude and attempt to anticipate whether things will go from better to worse or vice versa.

Copper was once again tripped up by weak Chinese factory activity data. HSBC China Manufacturing Purchasing Managers' Index came in at 48.1 in April. That was essentially unchanged from March which registered a 48. To understand what this means, a reading under the 50 level indicates contraction. Copper prices seem to have found a bottom but lack an upside catalyst at the moment. It is going to continue to track Chinese data very closely. Some of this weakness in copper is impacting silver which continues to struggle and cannot yet get firmly above the $20 level.

The Dow initially reacted to poor earning news from Pfizer and JP Morgan Chase. Investors seem to have one eye on Ukraine, as fears that the conflicts there could widen out are keeping them nervous, with the other eye on earnings reports. Price rebounded around mid-session however as some bargain buying showed up. Some money managers are using equity weakness related to Ukraine fears as opportunities to buy on a pullback.

Currency traders are not expecting much in the way of action from the ECB although they are nervously eyeing the lack of inflation in the Euro Zone to see if the ECB is going to eventually move to their own version of QE. The consensus at this point is that nothing is going to happen on that front until next month. No one is expecting a rate move in May. We'll see soon enough.

Something that has been fascinating for me to watch has been the reaction of the bond market to the Fed tapering plans. The thinking was that once the Fed began to back out of the $85 billion per month bond buying program ( split almost evenly between MBS and Treasury purchases) that long term yields would spike higher. The reason for that line of thinking was that "no one was going to be left to buy US Treasuries".

Well, that has not turned out to be the case at all. Either the current Fed has become the greatest bond traders to ever exist or they have gotten extremely lucky with their timing. Who would have thought that safe haven buyers would show up to pick up the slack in their Treasury buying? I mean, what could have been more timely than to have a geopolitical event take place during a period of reduced Fed activity in the Treasury markets? Damn, are these guys/gals good or what? 

The flip side to the bond markets this morning has been  the April ISM Service Sector number. It came in at 55.2 against an expected 54.1 reading and against a 53.1 recorded for March. That served to take some of the safe haven bid out of the bond market as traders viewed the improvement as further confirmation of last Friday's surprisingly strong payrolls number.

All I can tell you as a trader is that the interest rate markets are chewing up a lot of guys right now who are getting whipsawed left and right in there as well. It is not just gold - it is a lot of different markets right now that are shredding traders and investors alike. That is why I keep saying that good traders do not always need to be in the market. Sometimes sitting on the sidelines is the best part of wisdom. Besides, there are lots of different markets out there that are well behaved right now and offer better opportunities.

On the grain side of things - Dryness issues are keeping wheat supported at the moment. Soybean inspection numbers released this AM reflect the impact of these sky high old crop bean prices - they are lousy once again. Old crops beans reacted by moving lower. Corn inspections continue to run above expectations and that is putting a strong bid into corn. Farmers are still sitting on large stocks of last year's harvest however and I am not sure what it is going to take to get them to let go of them. When they do, things could get dicey depending the weather for this year's crop.

Coffee continues to act like a yo-yo. The worst nightmare I ever had as a trader was a dream in which I was trapped in a small room with no exit and forced to trade nothing but coffee for a living. I remember waking up in a cold sweat just as I was about to stick my finger in the electrical socket to end my misery. Seriously - who trades this stuff but more importantly, why????

If the Protestant Reformation had not taken place and penitents were required to abuse themselves like the flagellants once did to atone for their own sins, trading coffee futures would have been right up there with that for the top penance.

Here is the short term chart for gold: Gold continues within its range trade. It has managed to recapture the "13" handle and looks as if it might want to try to test the first level of resistance noted near $1320. Above that lies $1330. Support remains intact near $1280.

If events in Ukraine worsen, gold will more than likely take out $1330. That would set up a challenge of tough resistance between $1350 - $1360.

The ADX is turning down after having begun to rise meaning that the potential trending move LOWER has been aborted and we are back to ranging. The short term buy signal from the stochastics indicator can be seen on the chart.

The HUI gapped higher this morning on the opening of US equity trading but so far in the session, that has been the best level. The gap remains open but the index is not adding to gains and is currently below the opening level. That bears close attention. The session is young however.


  1. Geez, I go away for a couple of hours and I come back to find stocks back in the green, and miners back in the red. Ground Hog Day still fully in force. Much to do, and off I go. I could go away for a day, a week, a month, and I expect I would find the same.

    Don't Fight The Tape

  2. The coffee comment was pretty funny.
    You know you're a trader when you dream about commidities price action!

    Time to head outside on a sun-drenched day where I'm at. Finally!
    Have a great day everyone. }:^)

  3. AAPL closed over $600 today, after trading at $6 in 2003, and currently pays a dividend yield of over 2%.

    Newmont Mining closed at $24 today, only $3 higher than where it traded in 2003. And its dividend is negligable, only .4% on its depressed share price.

    Don't get bamboozled.

    Stay in the System.

  4. Either the current Fed has become the greatest bond traders to ever exist or they have gotten extremely lucky with their timing. Who would have thought that safe haven buyers would show up to pick up the slack in their Treasury buying? I mean, what could have been more timely than to have a geopolitical event take place during a period of reduced Fed activity in the Treasury markets? Damn, are these guys/gals good or what?

    there is a lot of meat to write Grisham novel just with that statement ! funny days we live in …. the world has become a pretty grey zone , forget black and white … grey is the new thing !

    well done !

    1. Anon;

      I have already recruited Keifer Southerland to take on the main protagonist role in my upcoming novel/movie as soon as he finishes saving the world once again on his new "24" show!

      It sure does make one wonder at times about some of the goings on in this world, doesn't it?


    2. Link it to all the bankers suicides and you do have your movie in which you will indeed need noone else but Keifer Sutherland if you want to stand a chance to save mankind.
      May I suggest Christine Lagarde as the bad "james bond" girl?
      Putin's wife's life is being threatened, that's why he accepted to divorce and replace her with a young woman totally controlled by the Circle. She relays the orders about Ukraine operations.
      We still need the N°1 evil character.

  5. Great take on the markets Dan.... for me a much better read than gold and silver alone... Many thanks for the wisdom.

    1. Brianinho;

      Thanks for the kind words... you are welcome!


  6. The HUI above the 9 DMA keeps me long for now, but I love no index and it's just another trade for me.

    As always - great comments.

  7. It seems like there is a repeat pattern of prices rising going into the weekend, often in concert with Ukraine tensions.

    then dipping during the week, sometimes more, sometimes less.

    Copper price is static, is that the Kitco ticker that is stuck or is there some kind of worldwide holiday affecting copper ?

  8. As much as the fed is tapering, they continue to funnel all of the interest payments they receive back into bonds. I know I've heard them say this multiple times during press conferences but I've never heard a figure. Is it a significant amount? They always seem reluctant to give a figure... which makes me think it is significant and this is taking up the slack after they taper.

    So essentially the net taper is less than they claim.

    1. Will...that's exactly what I think is going on....the interest from the bond purchases allows the taper to happen without much market consequence.

      I have no idea what the amount of interest might be but given all the QE and other various stimulus programs but the size of the reinvestible interest put towards future debt monetization is probably ENORMOUS and likely to keep the whole scheme afloat for many, many years.

  9. Everyone can see the dollar weakness. Everyone knows about the 18 trillion debt. Everyone knows about the money printing. Everyone knows about the trillions in unfunded liabilities and everyone knows about the corrupt and incompetent leader. So if the PM bulls have anything left in them, there will not be a better time to get to higher prices. There are no more excuses left.

    1. "Everybody knows that deal is rotten
      Old black Joe is still pickin' cotton
      For your ribbons and bows"

  10. It is a Webb of lies from the financial geniuses.

  11. Hi all,
    Still amazed by the quantity of content Dan is able to provide on this blog in addition to having a trading activity and a family. You'll have to tell me how you manage that :)

    Here is a simple chart, still the 2day candlechart because we are now right in contact with its resistance, the ma20 crossing the mlh inf of the upwards pitchfork (was a support, became a resistance) in the 1310-1315 area.
    As the trend on this time unit is down because of both bollinger bands heading down, well, I'm watching it.
    The "usual" daily timeframe shows Bollinger Bands in a range with a top bollinger at 1325, so...just above.
    As mentioned earlier, the road up is full of obstacles for bulls at the moment.
    Doesn't mean we can't climb the "wall of worry", but...in small ranges like this, it is quite difficult to predict any direction for gold imho.
    Better play russian roulette, with Rihanna if possible.
    Have a nice day,

    1. Just a bit unusual that on a day when the dollar is quite weak, that anyone would want to be pressing gold on the short side. But it seems like so far that is exactly what they are doing.

  12. Everybody's favorite once again has mental backwardation; really very sad

  13. Dollar broke down but no effect on gold whatsoever.




    In fact, which price action is worse?


    Or price action of TRX or MUX?

    Tough call, both look terrible.

    The story will be told by the NY Composite Index, currenly less than 1% away from world record, lifetime highs.

    And GDX, which is still stuck near 10-year lows.

    Stay in the System.

  14. I am not bearish on gold although for sure it is in a downtrend, and has been for a while now. There was an article a while back that said the rich favor real estate and the poor like gold. So it seems that is the way for the poor to stay poor forever. This seems like an incredible failure for gold to not even be higher on a day when the dollar is so much lower. Not to mention that silver has been below 20 for a long time now. I am certainly bullish longer term, but the shorter term bullish case seems dangerous.

  15. Hi arnie,

    I think you might be being fooled by this one article, the behind the scenes reality is that the richest families in the world, the 'old money' banking dynasties, have hoards of gold, they always have since the beginning of time, it's well documented. Their long term perspective and their reason for holding gold, plays out in centuries, not days, weeks, months, or a few years. Resets in the currency system always happen, they will continue to happen, government's will assure that they continue to happen, and the reality is baked into the cake of the central bank monetary construct. Gold is a hedge against monetary resets.

    Sovereign debt levels cannot be paid back, even minute movements in the interest rate and the debt can become crippling in the U.S. For now the Fed is defending it's basically non-interest rate policy, because they know that the debt can't be paid, and will look to move into devaluation, the speed of which I think begins to accelerate right about now; the U.S. economy has bottomed out, it's finding a stable new norm - a richer rich, and a smaller middle class. No serious economist can even suggest the debt can be paid without serious USD devaluation.

    Europe too is very weak, and less liquid, and they will have to be forced into QE, they have no choice, they are contracting, but the U.S is beginning to feel the effects of inflation already, when you see the minimum wage debate, higher minimum wages, you know that inflation is occurring. What may also boost the U.S is cheaper gas prices in an otherwise inflationary environment, due to domestic production increases, this will act to actually boost consumption and activity, and will help the U.S economy vs other economies, especially Europe where fuel prices are highly controlled through high levels of government taxation.

    Read some comprehensive history on currencies and what happens to every single one of them. Monetary inflation can happen suddenly, because it starts slow and begins to creep, but it moves exponentially through the banking system. All it takes is for America's banks to open the spout, and the economy will move. It's beginning to move. I actually have the feeling the Dow will reach 20,000 and above is USD terms, manufacturing in the U.S is becoming economically feasible again, with some industries at parity or cheaper than China.

    It appears perhaps that the engineering of inflation, which the Fed wanted, is beginning to actually come to fruition.



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