"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, April 22, 2014

Goldman Sachs Saves Gold from Falling Apart

Yes, you read that headline correctly, much to the chagrin of the GIAMATT crowd. What am I referring to? Answer - this morning, two analysts from that firm upgraded their recommendation on the precious metals mining sector to "Neutral" from "Sell". They cited " a more responsible use of shareholder wealth". I found that rather interesting to say the least.

What was even more interesting was the headline that the story came down the Dow Jones wire under: " Gold Miners Now Less Likely to Torch Your Money". While it is a serious matter to those who have been so hurt by investing in this sector, I had to chuckle at the caption that the reporter chose. I think it pretty much summed up the sentiment of many toward these miserable things.

It was this upgrade of the miners which kept gold from utterly collapsing below critical chart support centered around the $1280 level. Hedge fund selling leaned on the market early in the session with a couple of approaches to $1280 on decent volume. Price rebounded away from that support but could not manage to make much upward progress. A big push finally took it down through $1280 but with the gold miners refusing to follow, short covering took the price back up again.

Obviously, there is a fierce battle occurring over this chart level. Whichever side blinks first, is going to lose it. As mentioned in recent posts, speculators are becoming more interested in playing gold from the short side, although, I wish to reiterate, they remain net long still. They are selling while bullion banks are buying to cover shorts. Ignore any talk about this being a plot of the bullion banks to take gold lower therefore.

Hedge funds are already net short copper, very close, if not already there now, net short silver, and are reducing their net long exposure to gold. If the gold price cannot find its feet right here, right now, watch for increasing long side liquidation and a new wave of fresh shorting.

Here is a look at the gold chart:

Notice how it is flirting dangerously with that red line that has held it going back to early this month. If it cannot recover quickly, price should move to test $1260, and then $1240 if that were to fail. Again, were it not for that Goldman recommendation on the mining shares, we would not be talking about $1280 at this point but rather whether or not $1260 is going to hold. Those who keep with this non-stop gold is being manipulated lower by Goldman Sachs and JP Morgan talk would do well to thank them at this point for saving their investment account from even worse harm.

There is nothing gold for the bulls as far as any sort of upside potential unless gold were to push past $1320 for starters. We'll have to see how Asia responds to the move lower this evening. Last night was not exactly a stellar endorsement. Maybe picking up the metal another $7 - $10 lower will make a difference.

Incidentally, those Newmont Mining/Barrick merger rumors are continuing today.

It sure did not help gold any today watching crude oil get whacked lower. It is still trading above the $100/barrel level so it is not exactly falling apart but it does appear that the $105 ceiling is still very much intact.

In yesterday's post, I mentioned the planting progress or more properly, the lack thereof, in regards to corn. The "corn is never going to ever get planted this year" guys pounced all over that driving it back up above the $5.00 mark. That pressured beans as traders are concerned more farmers will have to shift to beans instead of corn. You will have to watch the weather forecasts to figure out which way these things will go from here on out.

 Welcome to the start of grain trading season!

By the way, for those who enjoy inflicting pain upon themselves, try trading coffee if you are bored. After imploding early last week, it went flying upward on Thursday last week just about erasing the losses from the two previous trading sessions. It then fell yesterday but decided to rally over 7.5% today. In the process it managed to score a 9 week high. To put that in a bit of perspective - that is an over $4,200 move in a single contract in one day! Maybe tomorrow or Thursday it will give it all back up again. Seriously, unless you really know this particular market, leave it alone. I know a couple of guys who traded that stuff and ended up having it cost them their commodity trading career.

I mention it only as an example of just how wild and unpredictable these commodity futures markets have become on account of the computer generated buying and selling. It is the norm, not the exception. Remember that whenever you are tempted to swallow that "flash crash" nonsense that constantly surfaces whenever gold has a sharp move lower. These sorts of insane price swings are everywhere, in every market anymore.

Let's see how gold fares the rest of today. Perhaps I will post a more updated chart later this evening depending on how things go. Bulls are piggybacking on Goldman's recommendation to keep the price supported for now.