"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
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The mining shares continue being pummelled to the point where one wonders who is left in the sector to sell them at these levels.
Take a look at the following chart and marvel:
How many of us who were trading the shares can forget what happened to them back in the summer of 2008 when the credit crisis erupted causing an avalanche of selling across the paper and hard asset sectors. When the S&P 500 was crushed ( it lost over 50% of its value plunging from over 1500 to down under 750) the mining shares were unceremoniously trampled under the feet of men.
During that stage, the shares seriously underperformed against gold bullion losing value at a much faster rate than did the metal itself. The result was to take the HUI/Gold ratio down to levels not seen since the very early stages of the bull market in gold.
Look at where these same shares are now in relation to gold bullion again! Yep - you guessed it - down nearly to the exact same level that they had fallen against gold back in 2008.
Yet, today's finishing quote for the S&P 500 was at 1393; a far cry from near the 740 level to which it had fallen back then.
Compare this to the monthly chart of the HUI and note their abysmal performance with the index now closing at levels last seen back in July 2010!
Looks like the guys who bought Apple were the smart ones and those who bought the shares expecting them to match the performance of gold have now ended up looking foolish. Investing is an art that demands a great deal of patience (at least it used to before the Fed perfected the art of creating funny money) but the patience of most of the gold mining share owners is about exhausted. The only ones left in the shares are the very strongest of hands at this point.
All one needs to know about how the Fed is attempting to knock down the price of commodities in general was demonstrated in today's FOMC minutes.
The idea that I believe it wants to keep uppermost in the mind of traders is that the US economy is recovering, very slowly, but recovering - enough to justify the idea that growth will be steady, that employment will be increasing - slowly - but that there are still headwinds.
However those headwinds, while they bear watching, are not sufficiently strong enough to derail the recovery - this will prevent any slipping back into recession. If they are - of course the ever vigilant Fed stands ready to act - if not now however.
This means that equities should move higher as long as the economy is growing and moving forward, even if it is moving forward at a snail's pace.
One of those headwinds, which they were very concerned to make known, was the idea that GLOBAL GROWTH is slow (hint, hint - CHINA). That means less need for commodities! Again - HINT- HINT.
This notion is designed to take away the idea of an IMMEDIATE QE3 which works to herd the cattle-brained hedge funds (insert theme from "RAWHIDE" here with Ben playing the part of the trail boss) into selling commodities in general. Down goes copper, platinum, other base metals, other tangibles, etc. - only the markets which have the strongest set of fundamentals on the supply/demand equation are able to withstand the barrage of hedge fund, one way, selling pressure which then immediatey follows the minutes as surely as night follows day.
Thus, if the global economic growth is slow and there is not the same demand for commodities as there was previously, and if there is no need for an immediate round of QE3 - then where oh where can the hedge funds make money? Answer - where else but in equities.
We then see commodities mauled while stocks initially tank but then rapidly bounce off their worst levels of the session to end only modestly lower. Yep - no inflation here anywhere - see - just look at the commodity indices and you can see that our near zero interest rate policies are not creating the faintest whisp of inflation. Oh, ignore that gasoline price chart - it's definitely pesky but we can always have the political branch open up the spigots on the Strategic Petroleum Reserve in time for the General Election and deal with that if those prices are still too high at the gas pump come August or September and the Dear Comrade's poll numbers are not any better.
Yes, Virginia - modern price controls without price controls. What a marvelous innovation from our monetary masters.
Now if they can just get that pesky bond market to cooperate and turn around after today's plunge out of disappointment that the Fed will not be buying bonds forthwith. Ah, but that is another day's work for our saviors.
Gold managed to claw its way back above important technical resistance near the $1680 level in today's trade and is thus far holding above that number, albeit just barely. The market needs to push away from $1680 with some conviction and demonstrate that it can attract enough buyers at this level to take it firmly up and then through $1700. If it can do that, we have a solid shot at the $1720 level.
If it fails to sustain its footing above $1680, it will fall back within the recent trading range that it has been carving out with the bottom down near $1650 - $1640.
By the way, the Dollar continues to sink and unless it can recapture the 79 level immediately, it looks like it is heading for a test of support down near 78. Note that all of the shorter term moving averages and the 50 day are now all trending lower in sync again.
It appears from today's price action across both the equity markets and the commodity markets in general, that the beginning of the 2nd quarter is seeing hedge fund managers put money back to work across a wide variety of risk assets.
The catalyst seems to be both the Chinese manufacturing data and the US manufacturing PMI data which were on the friendly side and relieved traders' concerns for at least today. Oddly enough that same PMI data showed inflation data relatively tame which generated a move higher in the bond market in spite of the risk allocation trades. Then again, with the Fed managing the bond market, getting a read on it is particularly "fun".
The industrial metals of course led the charge higher with this sort of manufacturing news and so it is no suprise then to see copper, silver, palladium and platinum all strongly higher as a result. Gold benefitted somewhat from this reallocation back into the metals but definitely is underperforming silver with the risk trades in the forefront of the action.
Silver, which is currently up more than 2% as I write this, has managed to better two important overhead technical resistance levels. The first was at $32.50 and the latter near $33. It is now trading at the top of its recent range and should it be able to attract buying on any retreat in price that will keep it above both levels, it should be able to break out of the top of the range and have a decent shot at moving towards $34.25 - $34.45. If it fails to hold and sinks back inside the range once again, decent support emerges on the chart near $31.50.
Helping both silver and gold today is the fact that the mining shares are also relatively firm for a change further cementing that region from 465- 460 as very solid technical support. Time and time agian over the last two weeks the bears have pushed these shares lower but have not been able to absorb the valued-based buying originating at the recent lows of the last two trading weeks. It certainly appears that a bottom is in the shares; now whether they can finally generate any decent excitement on the upside is the question. The accumulation phase continues but we have await the advent of the markup phase.
charts later....
Please click on the following link to listen in to my regular weekly radio interview with Eric King on the KWN Weekly Metals Wrap.
http://tinyurl.com/6mhsjvf
Interesting recommendation by Goldman and even more interesting to see the market reaction in gold today. Can you say that someone is particularly overjoyed by the opportunity to take that recommendation?
By the way, Goldman is echoing the remarks from Chairman Bernanke the other day and repeating what my interpretation of those remarks were in this week's comments entitled, "Pass the Juice Please".
Goldman's views in summary can be translated as follows: Gold market weakness has been tied to the fact that the markets were expecting "REAL INTEREST RATES" to rise in light of the recent economic data showing improvement in the US economy. However, the economic recovery is not strong enough to allow for higher rates and that coupled with Bernanke's comments that acccomodative monetary policy will be required for the foreseeable future means that gold has overreacted to the downside.
Goldman is looking for another round of QE which will pressure the Dollar and thus drive gold prices higher.
Rest assured that the hedge fund long liquidation and fresh short selling of today is being met by solid buying from Goldman's customers.
Also, I find it EXTREMELY TELLING that the bond market cannot seem to get much going to the upside today given the fact that the broader equity markets are swooning and the US Dollar is currently higher as the risk aversion trades come back on.
While Gold has been able to punch through this critical resistance level, it has not been able to HOLD ABOVE it. This is must do in order to kick it up and out of its current malaise. Once it does so, it should make a run at $1720 - $1725 in relatively short order.
In news this morning that most of the gold community was completely expecting I might add , Chairman 'Easy Money Ben' Bernanke announced this morning that he was concerned whether economic recovery was strong enough to sustain itself without supportive and accomodative monetary policy. Translation - near zero interest rates will remain as far as the eye can see.
Talk about messing with the heads of the Fed Funds Futures traders - they are getting beat to death by this Fed. Every single time they start anticipating a rise in the short term interest rates based on economic data releases, some one or more of the Fed governors comes down from his or her ivory tower and squashes the idea that the economy is sufficiently on the mend. Out through the front door goes the notion that these insanely low interest rates are finally going to be begin lifting.
I have said it before and will say it again - the FED IS TERRIFIED OF RISING INTEREST RATES. Do not forget these two reasons:
1.) the entire "recovery" has been fueled by an ultra low interest rate environment in which short term money is basically free for those who want to borrow it and then leverage it up for speculative trading purposes. (Think a rising stock market which has all the feel of another speculative bubble).
2.) the US federal debt is at banana republic levels and any, I repeat, any rise in interest rates, will suck more of the incoming federal revenue into servicing the cost of this debt (paying the interest on it), leaving less for the spendthrift class to buy votes with.
Bernanke and company cannot afford to have a stock market that stops moving higher because if and when it did, the entire facade of an economy on the mend would come crashing down with it.
The monetary masters have reversed the entire reason for a rising stock market from one driven higher by solid underlying fundamentals to one being rammed higher by lots of JUICE. I am reminded of that scene for the original version of the hit movie, "The Matrix", where Neo and Trinity go to resuce Morpheus from the clutches of agent Smith where they are asked what they are going to need to pull off the stunt. "Guns, lots of Guns", comes the answer.
"Juice, lots of Juice" -
