"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


Wednesday, June 11, 2014

Gold Chart

Gold has been trekking slowly higher on low volume as it inches away from support at $1240. Calls for slower global economic growth seem to be putting some firmness in the market as some shorts pull out and move to the sidelines with some bargain hunters moving in as well. Also, the ECB's recent move to provide some monetary stimulus, while knocking the Euro lower, has chased a few shorts out of the gold market in spite of the continued weakness in that key currency.

Notice on the chart that price has managed to move back into the first of three FORMER support zones which were violated to the downside. Gold pushed through the first of these and is knocking on the lower boundary of the middle support zone.

For the bulls to be able to shift the sentiment more towards their liking, they will need to take price back through $1277 for starters but for a more convincing feat, $1280.

For now, the low volume makes this current recovery look more like a dead-cat bounce but any break through $1280 that remains above that key level will have to be respected.

In looking over the ADX, it shows the bears still remain in control but the current leg lower has been halted near $1240. That zone is shaping up to be just as important as $1280 had been. As I have written previously, below this level, a goodly number of hedge fund positions from earlier this year will be underwater.

So far, it seems this is the pattern that we can expect to see in gold - a slow, steady grinding move lower instead of any sharp falls in price. The price drops, then stabilizes, then drops some more, then stabilizes, etc.  I think this is mainly a function of the extended move lower for nearly the last three years and the remaining stubborn and persistent bullishness on the part of some of the large hedge funds that moved onto the long side earlier this year. Most of those who have given up on gold have already done so and are in equities. Those that persist in gold are a bit more ideologically persistent and will only exit reluctantly if successive support levels give way.

Keep in mind that a market can find a long term bottom and still not make any sharp moves to the upside. Instead it can continue meandering back and forth, working essentially sideways for quite some time ( quite longer than many traders have patience for ). Some seem to think that once a market bottoms, it is off to the races once again. Nothing could be further from the truth. As a matter of fact, most markets do not as a general rule put in spike reversals without a abrupt shift in fundamentals but instead slowly transition from bear markets or bull markets through a period of consolidation ( sideways trade ) which can last for a fairly long period, before then entering a solid trending move in the other direction. Sometimes the initial trend actually resumes.

When it comes to gold this has been perfectly illustrated when the market topped out in August 2011 just above $1900. It experienced a sharp selloff, then stabilized above $1530 whereupon it moved sideways for nearly 1 1/2 years when it was stuck in a range between $1800 on the top and $1530 on the bottom. Then it dropped out of that range falling over $300 all the way to $1180 whereupon it once again entered another period of sideways trade which it has remained in for nearly a full year now. The top of that range is up near $1400 and the bottom remains near $1180.

There is really no telling how long gold might remain in this "RANGE TWO". It could be for months or it could be for years. No one really knows. If we compare the secondary range to the initial one, this current one has at least six more months to go (wouldn't it be nice if markets were all that well behaved - we would all be so wealthy we could retire the national debt all by ourselves).

Within these broad ranges there exist smaller, tighter ranges. Those tend to show up better on the Daily Chart. Just keep these things in mind whenever someone gets too wildly bullish or too wildly bearish.

Gold is stuck in a very broad range with the shorter term charts showing a bearish pattern for the time being. If gold were to take out the bottom of the former range near $1280, then it would have the potential to move back up towards the top of that range near $1320. Again, as noted above, a break below $1240 however would give the potential for a move all the way back to $1200.

By the way, GLD has not given us any updated numbers for some time now.

USDA Supply-Demand Report Day

USDA released its Supply/Demand numbers this AM. Based on those, they are expecting a record US corn crop of 13.935 billion bushels on a yield of 165.3 bushels/acre. The 2013-2014 ending stocks are expected at 1.146 billion bushels, down from their last estimate of 1.157 billion. The 2014-2015 carryover is expected to total 1.726 billion bushels.

Soybean production should total 3.635 billion bushels this year using a 45.2 bushel/acre yield. Analysts had been looking for  a 3.267 billion bushel crop using a yield of 45.0 bushels. Carryover is expected to jump significantly to 325 million bushels, up from the current marketing year's 125 million bushels. USDA once again lowered those ending stocks in the beans which has been the wild card that is keeping this market trading in such a schizophrenic fashion. Traders are simpy unsure of how to deal with such a tight carryover in the face of a huge new season crop. The spread action is resulting in contortions and erratic swings in price.

USDA also raised global bean production to 299.99 million metric tons. That is up from the current marketing year's 283.79mmt. Brazil registered  an increase of 2.5mmt to 91mmt.

USDA lowered total global wheat production to 701.62 million metric tons. They did however raise total global wheat stocks to 188.61 million metric tons up from their last month's 187.42 million metric ton forecast.

On the domestic front, USDA pegged total wheat production to 1,942 billion bushels which was actually well below analyst's average of 1.959 billion. However they raised both the 2013-2014 and the 2014-2015 ending stocks for wheat. The current marketing year jumped 10 million bushels to 593 million from last month's 583 million. Next year's carryover is expected to be 574 million bushels, up from May's projection of 540 million bushels. Wheat was hit hard on this data especially KC wheat.

All in all, other than the tight soybean carryover for the current marketing year, one would be hard-pressed to find anything friendly in any of these reports. It is however good news for consumers and for the livestock and poultry industries.

Hog producers out there, take advantage of the rally in the 4th quarter hogs/early Q1 2015 hogs and the sell off in corn and beans to continue locking in some expected production and securing some feed coverage when you do. You will guarantee yourself some outstanding profits and be able to sleep quite well at night. Your margins are outstanding right now so do not let them slip away from you. Scale into those hedges and leave out no more than 25-35% for gambling purposes. Any sort of unexpected bearish surprise in this month's Quarterly Hogs and Pigs report will have you kicking yourself in the rear end repeatedly. You can always leave your upside open with some well-managed option plays such as bull call spreads if you want to do some speculation but do not forget that you are a producer, and not a speculator.

Gold was supported in the overnight session on news that the World Bank cut its global economic growth forecast to 2.8% for the year. That is down from their January forecast of 3.2%. The Bank blamed emerging market countries for their unwillingness to deal with counterproductive policies. The report also mentioned concerns about China's housing market. Gold seemed to draw some safe haven buying on that news which continued into the Western session trading.

The Gold Volatility Index actually fell lower making yet another multi-month low. It sure does appear as if gold has entered its "summer doldrums".  

That general "safe haven" theme could be seen in the stronger Yen once again ( the idea that the Yen is a safe haven is laughable but the markets have transformed the currency into a safe haven for some reason). Also, bonds ticked higher on the news with the result that interest rates dropped lower. US stock markets moved lower on that news and have also remained lower as I type these comments. "Caution" is the theme of today.

It is interesting to note that copper was weak on the news but that silver decided to move with gold instead of the red metal.

Once again Crude oil is back to throwing off mixed messages about the state of the US economy when compared to copper. US EIA data showed a 2.6 million barrel drop in oil inventories. Someone is using the stuff and keeping this market supported. If the economy was completely in the tank as some are suggesting, we would not be seeing crude oil prices staying this well supported. I am keeping a close eye on that $105 level. It has thus far been acting as an overhead cap but if it goes, $108 comes into play.

The miners ticked higher today with the HUI inching towards overhead chart resistance beginning near 215.50 and extending to 220. It looks like it is setting up a range trade for now.

I am, however noting that as the session is wearing on, gold and the miners are surrendering some of their gains. Both remain in the black at the moment but they have certainly faded from their session-best levels.

The US Dollar, as viewed through the prism of the USDX, once again made a try at the 81 level but could not clear it. It has been in a slow, grinding-like trend higher but really needs to push past that 81 level to make a run at heavier resistance near 81.45 - 81.50. It has managed to best its initial resistance level near 80.70-80.80 and so far is holding above there. I do believe that if the greenback can clear 81.50, gold will not hold at $1240. We'll see. Just an opinion and we all know here what opinions about markets are worth. Price action is the ultimate arbiter.

Further along the currency front, the Euro is continually its descent towards chart support near the 1.350 region. That support extends down to 1.348 or so. I should note here that there is some chatter about the Euro being used a "funding currency" ( aka - carry trade) in regards to other European currencies.