"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, June 16, 2014

GLD loses 4.2 tons of gold

It has been nearly two weeks since we have had an updated report of what the current gold holdings are in the large gold ETF, GLD. We finally got one today.

The new number came in 4.2 tons below the last reported tonnage. GLD is now holding 782.88 tons.

That this is occurring against a backdrop of events in Iraq tells me that large traders/investors are using the current geopolitical rally in the yellow metal to sell.

I had remarked some three weeks ago that the first sizeable jump in gold holdings ( nearly 8.4 tons back on May 27th) was the first good news that gold has had in some time. What I wanted to see was whether or not this was the start of a new trend among Western-based investors or more or less a flash in the pan brought on by some value-based buying that was a one-off type of transaction.

From that point, GLD only added another 1.8 tons before today's fairly sizeable drop.

I do not think it coincidental that the drop occurred as gold hit a resistance zone on the price chart centered near the $1280 region. Obviously big sellers were lying in wait to take advantage of the short-lived spike in price set off by the running of buy stops in Asian trade Sunday evening here in the West.

I am noticing that crude oil is continuing to lose some ground this evening as is silver while the Dollar is firming up a tad. A lot can happen between now and European and New York trading on Tuesday but one gets the impression in watching the price action that traders are taking some of the "chaos" premium out of the metal (and the crude) as events in Iraq do not seem quite as dangerous for the immediate moment. That does not mean things over there are not a mess - what it means is that for now, ISIS has been stopped in its formerly unimpeded march south through the country and Baghdad looks to have been granted a reprieve.

With a situation like this however, events are fluid and can change rapidly but the fact that gold could not clear $1300 with what is happening in Iraq makes me wonder what exactly it will take on the geopolitical front to push the metal higher at this point.

In spite of all that is transpiring around us both domestically and globally, it seems like we keep coming back to the same theme - a lack of sustained inflation pressures in a positive real interest rate environment. Such has been the sentiment of traders for some time now. I am not sure what it will take to disabuse them of this notion.

Gold has continued support down near and just above the $1240 level and the resistance level near $1280 has been reinforced on the chart. It is currently back inside of this range.

Crop Conditions Reports

USDA gave us the regular weekly update on the conditions of the crops during this year's growing season this afternoon.

Here are the breakdowns:

                        THIS WEEK                              LAST WEEK
                        Good      Excellent               Good       Excellent
Corn                   59          17                          60        15

Soybeans               60          13                          62        12

Compared to last year, the corn crop is 76% Good-Excellent compared to 75% last week and 64% last year. The crop is 97% emerged compared to 92% last week and 91% last year. The five year average is 96%.

In the big TWO ( Iowa and Illinois) the corn crop improved in the state index reading where 100 is regarded as normal. Illinois stands at 109 compared to 108 last week and 106 last year while Iowa came in at 110 compared to 109 last week and 110 last year.

Soybeans are rated 73% Good-Excellent compared to 74% last week and 64% for the same week last year. The emergence rate stands at 83% emerged compared to 63% last year and the five year average of 77%.

At the state index level, Illinois dropped to 106 from 108 last week which is still above last year's reading of 102. Iowa saw conditions drop to 108 from 109 but well above last year's poor reading of 95.

The slight drop in soybean ratings is due to excessive rains in some areas of the states. Generally speaking the low lying areas or the ones with heavier soils tend to show declines when excessive rainfall results in those areas "ponding". The widespread rains however mostly remain very welcome among the majority of growers.

All in all the corn and bean crops remain off to a good start especially compared to last year. Warmer weather and abundant moisture are the ingredients to produce big crops.  With all this rainfall some areas have been receiving, a bit of heat would actually greatly benefit the crop. One would be surprised at how fast these crops can grow when conditions are right!

We'll see how the markets respond to the index ratings in Asian trade this evening. I tend to put very little faith in what Asian price action does as it is too thin and leaves the grains open to "game playing" by large speculators. Those of you long time grain traders know exactly what I mean.

The big test will be the opening of the pit session tomorrow ( Tuesday) and how they trade throughout the session.

Markets Pausing to Evaluate Developments in Iraq

Weekend news out of Iraq added a fresh twist to that already volatile situation. Reports indicate that Iran is getting involved as one of its spiritual leaders issued a call to fellow Shias that it was their duty to fight against the Sunni terrorists.

That seemed to get enough people involved that the ISIS jaunt down the nation was halted for the time being.

The Kurds moved into areas in the north so for now, the situation, while far from being resolved, is at least not as serious as it seemed late last week. Do not mistake what I am saying here - no one believes that there is "stability" in the region but on a relative scale, things today seem to be a bit less "horrific" may be perhaps a better way of putting it.

Whatever - the point being that the Crude oil market, which was poised last week to shoot vertical with the trading community terrified that there was going to be an imminent downfall of Baghdad and all manner of crude oil supply disruptions, seems a bit more sanguine about the events this morning.

I have been tracking both the crude oil market and the gold market in conjunction with one another to try gauging the "fear" factor a bit better.

Take a look at the HOURLY chart of Crude oil compared to the Gold price. When the ISIS offensive began garnering headlines Crude oil began rising and gold right along with it. That pattern has been continuing since the events first came onto traders' radar screens. Now that crude is weakening a tad, gold is also having trouble maintaining its upward momentum as well. The two seem to be trading in fairly close lockstep with each other.

Overnight in Asian trade gold bulls were able to reach the buy stops just above the $1280 level in gold and they set those off but once that buying was finished, the bids seemed to fade, along with crude oil weakness, and gold fell back below $1280.

Bulls need to keep prices at a level above $1280 to generate enough upward momentum to keep setting off each layer of buy stops as well as attracting fresh geopolitically driven buying.

The weakness in the mining shares is also feeding into the lack of aggressive buying over at the Comex at this point in the session.

Grains are all weaker today as heavy rains fell over the weekend in key growing areas. New crop corn is trying to hold near $4.40 but still looks heavy. July beans are leading the downside move in beans as bull spreads continue to come off.

More later...