Gold testing Chart Support

Not much to add to my earlier comments about gold from today as well as those of yesterday. A 3.8% drop in the HUI pretty much guaranteed that gold was going nowhere today.

As a matter of fact, very few commodities were in the green today - just about everywhere one looked, it was lots of RED on the screen. The reason - hard to say for certain but with the Dollar up more than 1/2%, it would have taken some pretty firm fundamentals in these individual markets to shrug off the macro-related selling. As it was, any market whose fundamentals were weak, was especially prone to a bout of selling today.

Gold simply had no reason to move higher today against those headwinds. As can be seen on the chart below, it is working its way down into a chart support region. If it holds here, the bulls can claim a sort of moral victory given the strength in the Dollar and the continued weakness in the Commodity Sector, especially the grains and crude oil (think food and energy and then think no inflation issues there).

Tomorrow, Friday, is the usual "no fun" day for gold as it tends to get whacked a lot at the end of the week for some reason. This is however a seasonally strong period for the metal so it might be able to dodge a bullet. We'll see. Right now the short term momentum is with the bears after the failure at chart resistance. The probe lower is meant to uncover whether or not the bulls are hanging around or not.

here is one of the commodity sector - the Goldman Sachs Commodity Index. There is certainly nothing in this chart that would indicate the least bit of fear in regards to rising commodity prices. If you want to know why silver puked today, just study this chart - silver is joined at the hip with the broader sector.

By the way, gold failed to extend much past the 50 day moving average and has instead plunged back below this key level. This is one of the reasons the selling is now coming back in once again. Hedge funds see that failure as another sell signal. It is going to be up to Asia to put a floor in this market once again.

More Bad News for Consumer Spending

As most of you who are regular readers of this site know by now, I am of the opinion that the US economy is extremely weak in spite of the massive bubble in the equity markets. My reason for having this view is that the consumer, the backbone of this debt-based system, is not in a happy mood.

Opinion polls reflect the pessimism of the public at large as the majority believe the US is in decline as a nation and is on the wrong track. Wages are stagnant and as a result of that abomination known euphemistically as the "AFFORDABLE" Care Act ( it is anything but that for the vast majority), many workers have been cut from full time to part time status or have lost their health insurance benefits. That means they will have to foot the bill for that out of their own pockets now. Translation - that leaves less money for discretionary consumer spending.

Now comes the news that as of this Friday, the temporary boost in food-stamp benefits that was passed not all that long ago will expire. Analysts are projecting that will leave 48 million Americans with an estimated $16 billion LESS to spend over the next three years - according to an article from Dow Jones Wire Services this AM.

This will hit low-income shoppers the hardest. That demographic tends to frequent the discounters, dollar stores, mini_marts, etc.

Also, the story relates a fact that I had forgotten but was glad to be reminded of - the temporary payroll tax cut which was enacted but expired some months ago  also leaves consumers with less money to spend.

Perhaps the one saving benefit of these deflationary type pressures has been the drop in crude oil and by consequence gasoline prices and heating oil prices. If we get the type of winter that some of the firms are suggesting, consumers will be thankful for that at least.

Regardless, my take remains the same - there are too many deflationary factors at work from a structural standpoint to allow the Velocity of Money to increase any time soon. That will be a tough headwind for gold to deal with without some sort of other catalyst that cracks the confidence in the Dollar.

I am carefully monitoring interest rates here in the US as that will also have a significant impact on the consumer borrowing and spending issue.

Gold Stuck in the Mud

I wanted to see how gold would settle today before commenting further. As stated in my earlier post, now that the big FOMC non-news event is out of the way, the market is selling the fact. If this is the best that gold can do, it is difficult for me to see what it is going to take to drive it up through resistance. It just hearkens back to the US Dollar as far as I am concerned. If that weakens, gold moves higher; if it strengthens, gold moves lower.

I can say this however, it is not helping the cause of gold to see crude oil going lower. That market has been a very reliable harbinger of shifts in trading sentiments in regards to inflation or the lack thereof. Swelling stocks of the black goo are indicating just how sluggish any "growth" is for the US economy. How inflationary pressures can be anticipated with energy costs moving lower, grains generally weaker and wages stagnant remains a mystery to me.

Now that the US Dollar has held at chart support, I would expect gold to weaken until the Dollar meets some overhead resistance. Could that happen as soon as tomorrow? Sure it could. You name it; just about anything can occur in these convoluted markets anymore.

All that this means is that we need to take each trading day as they come and try not to read too much into any one day's price action. If you get some follow  through from one day to the next, be pleasantly surprised and grateful for any sort of "good behavior" in the market because chances are it will be fleeting.

Here is the thing which continues to stand out for me. The speculative crowd continues to dishoard gold. As long as the reported gold holdings continue to plummet in the biggest gold ETF, GLD, I cannot be bullish towards gold. That does not mean I am necessarily wildly bearish; it simply means that a primary catalyst for a SUSTAINED MOVE HIGHER is not there. It leaves me more neutral until I see something which gives me reason to have a strong conviction in regards to short term price direction.

Here is the chart:

 

By the way, the CFTC is slowly updating the data for the Commitment of Traders data which was impacted by the recent government partial shutdown. It confirms the same thing that the above chart is showing, too wit, that speculators have recently been flirting more and more with playing gold from the short side. They are still net long but are adding more shorts than longs as well as liquidating some existing longs. This tells me that specs are still looking at rallies as opportunities to short the metal.

 

As of October 15, there was a one week shift of a whopping 22,000 contracts reduction in the net long exposure of the gigantic hedge funds. That reporting week period saw them adding 20,000 brand new shorts! That is absolutely astonishing.

 

I have gone back to look at the week in which gold dropped below $1200 in June of this year by way of comparison to see what they did in regards to their shorts. Guess what - this most recent week of data provided by the CFTC shows that the number of fresh short positions added by these hedge funds through October 15 has DWARFED the increase in hedge fund short positions added in a single week even when gold was imploding lower back in June of this year. These large powerful specs are selling gold with a vengeance, at least through Tuesday, October 15th!

 

That is why we get such fierce upmoves when gold rallies of late - it is this hedge fund short covering which is behind that.

 

Also, just some additional FYI stuff - the small spec crowd was selling gold heavily during that week of October 15th as well.

 

We should have the October 22 data before the end of the week and then we will have this Tuesday's (October 29) data very soon so that will bring us up to speed and back to normal.

 

I will say this however - that report of the week of October 15th is a real eye-opener! If the behavior of the hedge fund crowd back then is any indication of what they are doing this week, it is going to be very difficult for gold to rally.

 

That is why I keep saying that it needs a strong catalyst of some sort. Hedgies are selling and until that changes, it is going to take a grossly weaker Dollar to break it up and out past overhead chart resistance.

 

I would also like to make mention of the fact that I have been keeping an eye on the gold delivery process for the month of October. JP Morgan's HOUSE ACCOUNT has been a very big stopper again this month. They are buying and taking delivery.

 

That leads me to something that I need to say in order to deal with what I consider to be erroneous conclusions by some in the gold camp about a new buzz word - FLASH CRASH. (When it comes to gold it seems we are always dealing with the latest thing does it not? First is was Gold Forward Lease Rates, then BACKWARDATION, then this, then that and now it is apparently FLASH CRASHes which are all the rage.

 

Let's just state for the record, Morgan is buying gold and taking delivery. The COT report shows the Producer/User/Merchant category near their SMALLEST NET SHORT position in YEARS. Hedge Funds are adding shorts at a furious pace. Gold holdings in the ETF, GLD, are dropping like flies. So why in the world does the "gold cartel" need to waste time and effort supposedly dropping large sell orders on gold during the thin Asian trading session in an attempt to discredit it?

 

Answer - they don't. Specs are already using rallies to sell the metal.

 

I will say it again - the gold cartel does not attack gold when it is in a bearish trend which it currently is. They attack it when it is in a rising, bullish trend as they seek to slow its rise. During such times, the hedge funds are doing the buying and the bullion banks are doing the selling. Right now, the bullion banks are using selloffs to buy. Morgan is not taking long positions for its house accounts for no reason - they are taking delivery of the metal. How in the hell can they be the ones causing the FLASH CRASH if they are long and are standing for delivery?

 

Anyone who trades futures for a living as I do and has to sit here each and every night and watch the various markets like corn, soybeans, wheat, cattle, and hogs for example, undergo the various machinations that these damned hedge funds or large players inflict on them during the Asian session when there is so little liquidity,  knows from first hand experience how convoluted the price action can become at times. Large orders for that time of the evening, knock price around and drive it in the direction favored by those who have positions in place. Their plan is to take in into stops, either above or below the market and then set off a chain of buy or sells which they can use to profit from. It is all perfectly legal but in my opinion, completely unethical and disgusting. Yet, the exchanges seem more than willing to tolerate this sort of crap as long as they can collect the trade fees.

 

My beef is with the exchanges more so than those who commit this sort of legalized theft. It is all just chalked up to the "price discovery" process and tolerated. The best cure for this happens to be a big player on the other side who one day just eats their lunch and gives them a lesson that they will never forget.

 

For now however, let's forget about the idea of sellers trying to sell futures and maximize their selling price - those selling into thin market conditions are attempting to influence price by moving it in the direction they favor - Right now those are hedge funds or some other large players, not bullion banks. The only way this will stop is for another large player to stuff them. For that to occur, we need to see a shift in sentiment in regards to gold where another category of specs are eager buyers or any price weakness. So far we are not seeing that.

 

Remember, it is MOMENTUM BUYERS which drive our markets nowadays so before that crowd will enter in size, gold will need to clear the various chart hurtles that are necessary to get their attention and more importantly, the attention of their computers.

 

 

 

I leave you with this chart of Gold.... notice where it has run out of steam to the upside. It will have to clear this band of overhead resistance to run out some more shorts and to entice more new longs from the momentum crowd. The indicator is rolling over meaning that bulls need to step up quickly to avoid a setback lower in price.

 

A push past this week's high will be a big deal if it happens as it will allow price to test $1380 and perhaps as high as $1395 or so. If it fails to extend, support comes in first new $1340 - $1335, (It is near there as I type this) and then again down near $1320.

 

If the US Dollar index can clear 80, gold will drop to test $1320 in my view. If the Dollar fades and the Euro in particular can recapture 1.38, we should see gold strengthen. We are back to watching the gyrations in the Forex markets once again it would appear.

 

 



Tea Leaf Reading Time Again

Yes indeed, that honorable profession, that noteworthy use of precious time, that virtuous expenditure of human energy, has once again been called forth by the monthly proclamation of the divine oracles - namely the FOMC.

Ah yes, those dispensers of wisdom from above, of knowledge and insight, have graced us mere mortals with another round of insightful analysis into the workings of the machine we know as the US economy. And pray tell, what did they tell us this month? Not a damn thing that we already did not know!

They held steady - no tapering of the bond buying program - not that anyone out there expected them to announce such a thing - so now it is back to parsing the statement for CLUES into the inner workings of our monetary masters. "Let us see if we can anticipate their next move for in it, lies our fortune", is today's mantra.

For Pete's sake, are as many of you out there as sick and tired as I am of this pathetic routine already? What a nauseating display of groveling by the once dynamic forces of US capitalism - sitting around waiting and licking their lips to see whether their masters will toss them some chew sticks.

Regardless, the initial moves that I am seeing is weakness in gold, strength in the US Dollar and believe it or, downward price action in the US equity markets. This seems to me to be a case of "Buy the rumor; sell the fact". The markets were essentially bid up, (gold and equities) in anticipation of a continuation in the bond buying without any tapering and that is exactly what they got. So now what? Bull markets need to be fed and one has to wonder where the food is supposed to come from next?

Yes, the Fed is on hold probably until next spring at the earliest as far as tapering goes but some are gleaning a - drum roll here please - an early taper in December because  - another drum roll here - the Fed did not seem to be quite as negative on the economy as many were expecting them to sound, especially with so many of the various governors making the rounds right after the government shutdown ended and were sounding like the sky was falling.

this is leading Dollar bears to cover short bets and as such, bringing in selling to the gold market. It is also hitting silver. Interest rates are moving higher as a result. Here we go again....

I have not written much this week mainly because I am trying to spend my time in doing something more constructive than sit here and watch this idiocy all day long, day after day - I have been engaged in carving some pumpkins for Halloween, something much more enjoyable and in the larger scheme of things - much more lasting that the sentiment for each and every trading day. As a matter of fact, I am willing to bet that my carved pumpkins last for at least three days - far longer than the shifting mind sets of traders who seem to have managed to condense the entire business cycle into a 24 hour period instead of 6 months like it used to be.

Let's see where gold settles when the day ends... for now, $1360 has been reinforced as resistance which has held.

The dollar also looks to have found support above critical support near the 79 level on the USDX.

Looks like more range trade ahead which means the HFT crowd will be back to screwing with the markets once again and continuing to plunder the rest of us. I am thinking of making a new video game for Xbox. Instead of Call of Duty, I am going to make the HFT crowd the alien invaders while the "good guy" traders, get points for crushing them and sending them home crying to their mammas. Hey, I can dream can't I?

Gold Closes out the Week Above the 50 Day Moving Average

Trying to get a read on gold lately has been challenging to say the least. It has been up; it has been down; it has had some wild swings intraday and then sat there on other days. However, it has finally managed to end the week above the 50 day moving average. For you technical analysis geeks like myself out there, that is a significant accomplishment.

I discussed this with Eric King on this week's Metals Wrap over at KWN but I wanted to detail it the price chart as the visuals are more often conducive to making a point.

The last time gold managed this feat (it was back in early August) the metal put on another $100 or so. That is not to say it is going to do so again but what happened as a result of this was that the hedge fund buy programs began to kick in. For whatever reason, market technicians have decided that markets closing above or below the 50 day moving average is a big deal, especially when they manage to do so on at least two consecutive days.

If you look at the chart and go back into November of last year you can see that the metal had managed to push past the 50 day moving average up near $1740 or so. It then managed to keep its footing above this level but unfortunately FAILED TO EXTEND HIGHER the next two sessions. The initial breach was constructive but the inability to BUILD on that performance was disappointing. ON the third day after the breach of the 50 DMA, the market then failed to hold above this level and back down it went. From that point on, in both January and February, this moving average capped all further upside progress.

It was not until July this year that the moving average came into play again. Notice the technical battle that occurred around this level that month. In early August, price once again cleared the 50 DMA. This time it managed to STAY ABOVE the average. Three days later, it took out the high of the day on which it first broke above this barrier. From that point on, the market rallied sharply until it ran out of steam up near $1430 or so.

So where does that leave us this week? Answer - looking for the performance of the metal early next week. If the market can push past the high of Friday and close strong on Monday, it should begin to gather some upside steam as I believe we will see some shorts begin to exit as well as attract some fresh momentum based buying. If it sets back, we want to see it STAY ABOVE the 50 day moving average, at least on the CLOSE of the pit session.

I should note here that Friday's high just so happened to reach right into a strong zone of resistance centered near $1350. That gives the performance of gold early next week even more significance. The bulls have managed to grasp the initiative in the market even if it is only a slight victory at this point. It is up to them to press their advantage at this juncture if they wish to cause some more discomfort for the shorts. If they can do so, $1375 should be an easy target for this initial push. Take it through there and they have a good chance to make a push to $1395- $1400.

If the market fails to extend higher as stated above, then bulls will want to see the price stay above $1300. There is some light chart support first near $1320-$1316 and more down near $1305.

I will say something else here that is important but is yet a good way's off. If gold were for some reason able to clear that spike high above $1425, it would be a TEXTBOOK CHART PATTERN of an important bottom. That would attract a major amount of buying which would set the market up for a run to $1480 - $1490. Again, that is a long way off but one can hope can they not? Let's see if the metal can even get a "14" handle on it before getting too carried away!

I want to note here that the HUI has also managed to claw its way back higher and is also perched above the 50 day moving average as well. that is a nice confirmation. Gold bulls never want to see the shares moving lower while the metal puts on some gains.

I personally believe that the plight of the US Dollar is going to be what determines whether or not we see gold and the shares tacking on some additional upside. I noted earlier this week in a post that confidence in the US Dollar appeared to be waning based on its price action and the chart pattern. There seems to have been a shift in sentiment towards the greenback that came on the heels of the government shutdown and the resultant increase in the US borrowing limit. That was further compounded when with one voice the various FOMC governors, even the usual hawks among that group, were signaling that any bond buying tapering was off the table for the rest of the year at a bare minimum. Subsequent weak economic data confirmed that in the minds of trader and as it did, more selling hit the US Dollar.

If you look at the following price chart, you can see the Dollar's recent woes in pictorial form. Notice how the price has been contained in a broad range since mid-March of LAST year. It did make a brief breakout above the range when the Fed was suddenly sounding hawkish on the QE bond taper caper this summer but once that came and went, back down into the range it went. This time however is it now plumbing the bottom of the range. As you can see, it has not been below the low of that range now over a year. If, and this is a BIG "IF", the dollar were to fail and fall through that low, it should continue until it falls to the next important level down near 78. If that were to give way, heaven help us all because all manner of chaos is going to break out in the commodity sector once again.

It is going to be interesting if that occurs to see what the response of the Fed is going to be because odds are that the speculative crowd will start coming back blindly onto the long side of the commodity sector once again in anticipation of a wave of inflationary pressures related to the falling currency. Again, this is just a guess at this time as I have no way of knowing whether or not the Dollar is indeed going to fail to hold at support. I am merely laying out scenarios that we could see if it does.

This is the biggest problem that I see with this unending madness known as QE. It lays the groundwork for the undermining of any confidence in the Dollar and sets it on a course of weakness. I do not want to see the Dollar weaken as an American but with this idiocy being engaged in by the Fed, and especially with the choice of Yellen ( the Dove of Doves), it is difficult for me to envision a scenario in which the Dollar embarks on a strong bull move as long as the hawkish voices on the FOMC are silent.  Keep in mind it was all the hawkish talk coming of the Fed this past summer that pushed the Dollar higher along with a rise in interest rates. Until that sort of thing re-emerges, what would be the factors that could drive the Dollar higher again? The only ones I see would be if there were a resurgence of issues related to sovereign debt back over in the Euro Zone again.

Oh what a mess these meddling Central Bankers have created for us all. Heaven spare us from this plague of locusts! Has this become the new norm and are we now destined to see a perpetually rising Federal Reserve Balance Sheet (now approaching $4 TRILLION) for the rest of our lives? When does this end?

I have said this many times before but it bears repeating - as a TRADER, I have to go with the swings and the shifting sentiment in the markets in order to survive and make a living but as a long term oriented investor and a concerned and deeply worried citizen, I also have to look at gold as the only insurance against these modern day alchemists known as Central Bankers. They are going to be the ruin of us all.

Trader Dan Interviewed at King World News Markets and Metals Wrap

Please click on the following link to listen in to my regular weekly audio interview with Eric King over at the KWN Metals Wrap.

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/10/26_KWN_Weekly_Metals_Wrap.html

So much for China concerns

Yesterday the focus was on concerns about a potential slowing of Chinese growth as officials there let it be known that they were attempting to throttle back a housing market that is showing serious signs of price inflation. That led to widespread selling of growth related commodities across the board as evidenced by the sharp selloff in crude oil ( a good deal of this was related to the increase in crude oil stocks as well) and in copper, a particularly growth sensitive metal. It also tripped up gold.

Talk about a change in sentiment in one day! Today the tone was set by more abysmal economic data coming out of the US. Factory activity showed the slowest gains in a year. If that was not bad enough, a larger than expected number of people applied for first time jobless benefits. Both served as a gloomy reminder of how poor the labor market is here in the US. Throw in comments by Fed governor Evans, that the sky is basically the limit when it comes to Quantitative Easing and the size of the Fed's balance sheet, and the Dollar struggled all day while gold shot higher with traders there now firmly convinced that there will be no let up in the Fed bond and MBS buying program anytime soon.

What seemed to be happening was a near reversal of yesterday's trade in which macro funds were throwing away commodities. Today even crude oil managed to bounce well off its intraday lows and trades tied to the weaker Dollar surfaced.

In all honesty, I am having a great deal of difficulty reading many of these markets as their price movements are becoming increasingly unpredictable and disconnected from underlying fundamental realities. In this I am not alone. Many traders are worn out from the herky-jerky price swings, most without rhyme or reason and are scaling way back in position size or sitting out altogether. Both make a lot of sense right now. If you cannot understand why a market is doing what it is doing, be careful. That is not the time to try being a hero.

What we are witnessing is this larger macro trade distorting many individual commodity markets. Let me explain - there are certain funds that are long-only funds which offer their clients exposure to the long side of the commodity sector in general. They have not been doing all that well of late truth be told. But, and this is a big "but", their theme mainly consists of keying off any weakness in the US Dollar and then buying across the board in the commodity sector as they benchmark to one of the various commodity indices out there. That means they buy BLINDLY, with no regard whatsoever to the individual fundamentals of supply/demand in those markets.

The idea behind their buying is that weakness in the US Dollar is going to eventually result in inflation and thus they push the "buy tangible assets" theme. So into the commodity markets they come crashing, with their various buy orders shoving prices higher. Then, in those particular markets where the fundamentals are bearish, sellers come in to meet that buying. When these index funds take a break from buying, the price then falls off during the session only to come right back up as they buy once again. The result is a series of maddening price swings which confuses floor traders and others alike who are attempting to get a handle on the market.

The problem this is creating is that no one really understands when this sort of buying will fade and when it will come in because it is tied to the vagaries of the currency markets. Right now the Dollar is having trouble moving higher because traders are convinced that the Fed is going to remain on the dovish side until at least March of next year. But just like yesterday, when we get some sort of hint that China might be tightening monetary policy or trying to slow price pressures across their economy, the hedge funds come in and press it from the short side. If there is any Dollar weakness, the index funds come in a buy and back and forth it goes.

I honestly do not have any idea when this is going to end. I wish it would but it is the spawn of those monetary elites that sit on the FOMC. When you have an entire economy's well being or lack thereof completely addicted to an endless ocean of funny money, it is going to result in all manner of malinvestment and price distortion.

That is why I am hesistant to read too much into any one day's price action. Who the hell knows what we are going to get the next day anymore?

I will make one rather easy prediction however - by the end of the year, we are going to read of a lot more hedge funds going bust. These whipsawing markets are murdering most of them.

China back in the News

China, China and more China... that pretty much sums up what the big mover was in today's session. Talk out of that region was that the Chinese officials were moving to drain liquidity from their system in order to combat what they view as rising inflation concerns. Then again, perhaps a better way of phrasing this is that the Chinese officials would not be acting to add liquidity and maybe adopting some modest measures to deal with monetary aggregates.

The big deal is evidently about housing prices which continue to soar.

Traders interpreted this as bearish for commodities in general, especially copper as well as silver. They also seemed to be in a mood to further sell down crude oil but that tied more to the release of the crude stocks data.

What is interesting is to see the equity markets actually finally finding something to use as a reason to sell. It just goes to further prove the theory that what is lifting equity markets globally is not fundamentals but rather liquidity pools being created by the world's Central Banks. Take that away or even dare to breathe the words that it might be slowed or withdrawn and today's move lower in equities is what we get.

This is why I believe those analysts and pundits who continue to pound the table on buying equities based on their quaint notion that "the economy continues to improve" are full of it. Take away this giant tidal wave of Central Bank supplied liquidity and the world equity markets will fall so low that they could play handball with a snake!

Either way, it got gold. Traders who had been long decided to book profits after the nice pop higher while some of the macro traders moved back in on the short side. Further aiding the bearish mood today was the sharp drop lower in the gold shares once again. I am looking at the screen as I type this and the HUI is down over 3%. It certainly makes one think twice about staying long the metal when they see this as it usually presages a drop lower in the gold price the following day. We'll see if that is the case this time once again.

Silver is actually not doing too bad considering the big move lower in copper (down over 2%) but once again if failed to extend past $23. It is managing thus far to hold above a chart resistance level near $22.50 but just barely. It needs to clear $23 with some gusto to get the momentum crowd interested in buying it. If traders start coming around to the view that China is deliberately attempting to slow things down over there, it is going to add another headwind to silver and copper which will make it tough for gold to extend higher as well, especially as crude oil continues on the weak side.

The standout exception to the general wave of commodity selling today was in the grains which are trading in their own little world right now as hedge funds and other large traders jerk those markets all over the place due to the enormity of the spread trades they are currently employing.

I will get a chart up later on today as I am dealing with a lot of time constraints right now... thanks for your patience.