"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, April 4, 2014

"Disappointing" Payrolls Number Spurs Gold Buying

And the number of new jobs created for the month of March is... drum roll please... Disappointing. With the market looking for something north of 200K, it didn't get it. Up started the talk of a halt to any interest rate rise next year.

And with that, gold was off to the races as back down went interest rates with buyers coming back into the Treasury markets. The yield on the Ten Year note fell to 2.737% as I type these comments.

For me, it is really a rather simple concept - gold will move north as US interest rates move south and gold will move south as US interest rates move north. That, for the immediate moment, is what is driving the gold price even more so than the actual movements of the US Dollar.

The Dollar was initially weaker on the employment number news but after traders began attempting to decipher exactly what ECB President Draghi was saying about the lack of inflation pressures over there and the possibility of the ECB's own version of Quantitative Easing, the Euro came under some pressure. That floated the Dollar a bit higher against the Euro but it is basically sitting here doing nothing at the moment.

The strength in the forex markets was more among the Yen ( here we go with that safe haven trade again???) and the Canadian Dollar. The Aussie was also higher. Traders seem to have mixed feelings about the greenback with some yapping about the employment numbers, while disappointing, were not that bad. What to take away from all this? - more uncertainty as once again each piece of economic data will dictate the day to day price action across so many of these markets. There is just not much in the way of conviction.

This is what we get when we have near constant interference from Central Bankers. I have said it in the past and will say so again, the source of so much of the wild volatility we are seeing in the market place these days is Central Bank activity. When the investment/trading world spends most of its time parsing statements from Central Bankers rather than studying real world fundamentals, the result is extreme sensitivity to comments from these monetary masters. Then again, trying to understand the fundamentals in an economic world created by Central Bank actions ( QE/bond buying programs) or government stimulus programs ( think China) is at times an exercise in futility.

Another side note, the much respected analytic firm Economic Cycle Research Institute released their US future inflation gauge numbers this morning. It showed a decline to 103.1 in March from a 104.4 reading in February. Interpretation? There are no concerns about inflation pressures. This is what makes me expect any rallies in gold to attract selling pressure.

Back to the jobs number and the impact on the gold price in today's session. Gold is currently trading up 1.6% at $1305 as I type this. It has surged through psychological resistance at the $1300 and recaptured that handle. Of course, do not look for any talk about manipulation of its price today even though a small drop in interest rates in the US and a weak but relatively stable Dollar hardly justifies a move of this extent in the yellow metal. A short covering rally due to nervous weak-handed bears is pretty exciting but a key factor for SUSTAINED higher gold prices is whether or not NEW LONGS/BULLS want to commit in size to this market. So far that has not been the case. These occasional short covering rallies are exciting and stir up the "gold is going to the moon" talk every single time they occur but as we have seen, they do not tend to last.

Only if gold can generate more new buying than short covering does it have a chance at starting any kind of sustained uptrend. It is still a traders' market and that means short-term oriented guys can work this market and take advantage of the price swings but beyond that, extrapolating about lofty upside price targets is premature in my view.

Incidentally, I am sure most of the readers have seen or are aware of all the chatter about the HFT crowd as a result of that "60 Minutes" interview last Sunday and the subsequent dust up we have all had the pleasure of watching over at CNBC.

Many in the GIAMATT crowd ( Gold is Always Manipulated All The Time) have seized about this story to justify their contention that gold is a rigged market just like they have been saying for many years.

Here is the problem with that rationale - on the surface, yes, it looks like they have been vindicated. But this is important - it is a FAR, FAR cry to rightly discuss the impact from the HFT crowd, a crowd which I feel has no useful purpose whatsoever in our markets other than, like ticks, to suck the juices out of the host and enrich themselves in the process - than - to draw the illogical conclusion that therefore the gold price is rigged by the US government and the Fed and Treasury.

After all, the claim is that every single stupidly named "flash crash" lower in gold is the result of nefarious government forces colluding to artificially shove the price of gold lower and prop up the US Dollar. But, these folks, some of whom I count as friends, always point to the BULLION BANKS, the JP Morgans, the Goldman Sachs, etc. as the forces suppressing the gold price at the behest of the feds. In their mind, they, not the HFT crowd, are the enemy of all common decency. They are the evil market riggers.

The report about market rigging that is currently the talk of trading town is the High Frequency Traders doing their thing, not the bullion banks, but proprietary funds especially those front running orders and getting an unfair advantage in the markets.

I wanted to go on record about that because it seems to me that one cannot have it both ways. Here it is in a logical form:

PREMISE: The gold market is manipulated by the government using their proxies, the bullion banks, especially JP Morgan and Goldman Sachs to regularly "bomb" the gold market lower and artificially suppress the price.

AXIOM: The HFT funds engage in activities that involve front running orders coming into the electronic pit and skimming pennies out of every market and doing so thousands of times over and over again.

CONCLUSION or INFERENCE: Gold is manipulated by the federal government.

Do you see the fallacy in this argument being made by the GIAMATT crowd?

Now, if you want to talk about gold prices getting slammed lower by big orders coming in from hedge fund computers, which do not employ, scale up or scale down tactics but rather are seemingly all in or all out, then we can talk about that but to infer a manipulated gold price based on well-needed exposure of HFT activity is a big stretch. It's more faith than logic.

Back to the charts however...

Notice that gold bounced right near the critical $1280 level. It needed to hold there to prevent a much sharper fall and it has done so. That is what has spooked some of the shorts and why they are furiously covering. At this point, the market is maintaining its strength of the day and looks poised to end up near the session highs ( that could obviously change ) but if it can hold above $1300 to end the week, the bulls will have dodged a bullet and can thank that disappointing payrolls number for bailing them out.

Going into next week, with this strong close, it should set up a test for the next resistance level WITHIN THIS BROAD TRADING RANGE near the $1320 level.

The ADX remains heading lower, again, revealing the lack of a definitive trend in this sideways moving market. While bears recently were able to seize control within this range, the +DMI is threatening an upside crossover of the -DMI signaling the bulls might be back in the driver's seat for a while. Back and forth we go.

More later as time permits...