Monday, November 21, 2011
Gold nearing important technical support level
The $1680 level is an important chart area as it has served to function both as overhead resistance and as downside support depending on the status of the gold market at the time that price has neared this area. In today's session, it is acting as a downside support level thus far holding price from dropping further as the risk trades are once again taken back off.
Should this critical level fail to stem the decline in gold, price will fall into the next band of support which is near and just above the $1640 level, a level that also coincides with the rising 150 day exponential moving average. That moving average has seen value-based buyers emerge over the last two months so we can expect it to uncover similiar buying once again should price move this low.
For gold to stem the current tide of bearishness and rattle the shorts a bit, it will need to recapture the $1710 - $1715 level for starters with a further push into the $1740 region necessary to bring in some momentum based buying.
Should this critical level fail to stem the decline in gold, price will fall into the next band of support which is near and just above the $1640 level, a level that also coincides with the rising 150 day exponential moving average. That moving average has seen value-based buyers emerge over the last two months so we can expect it to uncover similiar buying once again should price move this low.
For gold to stem the current tide of bearishness and rattle the shorts a bit, it will need to recapture the $1710 - $1715 level for starters with a further push into the $1740 region necessary to bring in some momentum based buying.
Saturday, November 19, 2011
Trader Dan on King World News Weekly Metals Wrap
Please click on the following link to listen to my regular weekly radio interview with Eric King on the KWN Weekly Metals Wrap.
Thursday, November 17, 2011
Fear, Fear and more Fear
European woes are rising and as they rise, more and more it seems as if the level of FEAR is rising alongside of it. The cost of insuring FRench, Italian, Portuguese, and Belgium bonds hit record highs today. The ECB was said to be a buyer of Italian bonds today (no one else seems to want them).
I think it does not take much in the way of insight to realize that after the collapse of MF Global (they insanely leveraged their buys of European sovereign debt to asinine levels and raided their customer monies in an effort to cover their staggering losses), there is no market for European sovereign debt. Investors are looking at the huge sums of this debt on the books of the European banks (and that on the books of US based banks as well) and are suddenly realizing that there is no one to sell this stuff to besides the big Central Banks. Many are fearing that a collapse of those big banks is coming without some sort of action by the ECB.
One has to wonder what good that will do in the long run because it will no doubt involve money printing. That is what has Germany reluctant to go along with the program because the Germans are fearful of the impact on the Euro.
All this fear send investors/traders rushing into cash and once again jettisoning commodities in general while buying US Treasuries. Hey, compared to Greek or Italian or French debt, US Treasuries look like the Rock of Gibraltor for stability. What makes this so ironic is that the US reached the "laudable" level of $15 TRILLION in indebtedness. The Dollar - like I have said repeatedly, right now it is the best looking piece of trash on the kitchen floor.
Gold was sold along with silver and along with Platinum and Palladium, which were absolutely crushed today. Palladium dropped near 7%. Copper of course was hammered lower falling better than 3%. In that sort of environment it is to be expected that Silver would get the snot beat out of it. It is down nearly 6.55 as I type this.
Gold fared a bit better than silver falling only 3% or so. While the gold shares were smacked down (again failing to extend past the 600 level on the HUI), I do not expect gold itself to fall apart. Reports today stunned traders when they learned that Central Banks were huge buyers of gold on the recent retreat in prices underscores the strong demand for the yellow metal that exists (they scooped up over 150 TONS!).
There is no doubt in my mind that value based buying of gold will continue as this stupidly insane hedge fund selling of the metal will be eagerly welcomed by various foreign Central Banks and deep-pocketed value-based buyers. I expect to see China acquiring the metal in December as dealer there prepare for their yearly New Year's celebration later in January.
Crude oil could not keep its footing above the $100 level sinking below that in today's trade as both it and gasoline were also sold off. Natural gas bucked the general selling trend as it made a new yearly low yesterday so it appeared some guys were using the general wave of selling to cover shorts. That managed to pop the market higher a bit.
As stated previously in both writing and in my radio interviews - silver is not going anywhere until it can convincingly clear the $35.50 level to the upside. That is going to require a change in investor sentiment towards it. Right now, with silver still tied directly to the risk trades, it cannot mount any charge higher until buyers feel comfortable enough to take on a high level of risk. I am not sure what might make that happen given the current state of the European mess.
Gold is a different animal as it is a true safe haven. Remember it gets knocked down along with these risk off trades because it is sold as part of a basket of commodities that comprise the various commodity indices against which hedge funds and commodity index funds benchmark. However, safe haven buying usually surfaces in gold, albeit at the lower levels because those who are worried about currency stability will move to the metal as their distrust of the monetary officials and political leaders increase.
Looking briefly at the gold chart, the $1800 level has been acting as resistance for the last two weeks or so. The $1750 had been serving as support. That gave way with the market falling through the first level of chart support near $1720 before bouncing off the second level of chart support just above the $1700 level. Gold is attempting to climb back above $1720 as I type this but as of now cannot quite muster the strength to do so. We will have to see if it can do so in Asian trading this evening.
Failure to hold at $1705- $1700 will allow the metal to drop towards $1680 where we should see some buying emerge. I would quite frankly be surprised to see gold lower than $1680 for any length of time. All of these paper currencies are extremely suspect right now, due to the huge sums of indebtedness in the system and all the implications that this carries with it. Central Bankers, when forced to choose between deflation and inflation will always opt for the latter. They feel that they can always "control" or manage that - the former is a different story altogether for them.
I think if push comes to shove and the Germans are forced to make a choice between inflation or deflation, they too will choose what might be regarded as the lesser evil of the two and opt to move forward on the Financial Stability front. It's either that, or the Euro falls apart and so too then does the ECB itself.
If gold were to fall through $1680 for any reason, I would anticipate increased buying by longer-term oriented investors/traders who are looking for the metal to make a push towards $2000. Downside in the metal at $1620 - $1600 would be much less than upside risk to that level.
I think it does not take much in the way of insight to realize that after the collapse of MF Global (they insanely leveraged their buys of European sovereign debt to asinine levels and raided their customer monies in an effort to cover their staggering losses), there is no market for European sovereign debt. Investors are looking at the huge sums of this debt on the books of the European banks (and that on the books of US based banks as well) and are suddenly realizing that there is no one to sell this stuff to besides the big Central Banks. Many are fearing that a collapse of those big banks is coming without some sort of action by the ECB.
One has to wonder what good that will do in the long run because it will no doubt involve money printing. That is what has Germany reluctant to go along with the program because the Germans are fearful of the impact on the Euro.
All this fear send investors/traders rushing into cash and once again jettisoning commodities in general while buying US Treasuries. Hey, compared to Greek or Italian or French debt, US Treasuries look like the Rock of Gibraltor for stability. What makes this so ironic is that the US reached the "laudable" level of $15 TRILLION in indebtedness. The Dollar - like I have said repeatedly, right now it is the best looking piece of trash on the kitchen floor.
Gold was sold along with silver and along with Platinum and Palladium, which were absolutely crushed today. Palladium dropped near 7%. Copper of course was hammered lower falling better than 3%. In that sort of environment it is to be expected that Silver would get the snot beat out of it. It is down nearly 6.55 as I type this.
Gold fared a bit better than silver falling only 3% or so. While the gold shares were smacked down (again failing to extend past the 600 level on the HUI), I do not expect gold itself to fall apart. Reports today stunned traders when they learned that Central Banks were huge buyers of gold on the recent retreat in prices underscores the strong demand for the yellow metal that exists (they scooped up over 150 TONS!).
There is no doubt in my mind that value based buying of gold will continue as this stupidly insane hedge fund selling of the metal will be eagerly welcomed by various foreign Central Banks and deep-pocketed value-based buyers. I expect to see China acquiring the metal in December as dealer there prepare for their yearly New Year's celebration later in January.
Crude oil could not keep its footing above the $100 level sinking below that in today's trade as both it and gasoline were also sold off. Natural gas bucked the general selling trend as it made a new yearly low yesterday so it appeared some guys were using the general wave of selling to cover shorts. That managed to pop the market higher a bit.
As stated previously in both writing and in my radio interviews - silver is not going anywhere until it can convincingly clear the $35.50 level to the upside. That is going to require a change in investor sentiment towards it. Right now, with silver still tied directly to the risk trades, it cannot mount any charge higher until buyers feel comfortable enough to take on a high level of risk. I am not sure what might make that happen given the current state of the European mess.
Gold is a different animal as it is a true safe haven. Remember it gets knocked down along with these risk off trades because it is sold as part of a basket of commodities that comprise the various commodity indices against which hedge funds and commodity index funds benchmark. However, safe haven buying usually surfaces in gold, albeit at the lower levels because those who are worried about currency stability will move to the metal as their distrust of the monetary officials and political leaders increase.
Looking briefly at the gold chart, the $1800 level has been acting as resistance for the last two weeks or so. The $1750 had been serving as support. That gave way with the market falling through the first level of chart support near $1720 before bouncing off the second level of chart support just above the $1700 level. Gold is attempting to climb back above $1720 as I type this but as of now cannot quite muster the strength to do so. We will have to see if it can do so in Asian trading this evening.
Failure to hold at $1705- $1700 will allow the metal to drop towards $1680 where we should see some buying emerge. I would quite frankly be surprised to see gold lower than $1680 for any length of time. All of these paper currencies are extremely suspect right now, due to the huge sums of indebtedness in the system and all the implications that this carries with it. Central Bankers, when forced to choose between deflation and inflation will always opt for the latter. They feel that they can always "control" or manage that - the former is a different story altogether for them.
I think if push comes to shove and the Germans are forced to make a choice between inflation or deflation, they too will choose what might be regarded as the lesser evil of the two and opt to move forward on the Financial Stability front. It's either that, or the Euro falls apart and so too then does the ECB itself.
If gold were to fall through $1680 for any reason, I would anticipate increased buying by longer-term oriented investors/traders who are looking for the metal to make a push towards $2000. Downside in the metal at $1620 - $1600 would be much less than upside risk to that level.
Wednesday, November 16, 2011
Rising Prices just a Figment of Our Imaginations
JACOB MARLEY: Why do you doubt your senses?
SCROOGE: Because, a little thing affects them. slight disorder of the stomach makes them cheats. You may be an undigested bit of beef, a blot of mustard, a crumb of cheese, a fragment of an underdone potato. There's more of gravy than of grave about you, whatever you are!
So goes the conversation between the two former business partners in a scene from Charles Dickens', "A Christmas Carol". Of course Marley is a disembodied spirit who comes to warn Ebenezer Scrooge to change his ways while there is still time. Scrooge thinks he is imagining the entire encounter.
Reading today's CPI numbers from the official bureau of propaganda I could not help but to think of this scene. Yes, according to the feds, those rising prices we are all experiencing in the grocery story are nothing more than "undigested bits of beef" ( I could not resist the pun).
Funny that on a day when we have to sit and read commentators telling us gold is under pressure because "inflation is benign", we watch WTI Crude Oil surge through the $100 barrel level as news hits the market that the flow of crude oil in the major pipeline that runs from the Gulf Coast to Cushing, Oklahoma will be reversed allowing oil to flow OUT of Cushing thereby reducing what has been a supply glut pressuring the benchmark for oil.
If WTI Crude continues to show strength, it is going to be a difficult trick for the gold bears to keep up any chatter on ebbing inflationary pressures.
On a different note, take a look at the composite price of wholesale beef. It scored an EIGHT YEAR HIGH yesterday! Don't worry however, this is just a figment of your imagination. The government tells you so.
Meanwhile, Commodity Prices are indeed not continuing to soar into the stratosphere, but neither are they breaking down sharply either. This index would have to fall below 560 to suggest a bear market in commodities overall is underway. Prices have retreated from their all time peak, but seem to be moving in a generally sideways pattern over the last couple of months having bounced off of the above level and moved higher. The index would need to clear 620 to suggest a period of rising commodity prices is underway once again.
That is what is particularly galling about the government's numbers. They give the impression that inflation is benign but the truth is that while the CCI has fallen from its peak, it remains at an extremely lofty level nearly 90% above the bottom made back in 2008. It is a bit of an exaggeration to say it this way but it conveys the point more forcefully - commodity prices have nearly doubled since the fall of 2008.
When you put it that way, the "benign inflation" picture does not seem quite so benign now, does it?
SCROOGE: Because, a little thing affects them. slight disorder of the stomach makes them cheats. You may be an undigested bit of beef, a blot of mustard, a crumb of cheese, a fragment of an underdone potato. There's more of gravy than of grave about you, whatever you are!
So goes the conversation between the two former business partners in a scene from Charles Dickens', "A Christmas Carol". Of course Marley is a disembodied spirit who comes to warn Ebenezer Scrooge to change his ways while there is still time. Scrooge thinks he is imagining the entire encounter.
Reading today's CPI numbers from the official bureau of propaganda I could not help but to think of this scene. Yes, according to the feds, those rising prices we are all experiencing in the grocery story are nothing more than "undigested bits of beef" ( I could not resist the pun).
Funny that on a day when we have to sit and read commentators telling us gold is under pressure because "inflation is benign", we watch WTI Crude Oil surge through the $100 barrel level as news hits the market that the flow of crude oil in the major pipeline that runs from the Gulf Coast to Cushing, Oklahoma will be reversed allowing oil to flow OUT of Cushing thereby reducing what has been a supply glut pressuring the benchmark for oil.
If WTI Crude continues to show strength, it is going to be a difficult trick for the gold bears to keep up any chatter on ebbing inflationary pressures.
On a different note, take a look at the composite price of wholesale beef. It scored an EIGHT YEAR HIGH yesterday! Don't worry however, this is just a figment of your imagination. The government tells you so.
Meanwhile, Commodity Prices are indeed not continuing to soar into the stratosphere, but neither are they breaking down sharply either. This index would have to fall below 560 to suggest a bear market in commodities overall is underway. Prices have retreated from their all time peak, but seem to be moving in a generally sideways pattern over the last couple of months having bounced off of the above level and moved higher. The index would need to clear 620 to suggest a period of rising commodity prices is underway once again.
That is what is particularly galling about the government's numbers. They give the impression that inflation is benign but the truth is that while the CCI has fallen from its peak, it remains at an extremely lofty level nearly 90% above the bottom made back in 2008. It is a bit of an exaggeration to say it this way but it conveys the point more forcefully - commodity prices have nearly doubled since the fall of 2008.
When you put it that way, the "benign inflation" picture does not seem quite so benign now, does it?
Tuesday, November 15, 2011
Farm Land - the Latest Bubble
In private conservations with various friends I have been discussing the very real possibility of a bubble-like price increase in farm land across this nation. There are several reasons but suffice it to say that soaring grain prices have led not only farmers, but investors to hit the trail looking high and low for tracts of good farmland that they can scoop up.
Farmers acquiring top quality farm land to increase their production is a normal response to higher food prices as supply will need to increase in order to keep up with the growing global demand for food. I do however have serious misgivings when I see hedge funds, and other assorted characters seeking to capitalize on this situation by setting up vehicles designed with the sole purpose of acquiring farmland for speculative reasons. This smacks of a mania to me and today that was pretty much confirmed by a report out of a conference held in Chicago which was hosted by the Federal Reserve Bank of Chicago.
The Chicago branch of the Fed, and the Kansas City branch, both reported that farmland values increased 25% from the previous year (according to a report by Dow Jones). This was the largest increase since 1977.
I have always been a fan of the American farmer and am pleased to see these hard working folks reap some of the benefits of increasing global demand for their product as well as seeing their land rise in value, but I am very worried that this could easily turn farmers against wild-eyed speculators who are chasing land, not directly for its productive capacity and value, but rather for an investment which they can later flip to another speculator. We have all seen what these fools did to the real estate market after packaging those mortgages into so many combinations of letters of the alphabet securities (CDO's, SIV's, etc.) that one could hardly keep up with them all. What happens if we see a repeat of that folly?
Obviously, some speculative buyers of farmland will lease the land out to farmers for agricultural use but the notion of hedge fund money sloshing into and out of farmland makes me extremely uneasy. What might happen if enough of these speculative buyers amassed significant holdings of quality farm only to see a drop in value at some point down the road? Would we witness the first domino falling and setting off another chain reaction like we saw in 2008 or any other bubble that has come and gone?
Maybe - Maybe not - all I know is that the combination of hedge funds/investors and farm land does not sit well with me.
Farmers acquiring top quality farm land to increase their production is a normal response to higher food prices as supply will need to increase in order to keep up with the growing global demand for food. I do however have serious misgivings when I see hedge funds, and other assorted characters seeking to capitalize on this situation by setting up vehicles designed with the sole purpose of acquiring farmland for speculative reasons. This smacks of a mania to me and today that was pretty much confirmed by a report out of a conference held in Chicago which was hosted by the Federal Reserve Bank of Chicago.
The Chicago branch of the Fed, and the Kansas City branch, both reported that farmland values increased 25% from the previous year (according to a report by Dow Jones). This was the largest increase since 1977.
I have always been a fan of the American farmer and am pleased to see these hard working folks reap some of the benefits of increasing global demand for their product as well as seeing their land rise in value, but I am very worried that this could easily turn farmers against wild-eyed speculators who are chasing land, not directly for its productive capacity and value, but rather for an investment which they can later flip to another speculator. We have all seen what these fools did to the real estate market after packaging those mortgages into so many combinations of letters of the alphabet securities (CDO's, SIV's, etc.) that one could hardly keep up with them all. What happens if we see a repeat of that folly?
Obviously, some speculative buyers of farmland will lease the land out to farmers for agricultural use but the notion of hedge fund money sloshing into and out of farmland makes me extremely uneasy. What might happen if enough of these speculative buyers amassed significant holdings of quality farm only to see a drop in value at some point down the road? Would we witness the first domino falling and setting off another chain reaction like we saw in 2008 or any other bubble that has come and gone?
Maybe - Maybe not - all I know is that the combination of hedge funds/investors and farm land does not sit well with me.
Gold marking time - rangebound trade continues
Gold has been held in check below $1800 with the bulls unable or unwilling to commit enough firepower to run the shorts out of their defensive line erected at that level. Bears on the other hand cannot get anything going to the downside either as buyers are surfacing on dips in price. The result is more of the same - rangebound trade.
Sometimes there is not much worth commenting on concerning market action and today is one of those days.
Uncertainty over European financial woes is keeping a firm bid in gold with Euro-gold above the 1300 euro level.
Sometimes there is not much worth commenting on concerning market action and today is one of those days.
Uncertainty over European financial woes is keeping a firm bid in gold with Euro-gold above the 1300 euro level.
Saturday, November 12, 2011
Trader Dan on King World News Weekly Metals Wrap
Please click on the following link to listen to my regular weekly interview with Eric King on the KWN Weekly Metals Wrap.
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