Adding to the general lack of enthusiasm for gold at this time is the lackluster performance of the mining shares which continue to act as an anchor on any upward movement of the yellow metal.
Looking forward into next week, if gold is going to generate some more excitement, it is going to have to break through this week's high and convincingly clear the $1340 level. If it can do so, you will see some hedge fund short covering. If it stalls here near this level, watch for further long liquidation and some more new short selling to emerge. If the bears can change the handle from "13" back to "12", $1280 will come back into play at the lower portion of the recent trading range.
In looking over this week's Commitment of Traders report, we saw a reduction in the net long position of the hedge fund community of nearly 8,000 contracts. Most of that came from long liquidation ahead of the FOMC with a smaller contribution by the addition of some 2500 new short positions from the hedgies. That FOMC statement gave the bulls some fodder but it was a sort of two-edged sword.
One edge was clearly its dovish tone which suggested that interest rates will stay near zero for longer than many market participants were led to expect by the same Fed. The other edge was the clear concern expressed about the lack of inflationary pressures. The Fed, along with the ECB I might add, is clearly worried about deflationary issues. When the Central Bank expresses its concern over the lack of inflation in the economy, it is certainly not a ringing endorsement of a stronger gold price.
Along that line, the PPI numbers that came out today were quite a shock to the market as the number for March came in at a rise of 0.5%. The result was another set of headwinds to buffet gold as traders interpreted that data as evidence that the Fed could actually accelerate its bond buying program and any interest rate hike. Those are negative for gold especially when the market had just gotten the Fed's comments about the lack of inflation a mere two days earlier!
JP Morgan's earnings numbers set the negative tone for the overall stock market today. The broad selloff in equities was one of the reasons that gold did not break down as sharply as some might have expected. The Dollar showed some buoyancy today on the heels of that PPI number but not enough to set it up for a sharp rally.
All in all, it was a day in which volatility in the currency markets and in gold, was relatively mild by comparison to recent days.
Such was not the case in the grain markets, where news of Chinese rejection of corn shipments roiled that market with some spillover being seen in the soybeans. Apparently the Chinese are balking on imports of biotech corn. Reports indicate that China has rejected 1.45 million metric tons of US corn since mid-November. The reason? They claim it contained an unapproved variety of corn which was developed by the Swiss seed maker Sygenta. The variety is called Viptera. Also involved is another variety Duracade.
The National Grain and Feed Association, in a report circulated among its members, expressed the concern that pollen drift ( through the wind ) will make it unavoidable that the variety will impact corn shipments into China. Obviously big US grain shippers are worried. At least for today, that seem to supercede the latest USDA carryover numbers that we got this week.
A quick comment on the S&P 500. I mentioned in a post yesterday that an important support zone on the weekly chart was between 1830 - 1820. The market closed below that level today which puts it in a negative posture as we move into next week. Defensive plays in stocks were in vogue today. We'll see next week if that continues or whether the bulls use the sell off as another opportunity to buy back in. One thing is for certain - the aura of inevitability about a seemingly perpetually rising stock market, took a hit this week. Now we wait for the next batch of earnings reports and the next bit of economic data releases.
Enjoy the weekend... time for some meat on the smoker. Then again, with its high price right now, maybe cheerios are on the menu.
