Thursday, March 3, 2011
Improving Economic Data putting pressure on Gold
There are several things working against gold in today's trading session.
First is the hawkish tone taken by ECB President Trichet which is being viewed as confirming the theme that the global economy is improving. That is taking some of the safe haven bid out of gold. You can also see the same by observing the sharp drop in the US long bond.
Second is the reduction in jobless claims. The market was not looking for a fall but only a slight increase. The statistic caught traders off guard and fed into the idea that the labor markets might begin improving.
Third is that there is no particular fresh news out of the Middle East or North Africa and that is taking some pressure off of crude oil. It is not much, but some are saying; "At least it ain't goin' up further".
All of this taken together is feeding money into the "risk" trades and resulting in money coming out of gold and back into equities in today's session. You can see the same by monitoring the gold/copper spread which is decidedly in the favor of copper today as it is holding up much better than gold or silver.
For today at least, money flows are favoring copper compared to gold.
First is the hawkish tone taken by ECB President Trichet which is being viewed as confirming the theme that the global economy is improving. That is taking some of the safe haven bid out of gold. You can also see the same by observing the sharp drop in the US long bond.
Second is the reduction in jobless claims. The market was not looking for a fall but only a slight increase. The statistic caught traders off guard and fed into the idea that the labor markets might begin improving.
Third is that there is no particular fresh news out of the Middle East or North Africa and that is taking some pressure off of crude oil. It is not much, but some are saying; "At least it ain't goin' up further".
All of this taken together is feeding money into the "risk" trades and resulting in money coming out of gold and back into equities in today's session. You can see the same by monitoring the gold/copper spread which is decidedly in the favor of copper today as it is holding up much better than gold or silver.
For today at least, money flows are favoring copper compared to gold.
A must read article on the US Dollar
Every now and then an article that is so well written and informative comes along that it should be required reading. Following is one such example in the Wall Street Journal.
Long time readers in the hard asset community who have been following my work and that of others will find nothing particularly new here but the fact that it is now being recounted in perhaps the most prestigious US financial newspaper is indicative of how far things have come since we first started sound the alarm bells about the US Dollar so many years ago.
It is my firm conviction that the combination of the runaway spending by the US Federal government in combination with a completely shortsighted and utterly reckless Federal Reserve, both under former Chairman Alan Greenspan and now current Chairman, Ben Bernanke, has destroyed the birthright of future generation of Americans.
The Dollar's role as the global reserve currency did not just happen out of chance; it was the result of our military victory in WWII and the manufacturing powerhouse that was once the US economy. Our fiscal health was solid, we lived within our means and we had a nation of savers. Those halycon days are now long gone.
Instead we have a total Federal debt of over $14 trillion, now at 100% of total GDP. There is no end in sight to continued red ink on our annual Federal budgets. Most of our states are in serious financial trouble and are having extreme difficulty in balancing their budgets and thus far it looks as if our political leaders cannot even manage to shave $100 billion off of a $trillion + budget.
Additionally the Federal Reserve continues its idiocy of printing more dollars into existence in order to prop up the economy further compounding the supply of Dollars at the exact time that demand for those same dollars is decreasing globally.
In short, our leaders have betrayed us all for the sake of short term gain at the expense of long term prosperity. Their betrayal will impact us all but even more so our children and the next generations that will follow. It is they that will suffer the most as their standard of living falls when compared to ours.
There are three things that I can see that the US can do to preserve the Dollar's unique status.
First - get its fiscal house in order. By that I mean seriously cutting spending not talking about some pathetic $4 billion in cuts in order to get a bunch of free spending Democrats to sign off on a 2 week extension to keep the government going.
Second - Stop the madness of the Federal Reserve with its deliberate, willful and purposeful debauchment of the US Dollar through the nefarious QE policy.
Third - tie the Dollar back to gold in some form. It does not need to be a direct convertibility but it does need to be some form of backing. Bernanke seems to scorn such a thing but the fact is it is workable however NOT AT THE CURRENT GOLD PRICE. Because of the sheer size of the US debt load, it would require a significantly higher gold price of MULTIPLES of its current level to accomplish this but it could be done. Bernanke may not want to admit this because in so doing it would expose the failure of the Federal Reserve but egos are no longer relevant at this point in our nation's history.
MARCH 2, 2011
Long time readers in the hard asset community who have been following my work and that of others will find nothing particularly new here but the fact that it is now being recounted in perhaps the most prestigious US financial newspaper is indicative of how far things have come since we first started sound the alarm bells about the US Dollar so many years ago.
It is my firm conviction that the combination of the runaway spending by the US Federal government in combination with a completely shortsighted and utterly reckless Federal Reserve, both under former Chairman Alan Greenspan and now current Chairman, Ben Bernanke, has destroyed the birthright of future generation of Americans.
The Dollar's role as the global reserve currency did not just happen out of chance; it was the result of our military victory in WWII and the manufacturing powerhouse that was once the US economy. Our fiscal health was solid, we lived within our means and we had a nation of savers. Those halycon days are now long gone.
Instead we have a total Federal debt of over $14 trillion, now at 100% of total GDP. There is no end in sight to continued red ink on our annual Federal budgets. Most of our states are in serious financial trouble and are having extreme difficulty in balancing their budgets and thus far it looks as if our political leaders cannot even manage to shave $100 billion off of a $trillion + budget.
Additionally the Federal Reserve continues its idiocy of printing more dollars into existence in order to prop up the economy further compounding the supply of Dollars at the exact time that demand for those same dollars is decreasing globally.
In short, our leaders have betrayed us all for the sake of short term gain at the expense of long term prosperity. Their betrayal will impact us all but even more so our children and the next generations that will follow. It is they that will suffer the most as their standard of living falls when compared to ours.
There are three things that I can see that the US can do to preserve the Dollar's unique status.
First - get its fiscal house in order. By that I mean seriously cutting spending not talking about some pathetic $4 billion in cuts in order to get a bunch of free spending Democrats to sign off on a 2 week extension to keep the government going.
Second - Stop the madness of the Federal Reserve with its deliberate, willful and purposeful debauchment of the US Dollar through the nefarious QE policy.
Third - tie the Dollar back to gold in some form. It does not need to be a direct convertibility but it does need to be some form of backing. Bernanke seems to scorn such a thing but the fact is it is workable however NOT AT THE CURRENT GOLD PRICE. Because of the sheer size of the US debt load, it would require a significantly higher gold price of MULTIPLES of its current level to accomplish this but it could be done. Bernanke may not want to admit this because in so doing it would expose the failure of the Federal Reserve but egos are no longer relevant at this point in our nation's history.
Why the Dollar's Reign Is Near an End
For decades the dollar has served as the world's main reserve currency, but, argues Barry Eichengreen, it will soon have to share that role. Here's why—and what it will mean for international markets and companies.
Euro responding to Trichet's comments
ECB President Trichet is obviously concerned about rising inflationary pressures across the Eurozone based on his comments early this morning. Contrast that with Fed Chairman Bernanke who spoke of "temporary and relatively modest" price increases.
There are legitimate fears that the steady and persistent rise in food and metal prices are being passed through at the consumer level across the EU. Germany in particular, whose economy is performing well, is already seeing this. Added to that now comes the potential impact from rising crude oil and energy costs.
Trichet is trying to walk a very fine line as there are pockets of definite weakness in some of the Eurozone nations which higher interest rates would obviously impact but at least his comments are refreshingly honest and straightforward.
The market is interpreting his remarks as indicative of a rate hike next month and this is the reason the Euro is moving higher this morning. Technically it is on track to move towards the 142 level. If it does, the Dollar is not going to hold chart support at 76 and will very possibly fall quite rapidly to major chart support near 75 on the USDX. If it fails there, gold and silver are going to move sharply higher.
We are truly living through remarkable developments.
There are legitimate fears that the steady and persistent rise in food and metal prices are being passed through at the consumer level across the EU. Germany in particular, whose economy is performing well, is already seeing this. Added to that now comes the potential impact from rising crude oil and energy costs.
Trichet is trying to walk a very fine line as there are pockets of definite weakness in some of the Eurozone nations which higher interest rates would obviously impact but at least his comments are refreshingly honest and straightforward.
The market is interpreting his remarks as indicative of a rate hike next month and this is the reason the Euro is moving higher this morning. Technically it is on track to move towards the 142 level. If it does, the Dollar is not going to hold chart support at 76 and will very possibly fall quite rapidly to major chart support near 75 on the USDX. If it fails there, gold and silver are going to move sharply higher.
We are truly living through remarkable developments.
Wednesday, March 2, 2011
4 Hour Long Bond Chart
The Bonds were not able to recapture much strength after the Beige Book was released.
Open Interest Tale of Two Cities
Speculators are pouring into gold based on the data we have from the exchange recapping yesterday's open interest readings. There was a very good increase of a bit over 6,000 contracts with the bulk of that coming in the June contract as apparently some of the newcomers have decided to forego buying the April and having to roll in a few weeks' time. These new additions were what drove gold past its all time yesterday. As long as this continues, gold will keep moving on to make new highs.
Silver on the other hand showed a drop of 412 contracts with the bulk of that coming out of the March contract which continues to dwindle and is now down to 2,251 contracts. March remains at a discount to the May continuing that pattern which lowers the odds of any short squeeze in that contract month before the March goes off the board. We are still monitoring that situation closely for any developments however. Deliveries were rather small yesterday with only 9 contracts issued and stopped.
Even without any fireworks in the March contract delivery process, silver continues soaring ahead. It is proving that it doesn't need any! I do find that drop in open interest yesterday when it pushed past the recent 30 year high noteworthy. There are obviously a large number of shorts who are in deep trouble in this market. They are continuing to get run over and are moving out as longs keep pressing them.
As a matter of fact the big silver shorts, the banks, have been steadily drawing down their short side exposure by 10,000 contracts since September of last year. Even at that however, the ground is littered with bleeding shorts. Interestingly enough, that last Commitment of Traders report showed all the speculative money, no matter from what category, managed money, general public or other large reportables, all on the long side on a net basis. The only group of traders on the short side on a net basis are the Commercial/Swap Dealers class and right now that class is getting run over.
Silver on the other hand showed a drop of 412 contracts with the bulk of that coming out of the March contract which continues to dwindle and is now down to 2,251 contracts. March remains at a discount to the May continuing that pattern which lowers the odds of any short squeeze in that contract month before the March goes off the board. We are still monitoring that situation closely for any developments however. Deliveries were rather small yesterday with only 9 contracts issued and stopped.
Even without any fireworks in the March contract delivery process, silver continues soaring ahead. It is proving that it doesn't need any! I do find that drop in open interest yesterday when it pushed past the recent 30 year high noteworthy. There are obviously a large number of shorts who are in deep trouble in this market. They are continuing to get run over and are moving out as longs keep pressing them.
As a matter of fact the big silver shorts, the banks, have been steadily drawing down their short side exposure by 10,000 contracts since September of last year. Even at that however, the ground is littered with bleeding shorts. Interestingly enough, that last Commitment of Traders report showed all the speculative money, no matter from what category, managed money, general public or other large reportables, all on the long side on a net basis. The only group of traders on the short side on a net basis are the Commercial/Swap Dealers class and right now that class is getting run over.
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