GLD, reported a very sizeable jump in reported gold holdings this afternoon, something which I felt has enough significance that it should be noted. Holdings were at 776.89 tons as of last Friday but jumped to 785.28 tons this afternoon. After all, an 8.39 ton increase is not a small matter.
Let's keep an eye on this, especially if gold continues to descend lower. It would indicate some buying from some larger players if this sort of buying is more than a one day wonder. Reported holdings are now back to the levels that they were back at the start of this month.
They were at 798.22 tons to start off the year so the holdings are down by some 1.6% so far this year.
I have had my share of dealings with those from the gold bug community who have continually dismissed my notice of falling gold ETF holdings as if it bore no connection whatsoever to the fall in the price of gold over at the Comex. I maintain it is a measure of Western-based investment demand and as long as it is falling, gold is not going to be able to mount any sort of sustained rally.
If GLD reports holdings that begin to increase REGULARLY, then the downside for gold from this point, will be limited. If however the reported holdings begin to drop again after today, and continue to do so for the remainder of the week, gold has more downside left in it.
Stay tuned.
I still am concerned about the number of speculators who remain on the net long side of this market. Maybe today flushed a goodly number of them out but as I stated in the earlier comments from today, I would feel much better about this market moving forward if I could see speculative sentiment become bearish over at the Comex. It is not there as the specs remain bullish at this point.
Tuesday, May 27, 2014
Gold Gives up Ukraine Premium as Bears Growl
This past weekend's election in Ukraine has come and gone and the long awaited outcome has sent gold bulls packing - apparently the beginning of WW III did not commence as a moderate businessman received the nod from the majority of those who voted. Russia seems to be taking more of a conciliatory tone for now.
Combine that with a stronger Durable Goods number ( 0.8% gain in April and an upward revision to the March gain) , and a jump in the Consumer Confidence reading ( from 81.7 in April to 83.0) , and you could hear the umpire calling, "Strike 2". When news about decreasing Chinese gold demand (based on Hong Kong data ) reached the ears and eyes of market players, that was all she wrote for the yellow metal. Bulls jumped ship, bears got aggressive ( something that they have not been doing while Ukraine simmered on the back burner ) and the downside stops were reached. Once $1275 was breached, those stops were activated and the snowball began its downhill roll.
Throw in an option expiration day and the selling was fairly intense.
I mentioned in my Friday comments that the still fairly sizeable grouping of speculators on the net long side of the gold market had me concerned. With falling GLD reported holdings, a sinking HUI and GDXJ, and a Fed talking quite a bit about their concern for the lack of inflation, it is rather remarkable that many specs were still bullish towards gold. As long as the technical charts held up, they were hanging in there over at the Comex, but today's breach of that key technical downside level near $1280, has now become a market factor insofar as it flips the gold market out of the recent range trade and shifts it more towards the POTENTIAL for a fresh trending move lower. Those speculative long positions are now deeply underwater ( especially those who foolishly chased the price higher fearing global war from the Ukraine crisis) and they are exiting as new shorts also move in. Losing bulls should be very thankful for those recently lowered margin requirements for gold as it might give them a wee bit more ability to hold onto losing positions should they so desire.
The saving grace for gold is that it happens to be near the cost of production for some mining outfits ( not all of them ) and that might serve to slow the downside momentum somewhat.
I can see the metal in a grinding move lower rather than a sharp fall as it slowly bleeds out speculative interest off the long side while meeting some increased physical buying from India and perhaps China. But as far as Western-oriented investment demand goes, that is not going to be there until investors believe that the bull market in equities is over or some fresh geopolitical event arises. As far as the majority of investors are concerned, the lack of inflation in a low interest rate environment with improving economic data is the perfect recipe for continued money flows into that asset class ( stocks ). Money managers are going to put money to work where it can produce returns - it is really that simple.
I would like to make one more point in this regard - again and again we get the chorus from the gold perma bulls that gold sentiment is lousy and that is a great reason to expect a bottom. The problem with this goofy theory is that the Comex positioning indicates the opposite - as I mentioned last Friday, every major group of speculators, whether it be the large hedge funds, the other large reportables or the small traders ( general public ) are NET LONG gold. How in the world can someone say with a straight face that gold sentiment is horrible and that is a reason to buy? It would be better to say that bullish sentiment towards gold is falling but remains positive. That would be more accurate. This is why that talk of a "capitulation bottom" is premature. That is the last hook that gold perma bulls are now trying to hang their hats onto after their wrong-headed theories on negative GOFO rates and backwardation have collapsed.
My own view on this is that it would be much better for gold if the speculative category of traders actually moved to the NET SHORT Side of the market on the Comex. Then we might start having an intelligent discussion about "capitulation". Anything prior to that is just wishful thinking dressing itself up as market analysis.
Looking at the gold chart ( daily) you can see the loss of initial support near the $1280 level. That was followed by an additional breach of the next downside support level that came in near $1266 or so. The next level extends from $1260 - $1250.
The ADX is just beginning to rise indicating that the market has not yet entered a trending move lower but the potential does exist for such a thing. I am of the view, at the moment, the more likely outcome for gold is a steady grinding move lower, rather than a sharp leg lower. We'll have to see. A breakout of a trading range market, especially the longer the duration of the previous range trade, tends to bring about some big moves. The issue here is the level at which gold is already trading. As mentioned above, it is down near the cost of production of some miners. The problem is that the speculative forces are still trapped on the net long side of this market; the wrong side I might add. They are going to be exiting barring some unexpected geopolitical event but as price descends from the current level, it should attract some decent physical demand from the East. I guess the question is are these speculators on the long side going to only grudgingly throw in the towel and gradually get out or are they going to say, " I am done with this crap" and abandon the metal rapidly. I am leaning towards the former view at this point but as always, will respect the price action. If it is the former, the market will grind lower; If it is the latter, the market will drop very sharply.
In the meantime, let's just watch the price charts and let that guide us. I am especially interested in seeing what now becomes of the HUI and the GDXJ. The shares led the metal lower and should lead it higher when the time comes for a true bottom in the metal. The GDXJ is down over 5% as I type these comments while the HUI is not faring much better, losing over 4% right now.
Here is a chart of the GDXJ:
Note that the market GAPPED DOWN below a key support level that has been in place since April 22 of this year and has extended losses to the point that it is now trading at its worst level since early January. In other words, it is at an over 4 month low.
Forebodingly, the ADX is now beginning to rise indicating that the potential for trending move exists. That trend is however down. Bears are firmly in control with the -DMI registering the highest reading in nearly two months.
The HUI has lost chart support at the bottom of its range as well. It reached a low today right on top of a support level that runs back to December of last year. If that does not hold it, it is probably going to drop below 200. That would essentially wipe out any gains in the index for the entire year.
Silver had best thank copper today that the red metal is bucking the trend towards lower prices. Silver remains caught between following copper and following gold. It is hanging around that $19 level which is becoming more and more technically significant. It is a lot like the $1280 level in gold. The more the price held near that level but failed to extend higher, the greater the damage inflicted if/when that support level fails. Until silver can scale the $20 barrier and REMAIN FIRMLY above that level, it is vulnerable.
Interest rates remain subdued as bonds actually ticked up some despite the new all time high in the equity markets and the improving economic data. What seems to be at work in the US Treasury market is that traders are becoming more and more convinced that some sort of monetary easing is going to be coming the way of the Eurozone with lower rates resulting over that way. This is causing those who want to own bonds to increase ownership of US Treasuries due to the higher yields in what they consider to be a tame inflationary environment. In other words, money is flowing to where it can capture the best yields and with many thinking that the US economy is improving at a better pace than the Eurozone, money is flowing to the US.
That is boosting the Dollar at the expense of the Euro, which initially moved higher after the election results there this past weekend. Those results should prove interesting to see how or if they are going to influence policy coming out of Brussels. Nationalism is on the rise as many Europeans from their respective countries are airing their discontent with being governed by a far-away group of unaccountable bureaucrats. I maintain that the experiment is eventually going to fail there simply because the idea of creating a melting pot of the various European nations modeled around the United States is not possible. Here in the US we share a common heritage, a common culture ( at least we did at one time ) and to a great extent a common Judeo-Christian set of shaped values. No such unifying factors exist in Europe. I would dare say that this weekend's election is a watershed moment for the Eurozone. Is it the high tide in a counter centralization movement or the start of something greater? Time and events will make it clear for us.
Given Europe's past history of warfare and conflict, along with the terrible loss of human life and suffering, it is easy to understand the desire to never again see the rise of nationalistic tendencies that are of such strength, that they foment war among some of the population there and among some political leaders. However, a shared set of traditions, religion, culture, language, etc., is necessary to bind people together. How that can ever be successfully implemented, except for the use of force and that only for a generation or two at best, escapes me.
The Russell 2000 is rebounding nicely today on that positive economic news moving up over 1.1% as I type this. Risk is back on today and that has investors upbeat as they chase equities higher. As you can see, it is quite a ways off of its best level this year but it has officially moved out of "correction" territory ( down 10% or more from a peak) and has actually generated a mild buy signal. I will be most interested in how this index closes not only today, but especially this week. A push through 1160 or so should be accompanied by another all time high in the S&P 500.
This incredibly uptrend continues. The last time the trending move higher was interrupted was back in October 2011, two and a half years ago!
Switching gears to the grains - they were beaten with the proverbial ugly stick today, especially soybeans which have been on a tear higher of late. Today, beans came back down to earth. The bean market has been a classic example of traders moving prices depending on what factor that they want to focus upon on any given day. When the focus shifts to the tight supply of ending stocks, the market rallies. When the focus shifts to the upcoming new crop and the potential for a massive crop, the price falls. Back and forth; up and down, it has gone. Today, the focus is on the great planting progress that traders are expecting to see in this afternoon's crop progress report and the relatively beneficial weather the planted crops are experiencing.
I realize farmers want the highest price for their crops - and who can blame them? - as those prices determine their economic welfare. But for the sake of the livestock industry, the poultry industry and the average consumer, I do hope that this year's crops are large ones. Rising food prices are tough on us all but they impact the poorest among us as those are the ones with the least amount of discretionary income to spend. A large harvest of corn and beans, along with wheat, and falling gasoline prices would be of immense help to the average consumer.
Corn is in a trending move lower as indicated by the daily price chart. Same goes for wheat. Beans, both old crop and new crop, had been trending higher. That might change however if we get some downside follow through in either the July or the Nov's. So far, retracements lower in price have been eagerly bought. Whether or not that pattern is going to continue is up in the air at this time.
By the way, the US Dollar is closing on a key overhead resistance near 80.80 basis the USDX. The Euro continues moving lower towards key support near 1.35. It could not maintain its footing at initial support near the 1.366 level. There is some mild support on the chart near 1.3590. If it fails there, it will more than likely test 1.35 - 1.348. That is a big level from a technical analysis perspective. The Euro might very well have seen its best level in a long time if it fails to hold there. All eyes on going to be on this upcoming ECB meeting in June.
Combine that with a stronger Durable Goods number ( 0.8% gain in April and an upward revision to the March gain) , and a jump in the Consumer Confidence reading ( from 81.7 in April to 83.0) , and you could hear the umpire calling, "Strike 2". When news about decreasing Chinese gold demand (based on Hong Kong data ) reached the ears and eyes of market players, that was all she wrote for the yellow metal. Bulls jumped ship, bears got aggressive ( something that they have not been doing while Ukraine simmered on the back burner ) and the downside stops were reached. Once $1275 was breached, those stops were activated and the snowball began its downhill roll.
Throw in an option expiration day and the selling was fairly intense.
I mentioned in my Friday comments that the still fairly sizeable grouping of speculators on the net long side of the gold market had me concerned. With falling GLD reported holdings, a sinking HUI and GDXJ, and a Fed talking quite a bit about their concern for the lack of inflation, it is rather remarkable that many specs were still bullish towards gold. As long as the technical charts held up, they were hanging in there over at the Comex, but today's breach of that key technical downside level near $1280, has now become a market factor insofar as it flips the gold market out of the recent range trade and shifts it more towards the POTENTIAL for a fresh trending move lower. Those speculative long positions are now deeply underwater ( especially those who foolishly chased the price higher fearing global war from the Ukraine crisis) and they are exiting as new shorts also move in. Losing bulls should be very thankful for those recently lowered margin requirements for gold as it might give them a wee bit more ability to hold onto losing positions should they so desire.
The saving grace for gold is that it happens to be near the cost of production for some mining outfits ( not all of them ) and that might serve to slow the downside momentum somewhat.
I can see the metal in a grinding move lower rather than a sharp fall as it slowly bleeds out speculative interest off the long side while meeting some increased physical buying from India and perhaps China. But as far as Western-oriented investment demand goes, that is not going to be there until investors believe that the bull market in equities is over or some fresh geopolitical event arises. As far as the majority of investors are concerned, the lack of inflation in a low interest rate environment with improving economic data is the perfect recipe for continued money flows into that asset class ( stocks ). Money managers are going to put money to work where it can produce returns - it is really that simple.
I would like to make one more point in this regard - again and again we get the chorus from the gold perma bulls that gold sentiment is lousy and that is a great reason to expect a bottom. The problem with this goofy theory is that the Comex positioning indicates the opposite - as I mentioned last Friday, every major group of speculators, whether it be the large hedge funds, the other large reportables or the small traders ( general public ) are NET LONG gold. How in the world can someone say with a straight face that gold sentiment is horrible and that is a reason to buy? It would be better to say that bullish sentiment towards gold is falling but remains positive. That would be more accurate. This is why that talk of a "capitulation bottom" is premature. That is the last hook that gold perma bulls are now trying to hang their hats onto after their wrong-headed theories on negative GOFO rates and backwardation have collapsed.
My own view on this is that it would be much better for gold if the speculative category of traders actually moved to the NET SHORT Side of the market on the Comex. Then we might start having an intelligent discussion about "capitulation". Anything prior to that is just wishful thinking dressing itself up as market analysis.
Looking at the gold chart ( daily) you can see the loss of initial support near the $1280 level. That was followed by an additional breach of the next downside support level that came in near $1266 or so. The next level extends from $1260 - $1250.
The ADX is just beginning to rise indicating that the market has not yet entered a trending move lower but the potential does exist for such a thing. I am of the view, at the moment, the more likely outcome for gold is a steady grinding move lower, rather than a sharp leg lower. We'll have to see. A breakout of a trading range market, especially the longer the duration of the previous range trade, tends to bring about some big moves. The issue here is the level at which gold is already trading. As mentioned above, it is down near the cost of production of some miners. The problem is that the speculative forces are still trapped on the net long side of this market; the wrong side I might add. They are going to be exiting barring some unexpected geopolitical event but as price descends from the current level, it should attract some decent physical demand from the East. I guess the question is are these speculators on the long side going to only grudgingly throw in the towel and gradually get out or are they going to say, " I am done with this crap" and abandon the metal rapidly. I am leaning towards the former view at this point but as always, will respect the price action. If it is the former, the market will grind lower; If it is the latter, the market will drop very sharply.
In the meantime, let's just watch the price charts and let that guide us. I am especially interested in seeing what now becomes of the HUI and the GDXJ. The shares led the metal lower and should lead it higher when the time comes for a true bottom in the metal. The GDXJ is down over 5% as I type these comments while the HUI is not faring much better, losing over 4% right now.
Here is a chart of the GDXJ:
Note that the market GAPPED DOWN below a key support level that has been in place since April 22 of this year and has extended losses to the point that it is now trading at its worst level since early January. In other words, it is at an over 4 month low.
Forebodingly, the ADX is now beginning to rise indicating that the potential for trending move exists. That trend is however down. Bears are firmly in control with the -DMI registering the highest reading in nearly two months.
The HUI has lost chart support at the bottom of its range as well. It reached a low today right on top of a support level that runs back to December of last year. If that does not hold it, it is probably going to drop below 200. That would essentially wipe out any gains in the index for the entire year.
Silver had best thank copper today that the red metal is bucking the trend towards lower prices. Silver remains caught between following copper and following gold. It is hanging around that $19 level which is becoming more and more technically significant. It is a lot like the $1280 level in gold. The more the price held near that level but failed to extend higher, the greater the damage inflicted if/when that support level fails. Until silver can scale the $20 barrier and REMAIN FIRMLY above that level, it is vulnerable.
Interest rates remain subdued as bonds actually ticked up some despite the new all time high in the equity markets and the improving economic data. What seems to be at work in the US Treasury market is that traders are becoming more and more convinced that some sort of monetary easing is going to be coming the way of the Eurozone with lower rates resulting over that way. This is causing those who want to own bonds to increase ownership of US Treasuries due to the higher yields in what they consider to be a tame inflationary environment. In other words, money is flowing to where it can capture the best yields and with many thinking that the US economy is improving at a better pace than the Eurozone, money is flowing to the US.
That is boosting the Dollar at the expense of the Euro, which initially moved higher after the election results there this past weekend. Those results should prove interesting to see how or if they are going to influence policy coming out of Brussels. Nationalism is on the rise as many Europeans from their respective countries are airing their discontent with being governed by a far-away group of unaccountable bureaucrats. I maintain that the experiment is eventually going to fail there simply because the idea of creating a melting pot of the various European nations modeled around the United States is not possible. Here in the US we share a common heritage, a common culture ( at least we did at one time ) and to a great extent a common Judeo-Christian set of shaped values. No such unifying factors exist in Europe. I would dare say that this weekend's election is a watershed moment for the Eurozone. Is it the high tide in a counter centralization movement or the start of something greater? Time and events will make it clear for us.
Given Europe's past history of warfare and conflict, along with the terrible loss of human life and suffering, it is easy to understand the desire to never again see the rise of nationalistic tendencies that are of such strength, that they foment war among some of the population there and among some political leaders. However, a shared set of traditions, religion, culture, language, etc., is necessary to bind people together. How that can ever be successfully implemented, except for the use of force and that only for a generation or two at best, escapes me.
The Russell 2000 is rebounding nicely today on that positive economic news moving up over 1.1% as I type this. Risk is back on today and that has investors upbeat as they chase equities higher. As you can see, it is quite a ways off of its best level this year but it has officially moved out of "correction" territory ( down 10% or more from a peak) and has actually generated a mild buy signal. I will be most interested in how this index closes not only today, but especially this week. A push through 1160 or so should be accompanied by another all time high in the S&P 500.
Here is the S&P 500 chart ( weekly )
Switching gears to the grains - they were beaten with the proverbial ugly stick today, especially soybeans which have been on a tear higher of late. Today, beans came back down to earth. The bean market has been a classic example of traders moving prices depending on what factor that they want to focus upon on any given day. When the focus shifts to the tight supply of ending stocks, the market rallies. When the focus shifts to the upcoming new crop and the potential for a massive crop, the price falls. Back and forth; up and down, it has gone. Today, the focus is on the great planting progress that traders are expecting to see in this afternoon's crop progress report and the relatively beneficial weather the planted crops are experiencing.
I realize farmers want the highest price for their crops - and who can blame them? - as those prices determine their economic welfare. But for the sake of the livestock industry, the poultry industry and the average consumer, I do hope that this year's crops are large ones. Rising food prices are tough on us all but they impact the poorest among us as those are the ones with the least amount of discretionary income to spend. A large harvest of corn and beans, along with wheat, and falling gasoline prices would be of immense help to the average consumer.
Corn is in a trending move lower as indicated by the daily price chart. Same goes for wheat. Beans, both old crop and new crop, had been trending higher. That might change however if we get some downside follow through in either the July or the Nov's. So far, retracements lower in price have been eagerly bought. Whether or not that pattern is going to continue is up in the air at this time.
By the way, the US Dollar is closing on a key overhead resistance near 80.80 basis the USDX. The Euro continues moving lower towards key support near 1.35. It could not maintain its footing at initial support near the 1.366 level. There is some mild support on the chart near 1.3590. If it fails there, it will more than likely test 1.35 - 1.348. That is a big level from a technical analysis perspective. The Euro might very well have seen its best level in a long time if it fails to hold there. All eyes on going to be on this upcoming ECB meeting in June.
Saturday, May 24, 2014
Copper - A Case of Dueling Speculators
I have long followed the Copper market for its predictive powers and its relatively accurate assessment of overall global strength of the lack thereof. I put more credence in it and crude oil than most any other indicator.
I therefore find it fascinating in going over this week's Commitment of Traders report and discovering something there which fits with what I regard as the relatively confused, uncertain, and mixed sentiment out there among investors when it comes to assessing the state of the global economy.
Take a look at the following chart and note the positioning of the Hedge Fund category and the Other Large Reportables Category. I have circled their respective chart lines.
The hedge fund category, which has now moved to a net long position in the red metal, are 18,787 net long. The large reportables are -24,183 net short. These two categories are the BIG SPECULATIVE TRADERS. The large reportables can include CTA's, CPO's, and other large independent traders such as floor locals or private traders who have large enough position sizes that they are required to be reported.
One of these groups of powerful speculators are going to be proven very wrong. It is not too often that you see this sort of setup in a market in which the large speculators are positioned in opposite directions in fairly equal strength.
This setup will resolve itself in one of two ways;
1.) A bullish or bearish surprise on the fundamental front will force a big round of short covering or a big round of long liquidation resulting in a sharp move higher or lower depending on which side is wrong and is forced out
2.) A grinding type of range trade in which both sides can find data that provides fundamental support to their positioning with the result that any exodus by one side is matched by an exodus from the other. Or, any build from the one side is matched by a build on the other side.
Either way this is going to be fun to watch.
Which way is Dr. Copper going to go? Stay tuned and we will all find out.
By the way, the Hedge fund category has just moved to the Net Short side in the silver market once again. Here we have a similar development in silver as we do above in Copper, which again, is not that common. The hedge funds have been moving away from their net long positioning and reducing that exposure as they become progressively more bearish on the metal's prospects. The large reportables on the other hand, have been moving building a larger net long position as they become more upbeat on its potential.
This is the reason that the silver market continues to be stuck in a tight range between $20 on the top and $19 on the bottom. Speculative forces are not in agreement. At the risk of further provoking the silver bugs, this has nothing to do with governmental conspiracies to suppress the price of silver. When the specs are in unison, the market will move in that direction that they are agreed upon. For now, it is stuck in a range going nowhere because of this lack of unanimity among the large speculative forces.
We'll see which side wins in this market.
Lastly, here is the gold COT chart. Not much to say about it this week except for this -those who keep talking "contrarian" in gold claiming how poor sentiment is for gold among speculators as a reason to get long the gold market, seem oblivious to the fact that all three groups of speculators, whether that be the Hedge Funds, the Large Reportables and the Small Specs, remain as Net Longs in the gold market. If these guys are bearish, I am not seeing it.
In spite of the fact that the reported holdings of GLD continue to drop, in spite of the fact that the HUI and the GDXJ continues to stagnate, specs are net long in gold. I have said it before and will repeat it; gold had BETTER NOT violate chart support by closing below $1280 or we are going to see a big surge in long side liquidation and that worries me as there is sufficient fuel for a sharp drop lower in the price of gold IF these specs are forced out. So far geopolitical concerns involving Ukraine are holding this market up but if interest rates here in the US start creeping higher once again, alongside either a rising Dollar/falling Euro, gold is going to be vulnerable.
Lots of uncertainties I will admit which however will require us all to be vigilant to monitor price action in the days and weeks ahead.
I therefore find it fascinating in going over this week's Commitment of Traders report and discovering something there which fits with what I regard as the relatively confused, uncertain, and mixed sentiment out there among investors when it comes to assessing the state of the global economy.
Take a look at the following chart and note the positioning of the Hedge Fund category and the Other Large Reportables Category. I have circled their respective chart lines.
The hedge fund category, which has now moved to a net long position in the red metal, are 18,787 net long. The large reportables are -24,183 net short. These two categories are the BIG SPECULATIVE TRADERS. The large reportables can include CTA's, CPO's, and other large independent traders such as floor locals or private traders who have large enough position sizes that they are required to be reported.
One of these groups of powerful speculators are going to be proven very wrong. It is not too often that you see this sort of setup in a market in which the large speculators are positioned in opposite directions in fairly equal strength.
This setup will resolve itself in one of two ways;
1.) A bullish or bearish surprise on the fundamental front will force a big round of short covering or a big round of long liquidation resulting in a sharp move higher or lower depending on which side is wrong and is forced out
2.) A grinding type of range trade in which both sides can find data that provides fundamental support to their positioning with the result that any exodus by one side is matched by an exodus from the other. Or, any build from the one side is matched by a build on the other side.
Either way this is going to be fun to watch.
Which way is Dr. Copper going to go? Stay tuned and we will all find out.
By the way, the Hedge fund category has just moved to the Net Short side in the silver market once again. Here we have a similar development in silver as we do above in Copper, which again, is not that common. The hedge funds have been moving away from their net long positioning and reducing that exposure as they become progressively more bearish on the metal's prospects. The large reportables on the other hand, have been moving building a larger net long position as they become more upbeat on its potential.
This is the reason that the silver market continues to be stuck in a tight range between $20 on the top and $19 on the bottom. Speculative forces are not in agreement. At the risk of further provoking the silver bugs, this has nothing to do with governmental conspiracies to suppress the price of silver. When the specs are in unison, the market will move in that direction that they are agreed upon. For now, it is stuck in a range going nowhere because of this lack of unanimity among the large speculative forces.
We'll see which side wins in this market.
Lastly, here is the gold COT chart. Not much to say about it this week except for this -those who keep talking "contrarian" in gold claiming how poor sentiment is for gold among speculators as a reason to get long the gold market, seem oblivious to the fact that all three groups of speculators, whether that be the Hedge Funds, the Large Reportables and the Small Specs, remain as Net Longs in the gold market. If these guys are bearish, I am not seeing it.
In spite of the fact that the reported holdings of GLD continue to drop, in spite of the fact that the HUI and the GDXJ continues to stagnate, specs are net long in gold. I have said it before and will repeat it; gold had BETTER NOT violate chart support by closing below $1280 or we are going to see a big surge in long side liquidation and that worries me as there is sufficient fuel for a sharp drop lower in the price of gold IF these specs are forced out. So far geopolitical concerns involving Ukraine are holding this market up but if interest rates here in the US start creeping higher once again, alongside either a rising Dollar/falling Euro, gold is going to be vulnerable.
Lots of uncertainties I will admit which however will require us all to be vigilant to monitor price action in the days and weeks ahead.
Friday, May 23, 2014
Copper Prices working Higher
In looking over the recent Commitment of Traders report, one can observe the steady migration of the hedge fund community from off of the short side of the market to the long side. That change in sentiment is reflected on the copper price chart. The red metal has rallied some $0.30 pound in two months.
It would appear that traders are keying off improving economic data here in the US ( today is was new home sales which rose 6.4% in April from March). There also is optimism that Chinese manufacturing might be stronger than originally anticipated. The last factor is shrinking inventory levels in the LME warehouses. Today, the amount of copper in storage there fell to the lowest level since September 2008.
These three factors were enough to prompt some remaining shorts to head for the exits as well as to entice some new buyers. Here is the takeaway however as far as I am concerned.
Copper is one of the best economic indicator around. ( I think crude oil is the other). As such I believe it tells us a great deal about what investors are thinking in regards to the prospects of the overall global economy. A rising copper price should therefore not be ignored, any more than a falling copper price should. When one combines that with the fact that crude oil prices remain stubbornly above the $100 level, in spite of the large amount of shale oil being produced here in the US, it should at least make one hesitant to become too pessimistic about the health of the economy moving forward.
Copper has managed to move into a resistance zone on the price chart. That big sharp drop lower in price that occurred back in March this year is still dominant on the price chart however. I would like to see this market clear the top of that drop zone to feel that copper is sending a firmer " All Clear Ahead" signal. We will watch this closely, along with crude oil
It would appear that traders are keying off improving economic data here in the US ( today is was new home sales which rose 6.4% in April from March). There also is optimism that Chinese manufacturing might be stronger than originally anticipated. The last factor is shrinking inventory levels in the LME warehouses. Today, the amount of copper in storage there fell to the lowest level since September 2008.
These three factors were enough to prompt some remaining shorts to head for the exits as well as to entice some new buyers. Here is the takeaway however as far as I am concerned.
Copper is one of the best economic indicator around. ( I think crude oil is the other). As such I believe it tells us a great deal about what investors are thinking in regards to the prospects of the overall global economy. A rising copper price should therefore not be ignored, any more than a falling copper price should. When one combines that with the fact that crude oil prices remain stubbornly above the $100 level, in spite of the large amount of shale oil being produced here in the US, it should at least make one hesitant to become too pessimistic about the health of the economy moving forward.
Copper has managed to move into a resistance zone on the price chart. That big sharp drop lower in price that occurred back in March this year is still dominant on the price chart however. I would like to see this market clear the top of that drop zone to feel that copper is sending a firmer " All Clear Ahead" signal. We will watch this closely, along with crude oil
Ukraine Election moves to the Forefront
All eyes will be on this weekend's upcoming election in Ukraine. Traders, especially gold traders, will be closely watching the reaction to the vote. Any sort of violence should provide support to the metal. In the event that little reaction occurs on the ground, some of the risk premium in the metal will be wrung out. We will have to watch and see how things transpire.
For the meantime, the range trade in gold continues with neither bulls or bears wishing to become too aggressive ahead of a long holiday weekend, especially with this big election taking place.
I am much more interested in the Euro, which continues to weaken ( European currencies are generally losing ground to the Dollar at the moment ). That is providing further lift to the Dollar as is the move higher in equities. Then again, it is early in the day when I am typing these comments. Refer to the chart of the Euro that I posted yesterday. It has fallen through that chart support as of this morning and barring a late session turnaround, looks like it will try to test the 1.35 region. The election might have some impact on the currency so traders will more than likely be content to even up some positions ahead of the weekend as well. If the Euro does lose the 1.35 region, it would push the Dollar through overhead chart resistance near 80.70 basis the USDX. That could work to pressure gold so we will want to continue watching this very closely. Id the Dollar were to push past the 81.50 region, I do not think gold is going to be able to maintain its footing above $1280. Again, we will simply have to wait and see what happens as we move into next week.
The GIAMATT crowd is pointing to a story in the Financial Times noting that the UK's Financial Conduct Authority cited Barclays had failed to "adequately manage conflicts of interest between itself and its customers as well as systems and controls failing, in relation to the gold fixing" between 2004 and 2013. The main focus however was on an event that took place on June 28, 2012. Barclays' trader was attempting to avoid a payment of some $3.9 million to a customer under an option. According to an email that the trader, by the name of Plunkett had sent to some of his fellow workers, he was attempting to create a "mini puke" the next day. That was understood to mean forcing the price lower ahead of the fix.
It is "Hallelujah" Time over there with them. "See - we were right all along - this is proof positive that every single big move lower in gold is the result of evil, nefarious forces suppressing the price of gold on behalf of the government". So what does the story show us? Simple - a big bank has been fined for knocking the price of gold lower in order to prevent having to make a payment to a customer. Indeed, this is most certainly a corrupt thing. Anytime the regulators can catch this sort of thing occurring and attempt to put a stop to it we should all be pleased. I have had more than my fair share of dealing with bizarre price swings in markets - just yesterday I was pointing out to a reporter at Reuters some suspicious activity in the hog market - but is this the same as saying that the price of gold is being CONSTANTLY manipulated by these big banks in order to do the bidding of the government? Not hardly. It seems as if it was much more mundane than that - as noted above, the trader was trying to avoid paying a customer $3.9 million.
It is interesting to note that the price of gold closed on the Comex that day in question at $1550.40. Three days later it closed at $1621.80. As a matter of fact, the price of gold worked steadily higher from that point running all the way to $1798 in October 2012. June 28 was the bottom in the gold price for the next TEN months! If the trader was attempting to knock the price of gold lower at the behest of the feds, he sure as hell did a lousy job of it didn't he? That low in price, near $1550 was not even seen again until April the following year. On April 12, 2013, gold then entered its current bear market.
What we can certainly bring away from the FT story is that Barclays' trader was attempting to keep the price of gold from moving higher to a certain level until the option expired, and apparently succeeded in so doing. But did he suppress the price of gold at the behest of the government? Hardly! As said, he sure as hell mucked it up if we was trying to drive the price sharply lower!
Here is the actual price chart of gold for that time period. See for yourself.
Here is the point in all this - too many in the GIAMATT crowd lose credibility when extrapolating from one thing to another. It is the result of sloppy analysis in my view. As just noted, the very day on which the trader in question was singled out as having worked to produce a "mini plunge", marked the bottom in a market that then proceeded to rally $250 in the next 13-14 weeks. And this is proof positive that the feds are behind the gold suppression scheme? My goodness, if I were the feds looking for an entity to suppress the price in gold and just witnessed one of my "cohorts" somehow managing to induce a $250 RISE in the price, I think I would be looking for someone more effective!
Look, prices in our modern futures markets are slammed lower and jammed higher with increasing regularity these days. It is the new normal. Pick a market, any market, and watch it closely over the course of the next few weeks, and you will see it. Might I suggest soybeans or coffee? I just this week threw up a chart of the soybean market showing you the wild swings on an hourly chart to demonstrate how volatile the price swings have become. With computers now doing the bulk of the trading, all it takes to move a market is an order large enough to trigger them into buying or selling, depending on which direction the one pushing the market is wanting to take it.
One more thing and I am done with this. I have written more times than I care to remember at this point about the wild-eyed, breathless, sensationalized, much publicized, announcements and proclamations from our "new market wizards" detailing with excruciating exactness practically every sharp move lower in the gold price which they have dubbed as "flash crashes". They have made the conclusion that every sharp fall in the price of gold that results from any large series of sell orders, is proof that the feds ( government ) are working to suppress the price of gold. This shallow analysis is easily refuted as I have mentioned above by watching the price action of other commodity futures markets. But beyond that, the real problem with this "analysis" is that it has a flawed thesis at its foundation.
Those of you who understand anything about building know that if your foundation is flawed, the structure built upon it is shaky. You may have the finest quality of construction upon that foundation, but if is unstable, nothing is going to support that building when the foundation comes under stress.
The foundation behind the "flash crash" theory is that every sharp move lower in gold is the work of nefarious evil-doers suppressing the price of the metal in order to do the bidding of the government, which, if we are to believe the GIAMATT crowd, is obsessed with a rising gold price under any circumstance. But where is it written that whereas other markets can rise and fall, only gold MUST CONSTANTLY MOVE UPWARDS AND ONWARDS? What magic is it about the yellow metal that it alone, out of all the various markets on this planet, MUST MOVE HIGHER? Their entire postulate relies on an assumption that is absurd - namely - that gold must constantly move only in one direction - up! If it does not, then that in itself is evidence enough that the price is manipulated by the powers that be; so goes their thesis.
But that begs the question: " what are the circumstances required for gold to be in a bull market"? If you answer that, then the shaky foundation upon which the GIAMATT crowd's entire thesis becomes apparent.
Here is a chart of the US Dollar compared to the price of Gold. Most of you know that I have dubbed the yellow metal, "The Anti-Dollar". The two markets tend to move INVERSELY to one another. Again, I wish to repeat -the correlation is not exact but it is pretty close. GENERALLY SPEAKING, gold tends to move lower as the Dollar moves higher and moves higher as the Dollar moves lower. By the way, if the relationship were an exact one, we would hardly ever see much change in the price of gold in terms of other foreign currencies. That being said, look at the chart below:
The Dollar is the green line; gold is the yellow line. You can clearly see the inverse relation existing among the two. There was a brief period noted in the rectangle back in 2010 during which both markets moved higher alongside of each other. That is the exception. Note how back in 2009 as QE ramped up, the Dollar began to sink as traders interpreted it as being currency debauchment which would usher in a round of inflation. Gold responded by moving higher as the Dollar sank lower. Then we saw a period in which the Dollar rallied ( I believe this was the interval when QE I was winding down and QE 2 had not yet begun) back in 2010. As the Dollar then sank after QE2 was underway, it collapsed all the way down to critical support near 73. It was looking incredibly shaky.
What did gold do? Answer - it shot sharply higher as expected and notched an all time high in the process. But what then happened in the summer of 2012 ( by the way, the time period noted above in the article about Barclays)? Traders and investors both began to notice that the Bond Buying programs of the Fed were not producing the inflationary wave that many had come to expect. They noticed that Velocity of Money was actually falling and that the price of many tangibles ( the commodity sector as a whole ) was moving lower, not higher. In other words, inflation was falling, not rising. Guess what? Gold fell alongside the rest of the commodity complex as the US Dollar proceeded to strengthen. Traders began to suspect that the liquidity being supplied by the Fed was not making it into the broader economy. Such was the case.
Now look at the chart from the peak in the gold price and notice how it has moved gradually lower as the Dollar has moved gradually higher. Since late last year (2013) both markets have been range bound. What can you deduce from this? Answer - the Dollar has stabilized and so has gold. There is nothing sinister about any of this. It is merely a market biding time.
So here is the big question which no one in the GIAMATT crowd will HONESTLY deal with - why should the price of gold be soaring when the Dollar is no longer moving lower?
If you want to regale us with story after story about how the US Dollar is being discarded in trade and how it is going to be abandoned and crash lower, Fine. Then the gold price will rise. But at least be honest enough to note the price charts and observe the FACT, not theory, that the Dollar is not currently sinking. It has moved from off the 73 level to nearly 85 at one point. Why would you people expect gold to keep soaring? It has lost one of the primary drivers required for a SUSTAINED bull market - namely a falling US Dollar.
Here is my contention for the umpteenth time to these cultists - the feds did indeed attempt to slow the rise in the price of gold during the time in which the US Dollar was sinking and especially when it was threatening to crash through chart support. However, ever since gold entered its bear market when it fell through the $1530 level and could not recover that, they have not been interfering in the gold market. They have no reason to interfere because the US Dollar is no longer as weak as it once was.
Please note that I have called gold as being in a BEAR MARKET. There is a reason for so doing. Experienced traders know that a market can be pushed AGAINST its main trend with some temporary success but that any attempt to actually REVERSE a trend driven by fundamental factors will never succeed. This is the reason that while the feds resisted the rise in the price of gold during its bull market phase, they could never reverse the trend. The fundamentals were all on the side of being long the gold market. A sinking Dollar, rising commodity prices, falling interest rates, soaring government debt and generally currency unrest, all favored the long side of gold. The feds could not stop the inexorable rise as long as those factors were in place. Guess what - most of those factors are no longer in place. This is the reason, that until earlier this year, gold was in a bear market leg lower. The trend was lower because the fundamentals shifted. Now it has no clear trend but is moving sideways.
I am on record here as stating that IF ANYTHING, at this point in time, the Fed is more concerned about a FALLING GOLD PRICE than they are about a rising gold price. I actually think that the Fed is more concerned about the lack of inflation than they are concerned about anything else. Why do I say this? Because you just have to listen to them to hear most of their various governors say this! The past week witnessed several of them all talking about the lack of inflation and how it concerns them.
The Fed fears deflation because they believe they have little control over it in the sense that they have much more direct control over inflation. They can easily hike rates and put the kibosh on any overheating economy in a real hurry but, as we have all learned over the last 5 1/2 years, attempting to pull an economy back from a deflationary spiral is much more challenging.
I have maintained for some time now that the big moves lower ( flash crashes as the cult members call them ) AS WELL AS THE SHARP SPIKES HIGHER, since gold entered its bear market, are being caused by hedge funds or HFT's. They are not evidence of an attempt orchestrated by the government to artificially drive the price of gold lower. These big players jam markets up and down and will continue to do so. They are interested in one thing and that is not obtaining the best possible fill price for their executed trades. (only us dinosaurs of a trader are concerned about that). They are only interested in getting in or getting out before the next guy does and pushing the market in the direction in which they are positioned so as to obtain the maximum amount of price movement in their favor as possible. Be it a Barclay's, be it a hedge fund, be it a large local trader, it does not matter. The goal is the same - either induce or start the MOMENTUM of the market in the direction they favor. The reason - our modern futures markets are not much concerned in the short term about fundamentals anymore -they are all about momentum.
A couple of other things before wrapping this up - I have to marvel at the temerity of those who can, with a straight face, point to the falling reported gold holdings in GLD as being BULLISH. Yes, you read that correctly! Never mind that FACT, ( once again facts are of no consequence to these folks ) that during the rise in the price of gold over the course of its former bull market, the holdings in this giant ETF consistently rose right along with the price. Western investment demand for the metal was strong, solid and sustained. Maybe we should follow their illogic and note that the once-rising gold holdings in GLD was BEARISH! Can you not see the utter absurdity and why so many in the gold community have no credibility whatsoever. "HEADS - I WIN; TAILS - You LOSE". Nothing ever matters to them, nothing. Whatever it is, it must be bullishly construed for gold.
In closing this post, which has already consumed way too much of my time ( I apologize if I repeated myself anywhere in this post as I am trying to watch price quotes simultaneously to typing this) I will leave you with this.
I suppose it was that trader at Barclays that caused all those big Western based money managers and institutional funds to sell their gold holdings and take the money and put it into equities where they made some spectacular gains by not fighting the Fed. I suppose it was also that same Barclays trader that caused the shareholders of the mining shares to dump them all and buy into different sectors that were performing so strongly. I suppose it was that same trader at Barclays that induced so many index and hedge funds that were once hugely long the overall commodity sector to jettison corn, wheat, beans, copper, sugar, coffee etc, beginning back in 2011 and 2012. And lastly, I suppose it was that same trader at Barclays that was behind the decision by some of these major banks to sell their commodity warehouses and look for buyers of their commodity trading sections. How amazingly astonishing that the traders working for these banks can do all this! Yes indeed, such a air-tight, logically unassailable case that no one who has a normal functioning brain would dare dispute it.
Those of you who have taken the time to read this... you can make up your own minds. Believe what you want. The goal of a trader/investor is to make money from wise choices. I learned a long time ago, the hard way, not to argue with the price charts. Consoling yourself about why an investment class you have become married to is not performing is not a substitute for profits. Remember that. Follow the markets and the charts if you want to succeed and try to glean the sentiment of market participants. That is what drives money flows and ultimately price. Go with it and succeed; fight against it, complain about it, blame others and fail. It really is that simple.
Here is a chart of the HUI as it stands at this hour. Maybe it will stage a late session rebound. Anything can happen ahead of the closing bell but for now, the index is moving closer to losing chart support. Let us hope not for those who are still holding large positions in the sector.
By the way, a brief chart for you grain guys....
KC Wheat has fallen over $1.00 bushel this month as rains in that key growing area are convincing traders that the worst damage for the crop is behind us. Also, US wheat prices remain high on a global basis. The market is probing to see what price level uncovers demand. As a consumer, this kind of wheat, which goes into making bread, one always desires lower prices. Farmers who have a crop in decent shape are still making money at these prices however which is a good thing.
For my readers here in the US - have a great Memorial Day weekend with family and loved ones. Remember those fallen warriors who paid such a terrible price for your liberty. They have earned our respect, admiration and gratitude. It is especially galling to see the pathetic spectacle occurring at the VA during this time frame - a time in which we pause to remember our soldiers while many of them are dying from neglect and outright fraud.
For the meantime, the range trade in gold continues with neither bulls or bears wishing to become too aggressive ahead of a long holiday weekend, especially with this big election taking place.
I am much more interested in the Euro, which continues to weaken ( European currencies are generally losing ground to the Dollar at the moment ). That is providing further lift to the Dollar as is the move higher in equities. Then again, it is early in the day when I am typing these comments. Refer to the chart of the Euro that I posted yesterday. It has fallen through that chart support as of this morning and barring a late session turnaround, looks like it will try to test the 1.35 region. The election might have some impact on the currency so traders will more than likely be content to even up some positions ahead of the weekend as well. If the Euro does lose the 1.35 region, it would push the Dollar through overhead chart resistance near 80.70 basis the USDX. That could work to pressure gold so we will want to continue watching this very closely. Id the Dollar were to push past the 81.50 region, I do not think gold is going to be able to maintain its footing above $1280. Again, we will simply have to wait and see what happens as we move into next week.
The GIAMATT crowd is pointing to a story in the Financial Times noting that the UK's Financial Conduct Authority cited Barclays had failed to "adequately manage conflicts of interest between itself and its customers as well as systems and controls failing, in relation to the gold fixing" between 2004 and 2013. The main focus however was on an event that took place on June 28, 2012. Barclays' trader was attempting to avoid a payment of some $3.9 million to a customer under an option. According to an email that the trader, by the name of Plunkett had sent to some of his fellow workers, he was attempting to create a "mini puke" the next day. That was understood to mean forcing the price lower ahead of the fix.
It is "Hallelujah" Time over there with them. "See - we were right all along - this is proof positive that every single big move lower in gold is the result of evil, nefarious forces suppressing the price of gold on behalf of the government". So what does the story show us? Simple - a big bank has been fined for knocking the price of gold lower in order to prevent having to make a payment to a customer. Indeed, this is most certainly a corrupt thing. Anytime the regulators can catch this sort of thing occurring and attempt to put a stop to it we should all be pleased. I have had more than my fair share of dealing with bizarre price swings in markets - just yesterday I was pointing out to a reporter at Reuters some suspicious activity in the hog market - but is this the same as saying that the price of gold is being CONSTANTLY manipulated by these big banks in order to do the bidding of the government? Not hardly. It seems as if it was much more mundane than that - as noted above, the trader was trying to avoid paying a customer $3.9 million.
It is interesting to note that the price of gold closed on the Comex that day in question at $1550.40. Three days later it closed at $1621.80. As a matter of fact, the price of gold worked steadily higher from that point running all the way to $1798 in October 2012. June 28 was the bottom in the gold price for the next TEN months! If the trader was attempting to knock the price of gold lower at the behest of the feds, he sure as hell did a lousy job of it didn't he? That low in price, near $1550 was not even seen again until April the following year. On April 12, 2013, gold then entered its current bear market.
What we can certainly bring away from the FT story is that Barclays' trader was attempting to keep the price of gold from moving higher to a certain level until the option expired, and apparently succeeded in so doing. But did he suppress the price of gold at the behest of the government? Hardly! As said, he sure as hell mucked it up if we was trying to drive the price sharply lower!
Here is the actual price chart of gold for that time period. See for yourself.
Here is the point in all this - too many in the GIAMATT crowd lose credibility when extrapolating from one thing to another. It is the result of sloppy analysis in my view. As just noted, the very day on which the trader in question was singled out as having worked to produce a "mini plunge", marked the bottom in a market that then proceeded to rally $250 in the next 13-14 weeks. And this is proof positive that the feds are behind the gold suppression scheme? My goodness, if I were the feds looking for an entity to suppress the price in gold and just witnessed one of my "cohorts" somehow managing to induce a $250 RISE in the price, I think I would be looking for someone more effective!
Look, prices in our modern futures markets are slammed lower and jammed higher with increasing regularity these days. It is the new normal. Pick a market, any market, and watch it closely over the course of the next few weeks, and you will see it. Might I suggest soybeans or coffee? I just this week threw up a chart of the soybean market showing you the wild swings on an hourly chart to demonstrate how volatile the price swings have become. With computers now doing the bulk of the trading, all it takes to move a market is an order large enough to trigger them into buying or selling, depending on which direction the one pushing the market is wanting to take it.
One more thing and I am done with this. I have written more times than I care to remember at this point about the wild-eyed, breathless, sensationalized, much publicized, announcements and proclamations from our "new market wizards" detailing with excruciating exactness practically every sharp move lower in the gold price which they have dubbed as "flash crashes". They have made the conclusion that every sharp fall in the price of gold that results from any large series of sell orders, is proof that the feds ( government ) are working to suppress the price of gold. This shallow analysis is easily refuted as I have mentioned above by watching the price action of other commodity futures markets. But beyond that, the real problem with this "analysis" is that it has a flawed thesis at its foundation.
Those of you who understand anything about building know that if your foundation is flawed, the structure built upon it is shaky. You may have the finest quality of construction upon that foundation, but if is unstable, nothing is going to support that building when the foundation comes under stress.
The foundation behind the "flash crash" theory is that every sharp move lower in gold is the work of nefarious evil-doers suppressing the price of the metal in order to do the bidding of the government, which, if we are to believe the GIAMATT crowd, is obsessed with a rising gold price under any circumstance. But where is it written that whereas other markets can rise and fall, only gold MUST CONSTANTLY MOVE UPWARDS AND ONWARDS? What magic is it about the yellow metal that it alone, out of all the various markets on this planet, MUST MOVE HIGHER? Their entire postulate relies on an assumption that is absurd - namely - that gold must constantly move only in one direction - up! If it does not, then that in itself is evidence enough that the price is manipulated by the powers that be; so goes their thesis.
But that begs the question: " what are the circumstances required for gold to be in a bull market"? If you answer that, then the shaky foundation upon which the GIAMATT crowd's entire thesis becomes apparent.
Here is a chart of the US Dollar compared to the price of Gold. Most of you know that I have dubbed the yellow metal, "The Anti-Dollar". The two markets tend to move INVERSELY to one another. Again, I wish to repeat -the correlation is not exact but it is pretty close. GENERALLY SPEAKING, gold tends to move lower as the Dollar moves higher and moves higher as the Dollar moves lower. By the way, if the relationship were an exact one, we would hardly ever see much change in the price of gold in terms of other foreign currencies. That being said, look at the chart below:
The Dollar is the green line; gold is the yellow line. You can clearly see the inverse relation existing among the two. There was a brief period noted in the rectangle back in 2010 during which both markets moved higher alongside of each other. That is the exception. Note how back in 2009 as QE ramped up, the Dollar began to sink as traders interpreted it as being currency debauchment which would usher in a round of inflation. Gold responded by moving higher as the Dollar sank lower. Then we saw a period in which the Dollar rallied ( I believe this was the interval when QE I was winding down and QE 2 had not yet begun) back in 2010. As the Dollar then sank after QE2 was underway, it collapsed all the way down to critical support near 73. It was looking incredibly shaky.
What did gold do? Answer - it shot sharply higher as expected and notched an all time high in the process. But what then happened in the summer of 2012 ( by the way, the time period noted above in the article about Barclays)? Traders and investors both began to notice that the Bond Buying programs of the Fed were not producing the inflationary wave that many had come to expect. They noticed that Velocity of Money was actually falling and that the price of many tangibles ( the commodity sector as a whole ) was moving lower, not higher. In other words, inflation was falling, not rising. Guess what? Gold fell alongside the rest of the commodity complex as the US Dollar proceeded to strengthen. Traders began to suspect that the liquidity being supplied by the Fed was not making it into the broader economy. Such was the case.
Now look at the chart from the peak in the gold price and notice how it has moved gradually lower as the Dollar has moved gradually higher. Since late last year (2013) both markets have been range bound. What can you deduce from this? Answer - the Dollar has stabilized and so has gold. There is nothing sinister about any of this. It is merely a market biding time.
So here is the big question which no one in the GIAMATT crowd will HONESTLY deal with - why should the price of gold be soaring when the Dollar is no longer moving lower?
If you want to regale us with story after story about how the US Dollar is being discarded in trade and how it is going to be abandoned and crash lower, Fine. Then the gold price will rise. But at least be honest enough to note the price charts and observe the FACT, not theory, that the Dollar is not currently sinking. It has moved from off the 73 level to nearly 85 at one point. Why would you people expect gold to keep soaring? It has lost one of the primary drivers required for a SUSTAINED bull market - namely a falling US Dollar.
Here is my contention for the umpteenth time to these cultists - the feds did indeed attempt to slow the rise in the price of gold during the time in which the US Dollar was sinking and especially when it was threatening to crash through chart support. However, ever since gold entered its bear market when it fell through the $1530 level and could not recover that, they have not been interfering in the gold market. They have no reason to interfere because the US Dollar is no longer as weak as it once was.
Please note that I have called gold as being in a BEAR MARKET. There is a reason for so doing. Experienced traders know that a market can be pushed AGAINST its main trend with some temporary success but that any attempt to actually REVERSE a trend driven by fundamental factors will never succeed. This is the reason that while the feds resisted the rise in the price of gold during its bull market phase, they could never reverse the trend. The fundamentals were all on the side of being long the gold market. A sinking Dollar, rising commodity prices, falling interest rates, soaring government debt and generally currency unrest, all favored the long side of gold. The feds could not stop the inexorable rise as long as those factors were in place. Guess what - most of those factors are no longer in place. This is the reason, that until earlier this year, gold was in a bear market leg lower. The trend was lower because the fundamentals shifted. Now it has no clear trend but is moving sideways.
I am on record here as stating that IF ANYTHING, at this point in time, the Fed is more concerned about a FALLING GOLD PRICE than they are about a rising gold price. I actually think that the Fed is more concerned about the lack of inflation than they are concerned about anything else. Why do I say this? Because you just have to listen to them to hear most of their various governors say this! The past week witnessed several of them all talking about the lack of inflation and how it concerns them.
The Fed fears deflation because they believe they have little control over it in the sense that they have much more direct control over inflation. They can easily hike rates and put the kibosh on any overheating economy in a real hurry but, as we have all learned over the last 5 1/2 years, attempting to pull an economy back from a deflationary spiral is much more challenging.
I have maintained for some time now that the big moves lower ( flash crashes as the cult members call them ) AS WELL AS THE SHARP SPIKES HIGHER, since gold entered its bear market, are being caused by hedge funds or HFT's. They are not evidence of an attempt orchestrated by the government to artificially drive the price of gold lower. These big players jam markets up and down and will continue to do so. They are interested in one thing and that is not obtaining the best possible fill price for their executed trades. (only us dinosaurs of a trader are concerned about that). They are only interested in getting in or getting out before the next guy does and pushing the market in the direction in which they are positioned so as to obtain the maximum amount of price movement in their favor as possible. Be it a Barclay's, be it a hedge fund, be it a large local trader, it does not matter. The goal is the same - either induce or start the MOMENTUM of the market in the direction they favor. The reason - our modern futures markets are not much concerned in the short term about fundamentals anymore -they are all about momentum.
A couple of other things before wrapping this up - I have to marvel at the temerity of those who can, with a straight face, point to the falling reported gold holdings in GLD as being BULLISH. Yes, you read that correctly! Never mind that FACT, ( once again facts are of no consequence to these folks ) that during the rise in the price of gold over the course of its former bull market, the holdings in this giant ETF consistently rose right along with the price. Western investment demand for the metal was strong, solid and sustained. Maybe we should follow their illogic and note that the once-rising gold holdings in GLD was BEARISH! Can you not see the utter absurdity and why so many in the gold community have no credibility whatsoever. "HEADS - I WIN; TAILS - You LOSE". Nothing ever matters to them, nothing. Whatever it is, it must be bullishly construed for gold.
In closing this post, which has already consumed way too much of my time ( I apologize if I repeated myself anywhere in this post as I am trying to watch price quotes simultaneously to typing this) I will leave you with this.
I suppose it was that trader at Barclays that caused all those big Western based money managers and institutional funds to sell their gold holdings and take the money and put it into equities where they made some spectacular gains by not fighting the Fed. I suppose it was also that same Barclays trader that caused the shareholders of the mining shares to dump them all and buy into different sectors that were performing so strongly. I suppose it was that same trader at Barclays that induced so many index and hedge funds that were once hugely long the overall commodity sector to jettison corn, wheat, beans, copper, sugar, coffee etc, beginning back in 2011 and 2012. And lastly, I suppose it was that same trader at Barclays that was behind the decision by some of these major banks to sell their commodity warehouses and look for buyers of their commodity trading sections. How amazingly astonishing that the traders working for these banks can do all this! Yes indeed, such a air-tight, logically unassailable case that no one who has a normal functioning brain would dare dispute it.
Those of you who have taken the time to read this... you can make up your own minds. Believe what you want. The goal of a trader/investor is to make money from wise choices. I learned a long time ago, the hard way, not to argue with the price charts. Consoling yourself about why an investment class you have become married to is not performing is not a substitute for profits. Remember that. Follow the markets and the charts if you want to succeed and try to glean the sentiment of market participants. That is what drives money flows and ultimately price. Go with it and succeed; fight against it, complain about it, blame others and fail. It really is that simple.
Here is a chart of the HUI as it stands at this hour. Maybe it will stage a late session rebound. Anything can happen ahead of the closing bell but for now, the index is moving closer to losing chart support. Let us hope not for those who are still holding large positions in the sector.
By the way, a brief chart for you grain guys....
KC Wheat has fallen over $1.00 bushel this month as rains in that key growing area are convincing traders that the worst damage for the crop is behind us. Also, US wheat prices remain high on a global basis. The market is probing to see what price level uncovers demand. As a consumer, this kind of wheat, which goes into making bread, one always desires lower prices. Farmers who have a crop in decent shape are still making money at these prices however which is a good thing.
For my readers here in the US - have a great Memorial Day weekend with family and loved ones. Remember those fallen warriors who paid such a terrible price for your liberty. They have earned our respect, admiration and gratitude. It is especially galling to see the pathetic spectacle occurring at the VA during this time frame - a time in which we pause to remember our soldiers while many of them are dying from neglect and outright fraud.
Thursday, May 22, 2014
Euro Weakness Remains
I have been keeping a close eye on the Euro ever since ECB President Draghi began talking it down a couple of weeks ago. The reason for this, besides monitoring various currencies for trading opportunities, is to see whether or not it has indeed peaked out and is starting a trending move lower. If it does, it is my view that this is going to especially benefit the US Dollar, as the Euro comprises over 50% of the weightings in the USDX. Consequently, a falling Euro will tend to push the Dollar higher which in turn will tend to push gold lower.
I wish to repeat for the newer readers here, I view gold as the Anti-Dollar. As a general rule, it tends to fall when the Dollar moves higher and conversely, tends to rise when the Dollar falls. The linkage is by no means an exact one - but it is a fairly good judge of whether one can expect rising or falling gold prices as one monitors currency movements.
Looking at this daily chart of the Euro therefore, it continues to flirt with the bottom of an area labeled "Support Zone" on the price chart. If it fails to hold here, odds favor a move down to the next rectangular zone noted. The ADX is rising and while it remains below 30 for now ( a reading above that level indicates the presence of a strong trending move ) it continues to push higher towards that level as the Euro pushes lower. Bears are currently in control of this market but the bulls are trying to stave them off at the present price level as can be seen from both the chart action and the action of the indicator.
The Weekly Chart of the Euro paints a somewhat different picture, one decidedly less bearish. Strong upside resistance remains intact starting as one approaches the 1.40 level and which extends to 1.41. That has held firm. Downside support is closer to the 1.35 level ( the red rectangle ). The ADX is slowing dipping lower but had been in a very gradual move higher reflecting the grinding, upward progress of the currency over the last 10 months or so.
Based on what I can see from this intermediate term chart, the Euro would need to fall firmly through the 1.35 level to make me say with more conviction that a longer term top is potentially in for the currency. That of course would have some serious consequences for gold. It would not necessarily mean that gold is going to enter a new leg lower, but it would provide yet another headwind that should serve to cap any rallies in the yellow metal. If however we did see a sharp collapse in the Euro for some reason ( perhaps their version of QE ) one would have to keep a very nervous eye on gold for if the US Dollar embarks on a sharp move higher, gold is going to suffer.
Please note that I am not predicting any of this - I am merely stating the potential for what might happen if the chart pattern changes for the Euro and by consequence, the US Dollar. Successful traders do not "predict" - they respond. Newsletter writers, website bloggers and other assorted interests who make their livings "OFF" of the market, instead of "IN" the market have that luxury; we do not. Not, if we want to survive in this profession.
Along this line, let me say it one more time in the hopes of reaching some who continue to maintain a wildly bullish sentiment towards gold no matter what comes their way. They may pride themselves and encourage their followers to, "Stay the course". That is great if you are a sailor on the ocean and are being buffeted by some high waves and gusty winds but at some point the winds and the waves will force even the most stalwart of mariners to take a detour out of their way if they wish to avoid getting slammed into the rocks or going down. It is called "prudence".
Those who "stay the course" and keep pushing ahead out of sheer stubbornness often pay the price with their lives. Same goes for trading or investing - at some point one has to "take a detour" to skirt the danger so as to arrive safely at the final destination.
Spitting into the eye of a hurricane just gets your face wet and does nothing to force the hurricane to change directions. It is going to go wherever the hell it wants to go and it could care less what you want. This is how markets are - they go where they want, when they want. If you are smart, you learn to either go with them or get out of the way.
I read that which passes for market analysis and have to shake my head in sadness for those poor "victims" which follow it to their own financial hurt. Mark my words, whenever you find "analysis" ( and you see this all the time in the gold community and among the 'bugs' ) that dredges up one theory after another, whether that be negative GOFO rates, backwardation talk, Belgium buying of Treasuries, or whatever, to justify "staying the course", all the while the market continues to sink lower, understand that you are not getting objective analysis but someone talking their "book" or someone who has become so EMOTIONALLY ATTACHED to an investment and has staked so much of their credibility upon that asset performing as they have predicted, that they simply can no longer cut it loose, no matter what the market price action might be saying.
They have committed a fatal trading/investing error - they are emotionally attached to a trade or an investment. One must learn, and it is a very hard lesson to learn, to treat each trade, each investment, as objectively as possible. If it performs, you keep it. If it does not, you get rid of it and find something that does. You might be familiar with the old trading/investing adage:
"keep your losses small and let profits run".
Sounds simple enough doesn't it? Guess what - over the course of my career in this profession, I have found VERY FEW who actually practice it. Most failed traders/investors all have one thing in common - they cannot admit that they might be wrong on a trade or an investment. As a result, they sit there while the trade moves against them instead of cutting the loss quickly. Instead, the loss grows larger and larger and larger. At that point something happens to them - Now they will not sell under any circumstances because to do so would be to have to actually realize what has now grown into a massive paper loss. Each new days comes with them searching their computers to see what the last trading price is of their investment or trade. They will scour the internet for any bullish story, any bullish theory, anything that might confirm that they have bought something that is going to go up in value. If the market does go in their direction, a bit of optimism comes over them as they begin to hope that it will finally stop going down in price. Then, the price reacts negatively for them again and back comes the despair, the anger at the markets, the blame game, all manner of despair, etc.
Can you see what has happened here? Their lives are now revolving around a failed trade/investment. Instead of cutting the loss while it was small, and moving on with their life or into another opportunity, they are shipwrecked on the island of despair because they refused to "keep their losses small".
Reader - do not let this happen to you. There will always be opportunities in the market to profit from. But not if you have depleted your trading or investing account because you were going to "stay the course" come hell or high water. That is why that I am trying to show folks how to read the market and pay attention to it and NO ONE else, including ME! I serve as an interpreter of the market - that is all - I have no more secret insight into the market than the next guy. I have said it before and will say it again:
"opinions are like armpits - everyone has them and no one believes that theirs stinks".
Guess what - if your or my opinion is not confirmed by the market price action - IT STINKS. Get over it and move on. We are all just mere human beings, mere mortals who know not what the future might bring. Do not waste your life away concocting or subscribing to useless theories about why your stinking armpit smells so wonderful. If some nitwit, inexperienced blogger out there wants to call you 'ignorant' because you will not drink his Kool-Aid and go down with the ship and him, so what? What the hell do you care what some clown with a computer terminal and a blog has to say about you? You will run out of money before he does because he is busy bilking others out of their precious capital to pay for his useless counsel. Do you really think your guru is going to take money out of his pocket and reimburse you for all the losses you have incurred by swallowing his swill?
These people are like the plague of locusts described in the book of Joel and in the book of Revelation. They descend on the green land, devouring everything in sight leaving a barren, desolate wilderness in their wake. Ignore them, save your money and think for yourself by following the market and learning to read what it is saying.
I will get some more up later on the markets. Suffice it to say for now, when it comes to gold - the news out of India and this weekend's election in the Ukraine are supporting the metal at the moment. As I mentioned yesterday, I would be surprised to see gold actually break down through chart support ahead of this weekend's vote.
One final thing for this post - any of you hog producers out there who read this site, I strongly encourage you to use the weakness in corn and the strength in 4th quarter hogs, to get some hedge coverage. Do not let these once in a lifetime profits get away from you.
I wish to repeat for the newer readers here, I view gold as the Anti-Dollar. As a general rule, it tends to fall when the Dollar moves higher and conversely, tends to rise when the Dollar falls. The linkage is by no means an exact one - but it is a fairly good judge of whether one can expect rising or falling gold prices as one monitors currency movements.
Looking at this daily chart of the Euro therefore, it continues to flirt with the bottom of an area labeled "Support Zone" on the price chart. If it fails to hold here, odds favor a move down to the next rectangular zone noted. The ADX is rising and while it remains below 30 for now ( a reading above that level indicates the presence of a strong trending move ) it continues to push higher towards that level as the Euro pushes lower. Bears are currently in control of this market but the bulls are trying to stave them off at the present price level as can be seen from both the chart action and the action of the indicator.
The Weekly Chart of the Euro paints a somewhat different picture, one decidedly less bearish. Strong upside resistance remains intact starting as one approaches the 1.40 level and which extends to 1.41. That has held firm. Downside support is closer to the 1.35 level ( the red rectangle ). The ADX is slowing dipping lower but had been in a very gradual move higher reflecting the grinding, upward progress of the currency over the last 10 months or so.
Based on what I can see from this intermediate term chart, the Euro would need to fall firmly through the 1.35 level to make me say with more conviction that a longer term top is potentially in for the currency. That of course would have some serious consequences for gold. It would not necessarily mean that gold is going to enter a new leg lower, but it would provide yet another headwind that should serve to cap any rallies in the yellow metal. If however we did see a sharp collapse in the Euro for some reason ( perhaps their version of QE ) one would have to keep a very nervous eye on gold for if the US Dollar embarks on a sharp move higher, gold is going to suffer.
Please note that I am not predicting any of this - I am merely stating the potential for what might happen if the chart pattern changes for the Euro and by consequence, the US Dollar. Successful traders do not "predict" - they respond. Newsletter writers, website bloggers and other assorted interests who make their livings "OFF" of the market, instead of "IN" the market have that luxury; we do not. Not, if we want to survive in this profession.
Along this line, let me say it one more time in the hopes of reaching some who continue to maintain a wildly bullish sentiment towards gold no matter what comes their way. They may pride themselves and encourage their followers to, "Stay the course". That is great if you are a sailor on the ocean and are being buffeted by some high waves and gusty winds but at some point the winds and the waves will force even the most stalwart of mariners to take a detour out of their way if they wish to avoid getting slammed into the rocks or going down. It is called "prudence".
Those who "stay the course" and keep pushing ahead out of sheer stubbornness often pay the price with their lives. Same goes for trading or investing - at some point one has to "take a detour" to skirt the danger so as to arrive safely at the final destination.
Spitting into the eye of a hurricane just gets your face wet and does nothing to force the hurricane to change directions. It is going to go wherever the hell it wants to go and it could care less what you want. This is how markets are - they go where they want, when they want. If you are smart, you learn to either go with them or get out of the way.
I read that which passes for market analysis and have to shake my head in sadness for those poor "victims" which follow it to their own financial hurt. Mark my words, whenever you find "analysis" ( and you see this all the time in the gold community and among the 'bugs' ) that dredges up one theory after another, whether that be negative GOFO rates, backwardation talk, Belgium buying of Treasuries, or whatever, to justify "staying the course", all the while the market continues to sink lower, understand that you are not getting objective analysis but someone talking their "book" or someone who has become so EMOTIONALLY ATTACHED to an investment and has staked so much of their credibility upon that asset performing as they have predicted, that they simply can no longer cut it loose, no matter what the market price action might be saying.
They have committed a fatal trading/investing error - they are emotionally attached to a trade or an investment. One must learn, and it is a very hard lesson to learn, to treat each trade, each investment, as objectively as possible. If it performs, you keep it. If it does not, you get rid of it and find something that does. You might be familiar with the old trading/investing adage:
"keep your losses small and let profits run".
Sounds simple enough doesn't it? Guess what - over the course of my career in this profession, I have found VERY FEW who actually practice it. Most failed traders/investors all have one thing in common - they cannot admit that they might be wrong on a trade or an investment. As a result, they sit there while the trade moves against them instead of cutting the loss quickly. Instead, the loss grows larger and larger and larger. At that point something happens to them - Now they will not sell under any circumstances because to do so would be to have to actually realize what has now grown into a massive paper loss. Each new days comes with them searching their computers to see what the last trading price is of their investment or trade. They will scour the internet for any bullish story, any bullish theory, anything that might confirm that they have bought something that is going to go up in value. If the market does go in their direction, a bit of optimism comes over them as they begin to hope that it will finally stop going down in price. Then, the price reacts negatively for them again and back comes the despair, the anger at the markets, the blame game, all manner of despair, etc.
Can you see what has happened here? Their lives are now revolving around a failed trade/investment. Instead of cutting the loss while it was small, and moving on with their life or into another opportunity, they are shipwrecked on the island of despair because they refused to "keep their losses small".
Reader - do not let this happen to you. There will always be opportunities in the market to profit from. But not if you have depleted your trading or investing account because you were going to "stay the course" come hell or high water. That is why that I am trying to show folks how to read the market and pay attention to it and NO ONE else, including ME! I serve as an interpreter of the market - that is all - I have no more secret insight into the market than the next guy. I have said it before and will say it again:
"opinions are like armpits - everyone has them and no one believes that theirs stinks".
Guess what - if your or my opinion is not confirmed by the market price action - IT STINKS. Get over it and move on. We are all just mere human beings, mere mortals who know not what the future might bring. Do not waste your life away concocting or subscribing to useless theories about why your stinking armpit smells so wonderful. If some nitwit, inexperienced blogger out there wants to call you 'ignorant' because you will not drink his Kool-Aid and go down with the ship and him, so what? What the hell do you care what some clown with a computer terminal and a blog has to say about you? You will run out of money before he does because he is busy bilking others out of their precious capital to pay for his useless counsel. Do you really think your guru is going to take money out of his pocket and reimburse you for all the losses you have incurred by swallowing his swill?
These people are like the plague of locusts described in the book of Joel and in the book of Revelation. They descend on the green land, devouring everything in sight leaving a barren, desolate wilderness in their wake. Ignore them, save your money and think for yourself by following the market and learning to read what it is saying.
I will get some more up later on the markets. Suffice it to say for now, when it comes to gold - the news out of India and this weekend's election in the Ukraine are supporting the metal at the moment. As I mentioned yesterday, I would be surprised to see gold actually break down through chart support ahead of this weekend's vote.
One final thing for this post - any of you hog producers out there who read this site, I strongly encourage you to use the weakness in corn and the strength in 4th quarter hogs, to get some hedge coverage. Do not let these once in a lifetime profits get away from you.
Wednesday, May 21, 2014
GLD Holdings Continue Falling
Here is an updated chart of the reported gold holdings of the large gold ETF, GLD.
Holdings are currently at 776.89 tons, down 3.3 from yesterday's 780.19 reading. The number is now the lowest reported total since December 26, 2008. That is nearly a 65 month low!
This is the reason that gold demand from India and China cannot falter if the metal is to remain above key chart support. Western investment continues to falter as money managers eye better gains in equities.
The steps by the new government in India should eventually help support gold demand there but we will have to watch the short term impact of these falling premiums.
Holdings are currently at 776.89 tons, down 3.3 from yesterday's 780.19 reading. The number is now the lowest reported total since December 26, 2008. That is nearly a 65 month low!
This is the reason that gold demand from India and China cannot falter if the metal is to remain above key chart support. Western investment continues to falter as money managers eye better gains in equities.
The steps by the new government in India should eventually help support gold demand there but we will have to watch the short term impact of these falling premiums.
FOMC Minutes Day
Today was the day on which we get the release of the minutes from the April FOMC meeting. Traders were not expecting much out of these that was not already in the market. In spite of that, the focus seemed to shift to a paragraph:
"In their discussion of the economic situation and the outlook, meeting participants generally indicated that their assessment of the economic outlook had not changed materially since the March meeting. Severe winter weather had contributed to a sharp slowing in activity during the first quarter, but recent indicators pointed to a rebound and suggested that the economy had returned to a trajectory of moderate growth."
It has always been a mystery to me how markets manage to focus on certain aspects of reports, whether from here in the FOMC minutes, the Labor Department or the USDA, and ignore other aspects which are equally important. You could definitely make the case that the Fed is viewing the economy in friendlier terms yet the minutes contained plenty of caveats and concerns. The initial kneejerk reaction however was to ignore the caveats with market players scrutinizing talk about the Fed's exit strategy from low interest rates. In an economy that has become so utterly dependent on these low rates, any talk, any discussion, any focus by the Fed on this topic, is going to create some nervousness.
The first reaction for gold was to sharply plunge scoring a new low back to May 12. That however was quickly erased as players seemed to actually take the time to read through the minutes. Doing so shows nothing especially new from the March meeting in my view. Yes, at some point they are going to raise rates, but the economy is going to have to be strong enough for them to consider doing that and for now, it is not there yet.
Also seeming to help gold recover were lingering concerns dealing with geopolitical risks. While Ukraine seems to have faded somewhat from the minds of traders, some are still buying gold ahead of this weekend's election. I would be a bit surprised to see gold lose chart support before that vote is held and traders get a chance to see the reaction and responses.
The result of all this up and down, go nowhere price movement is to contain gold in its range trade. Once again it should be noted that the pattern of lower highs is continuing. Support remains intact. Nearly the same pattern can be seen in the HUI and the GDXJ, however both of those indices look quite heavy compared to the Comex gold chart. Eventually this constriction is going to be resolved in one direction or the other. Here is the deal - gold could actually break through chart support and drop to $1260 and yet set up another range trade with a lower top and a lower bottom. In other words, the possibility exists that gold could go nowhere for quite some time with the metal being content to just meander back and forth in a prolonged period of sideways price movement.
Much will depend upon traders' assessment of the broader equity markets. If the bulk of them are looking past the current period of hesitancy and caution to better times ahead then risk appetite will stay strong for equities and that will keep gold off the radar screen for most here in the West. It throws off no yield and locks up scarce trading capital and money managers do not get paid to produce nothing. They will put capital to work where it can garner the most returns.
If the environment shifts to one of caution for the majority, then gold will find support and hold up as money managers will be more interested in return OF capital rather than return ON capital.
Some interesting news today out of India, the world's second largest gold buyer. The consensus has been that the election of a new government would be considered friendly for gold prices as it would eliminate the tariff or import taxes on the metal which the previous government had established. That tax was raised to 10% from 2%. It had also ruled that "20% of all gold imports must be re-exported as jewelry, coins or other finished products" according to a story that appeared on Dow Jones this AM.
However, thus far it seems it is having the opposite effect. According to that same story from Dow Jones, premiums have come down and more gold is actually being sold for the time being. The reason? - Indian dealers are reporting that many fear the relaxation of the taxes will result in more gold coming into the country. That will have the effect of causing prices to actually fall as supply increases. Some are selling out ahead of this. They quote a large dealer in recycled gold in "the western Indian city of Mumbai's Zaveri Bazaar, the country's largest gold market as saying: ' We are getting more sellers than buyers these day. Most of these sellers are coming to offload their bars and coins, which they purchased a few months back".
The big question that many are having, is after this initial response over fears of increased supply, will demand then actually rise as the prices move lower with the premiums coming down. Of course that is the question that we all have.
The World Gold Council projects Indian gold demand for 2014 to range between 900 and 1,000 metric tons. Last year it was 975 tons. That is a fairly wide range. We are certainly going to find out. Gold bulls need Indian demand to stay very strong to help offset reduced Western investment interest.
Along that same line, GLD reported yet another reduction in its gold holdings. They are now down to 780.19 tons, the lowest reading since late December 2008.
Here is a funny thing - shortly after looking over the story mentioned above, more news broke from out of India which sent gold higher almost immediately. India's Central Bank slightly relaxed their gold import rules. I suspect traders were thinking that it would help gold demand when the period for peak buying in India emerges later this year. However, the short term impact might be negative as the previous story indicated. That took the market right back down.
Hard to say - we'll just watch and see how things shake out and go from there.
One thing that I can say with some certainty, which is becoming harder and harder to do in these goofy markets anymore, is that the mining shares, basis the HUI continue to perform quite poorly. Same goes for the GDXJ, which is hovering above a recent low near 33.75. Buyers seem scarce at the moment. Maybe they will come back before the close of trading today. Gold, and anything gold related right now seems to be an enormously BORING sector. By the way, this is the reason that CME recently cut margin requirements to trade it. Markets that go nowhere lose speculative interest. They are also enormously frustrating for many traders because of the random price movements up and down without rhyme or reason. Most of the time that is caused by speculators just getting out, whether long or short and saying, "the hell with this useless market". Gold seems to fit this description very well right now.
By the way, I am sure that we are going to get more breathless commentary from the GIAMATT crowd how gold "was attacked in a brutal takedown" as soon as the FOMC minutes were released. We will not however get any comments on the equally goofy spike back up in price which erased all those losses in minutes. Of course we all know here that evil manipulators are at work in the gold market attempting to manipulate prices higher and giving the appearance to the masses that inflation is ramping up proving that the Fed's policies are working and that they are achieving their goal of an inflation rate of 2%. Why just today several Fed governors were out congratulating themselves about this increase in inflation.
Actually what happened was the exact opposite - several of them were bewailing the lack of inflation and were telling us that is could be several years before it returns to their target rate of 2%.
However, these Fed-sponsored buyers were buying huge, obscene amounts of gold contracts, without any attention to finesse or the impact that such indiscriminate buying will have on those hoping to obtain the best possible buying price for their metal. They drove the price higher and well up from session lows, punishing the bears who dared to short this key metal that the Fed obviously now wants to stop going lower.
Those of you who read here regularly know by now that I enjoy using sarcasm and hyperbole to illustrate absurdity. Can you see the folly in this never-ending, day in and day out dissecting of every move lower and higher in gold? It is such a waste of time, energy and talent. Just call it what it is - markets are confused - traders are unsure of much - data is conflicting and the Fed itself is uncertain. One moment they focus on one thing - the next moment they are looking at something else. Pick your daisy, pluck the pedals off, repeat the phrase, " She love me; she loves me not" and you have a pretty good description of what takes place on some days in these confused markets.
Speaking of confused markets - Jack had his magic beans but the soybean pit has its magic word, "CHINA". it was old news but China reported huge demand for US beans. That sent visions of empty bins here in the US and up they went. Yesterday they went flying high only to implode lower. Today they went sharply higher yet again ( for now). For the sake of illustration, here is a one hour chart of the old crop bean contract. And these gold guys think they have seen price volatility. Soybeans make gold trading look like it is similar to watching paint dry.
Observe the huge swings in price, soaring rallies followed by steep plunges only to reverse sharply at move higher again followed by another steep drop. Behold what wonders hedge fund computers have wrought!
Moving to touch on the currencies a bit - The Draghi verbal takedown of the Euro that began back when it was near the 1.400 level, has been most effective in undercutting that currency. It has fallen about 2.5% against the greenback since the second week of May and is now perched above a major chart support zone.
If you notice the ADX, it is rising and above 25 indicating the presence of a trending move lower. Bears are currently in control. Bulls have a shot at holding the Euro near current levels but if they do not, we should see it drop initially to slightly below the 1.36 level. Failure there and 1.35 is in store.
Since the Euro makes up such a large portion of the basket of currencies that comprise the US Dollar Index ( USDX), any sharp fall in the Euro will tend to magnify any upward movements in the Dollar. This will need to be watched closely for if the Dollar begins to gain some additional tailwinds pushing it up, gold is going to test that key chart support region near $1280 yet again.
Keep in mind that these currencies have been extremely volatile due to the ebb and flow of safe haven plays of late ( ask any Yen traders about this if you are doubters). Currencies are always sensitive to anything their respective Central Bankers might say but given the current environment, they are even more so at the current time.
That being said, I am especially on alert for interest rate movements here in the US or in the Euro Zone. Current thinking is that while the market does not expect any rate hikes here in the US until at least next year, odds favor higher rates here much sooner than in the Euro Zone. Some are talking interest rate reductions in the Euro zone if it does not show some more increased growth by the time the next ECB meeting occurs next month. Either that or some form of QE coming from the ECB. We shall see but this type of talk tends to pressure the Euro at the expense of the Dollar. I am also noticing on the crosses that the British Pound is gaining on the Euro as well. UK retail sales were very strong in April according to data released today over there. That fed talk of a higher rates there in the UK as well.
Another bit of foreign news - Moody's Investor Service released a report noting concerns over China's housing market. They lowered the sector rating outlook from stable to negative. " A significant slowdown in residential property sales growth, high inventory levels and weakening liquidity over the coming 12 months" was the key phrase. Copper seemed to take it cues from that as it put in its lowest close since May 9.
On the energy front, can anyone say "Soaring Crude Oil Prices". Crude is working its way back higher again after only the briefest of forays beneath the $100 level early this month. In looking at the price action of this key market, I have to wonder if it is telling us something about the health of the US economy. Like just about everyone else out there, I am unclear on the exact picture when it comes to US growth. Some data looks promising when it comes out; some data looks negative.
Obviously, in the face of big supply coming from domestic shale production, demand is staying quite strong. Is the US economy driving this alone?
The chart shows some heavy overhead resistance near and around the $105 zone. Thus far that level has capped the price rise. If crude clears that, it should trade to $108 in short order. Can it? I have no idea but am watching.
On a different note - check out the following link when you can:
http://www.hollywoodreporter.com/news/fast-furious-7-insurance-claim-706037
It concerns the wildly successful "Fast and Furious" franchise. Many of you are no doubt familiar with the very sad passing of Paul Walker, one of the main stars in this series of movies. Apparently, they are planning on some technological tricks to keep his character going in the planned 7th installment. This is similar to what they did with the movie, "Tron - Legacy" where they used the same technology to overlay a younger face of the actor Jeff Bridges on a different actor. I guess it is "progress" but the whole thing strikes me as pretty weird, almost morbid, when it comes to replacing an actor that has passed away with a computerized image.
If I were a Hollywood actor, I would be a bit nervous about this. Before long, they will not need any actors - they will be able to do the whole thing with computer generated characters. That should lower the cost of making the movie which I am sure will be passed on to us, the consumer, in the form of lower theater ticket costs. ( note this is sarcasm here) Have any of you out there been to the movies lately and grabbed some pop corn and a drink? Yikes! I mentioned just recently having some fun with the movie "Godzilla" but I can report that another thing that the monsters savaged besides Honolulu, Las Vegas and San Francisco was my wallet.
"In their discussion of the economic situation and the outlook, meeting participants generally indicated that their assessment of the economic outlook had not changed materially since the March meeting. Severe winter weather had contributed to a sharp slowing in activity during the first quarter, but recent indicators pointed to a rebound and suggested that the economy had returned to a trajectory of moderate growth."
It has always been a mystery to me how markets manage to focus on certain aspects of reports, whether from here in the FOMC minutes, the Labor Department or the USDA, and ignore other aspects which are equally important. You could definitely make the case that the Fed is viewing the economy in friendlier terms yet the minutes contained plenty of caveats and concerns. The initial kneejerk reaction however was to ignore the caveats with market players scrutinizing talk about the Fed's exit strategy from low interest rates. In an economy that has become so utterly dependent on these low rates, any talk, any discussion, any focus by the Fed on this topic, is going to create some nervousness.
The first reaction for gold was to sharply plunge scoring a new low back to May 12. That however was quickly erased as players seemed to actually take the time to read through the minutes. Doing so shows nothing especially new from the March meeting in my view. Yes, at some point they are going to raise rates, but the economy is going to have to be strong enough for them to consider doing that and for now, it is not there yet.
Also seeming to help gold recover were lingering concerns dealing with geopolitical risks. While Ukraine seems to have faded somewhat from the minds of traders, some are still buying gold ahead of this weekend's election. I would be a bit surprised to see gold lose chart support before that vote is held and traders get a chance to see the reaction and responses.
The result of all this up and down, go nowhere price movement is to contain gold in its range trade. Once again it should be noted that the pattern of lower highs is continuing. Support remains intact. Nearly the same pattern can be seen in the HUI and the GDXJ, however both of those indices look quite heavy compared to the Comex gold chart. Eventually this constriction is going to be resolved in one direction or the other. Here is the deal - gold could actually break through chart support and drop to $1260 and yet set up another range trade with a lower top and a lower bottom. In other words, the possibility exists that gold could go nowhere for quite some time with the metal being content to just meander back and forth in a prolonged period of sideways price movement.
Much will depend upon traders' assessment of the broader equity markets. If the bulk of them are looking past the current period of hesitancy and caution to better times ahead then risk appetite will stay strong for equities and that will keep gold off the radar screen for most here in the West. It throws off no yield and locks up scarce trading capital and money managers do not get paid to produce nothing. They will put capital to work where it can garner the most returns.
If the environment shifts to one of caution for the majority, then gold will find support and hold up as money managers will be more interested in return OF capital rather than return ON capital.
Some interesting news today out of India, the world's second largest gold buyer. The consensus has been that the election of a new government would be considered friendly for gold prices as it would eliminate the tariff or import taxes on the metal which the previous government had established. That tax was raised to 10% from 2%. It had also ruled that "20% of all gold imports must be re-exported as jewelry, coins or other finished products" according to a story that appeared on Dow Jones this AM.
However, thus far it seems it is having the opposite effect. According to that same story from Dow Jones, premiums have come down and more gold is actually being sold for the time being. The reason? - Indian dealers are reporting that many fear the relaxation of the taxes will result in more gold coming into the country. That will have the effect of causing prices to actually fall as supply increases. Some are selling out ahead of this. They quote a large dealer in recycled gold in "the western Indian city of Mumbai's Zaveri Bazaar, the country's largest gold market as saying: ' We are getting more sellers than buyers these day. Most of these sellers are coming to offload their bars and coins, which they purchased a few months back".
The big question that many are having, is after this initial response over fears of increased supply, will demand then actually rise as the prices move lower with the premiums coming down. Of course that is the question that we all have.
The World Gold Council projects Indian gold demand for 2014 to range between 900 and 1,000 metric tons. Last year it was 975 tons. That is a fairly wide range. We are certainly going to find out. Gold bulls need Indian demand to stay very strong to help offset reduced Western investment interest.
Along that same line, GLD reported yet another reduction in its gold holdings. They are now down to 780.19 tons, the lowest reading since late December 2008.
Here is a funny thing - shortly after looking over the story mentioned above, more news broke from out of India which sent gold higher almost immediately. India's Central Bank slightly relaxed their gold import rules. I suspect traders were thinking that it would help gold demand when the period for peak buying in India emerges later this year. However, the short term impact might be negative as the previous story indicated. That took the market right back down.
Hard to say - we'll just watch and see how things shake out and go from there.
One thing that I can say with some certainty, which is becoming harder and harder to do in these goofy markets anymore, is that the mining shares, basis the HUI continue to perform quite poorly. Same goes for the GDXJ, which is hovering above a recent low near 33.75. Buyers seem scarce at the moment. Maybe they will come back before the close of trading today. Gold, and anything gold related right now seems to be an enormously BORING sector. By the way, this is the reason that CME recently cut margin requirements to trade it. Markets that go nowhere lose speculative interest. They are also enormously frustrating for many traders because of the random price movements up and down without rhyme or reason. Most of the time that is caused by speculators just getting out, whether long or short and saying, "the hell with this useless market". Gold seems to fit this description very well right now.
By the way, I am sure that we are going to get more breathless commentary from the GIAMATT crowd how gold "was attacked in a brutal takedown" as soon as the FOMC minutes were released. We will not however get any comments on the equally goofy spike back up in price which erased all those losses in minutes. Of course we all know here that evil manipulators are at work in the gold market attempting to manipulate prices higher and giving the appearance to the masses that inflation is ramping up proving that the Fed's policies are working and that they are achieving their goal of an inflation rate of 2%. Why just today several Fed governors were out congratulating themselves about this increase in inflation.
Actually what happened was the exact opposite - several of them were bewailing the lack of inflation and were telling us that is could be several years before it returns to their target rate of 2%.
However, these Fed-sponsored buyers were buying huge, obscene amounts of gold contracts, without any attention to finesse or the impact that such indiscriminate buying will have on those hoping to obtain the best possible buying price for their metal. They drove the price higher and well up from session lows, punishing the bears who dared to short this key metal that the Fed obviously now wants to stop going lower.
Those of you who read here regularly know by now that I enjoy using sarcasm and hyperbole to illustrate absurdity. Can you see the folly in this never-ending, day in and day out dissecting of every move lower and higher in gold? It is such a waste of time, energy and talent. Just call it what it is - markets are confused - traders are unsure of much - data is conflicting and the Fed itself is uncertain. One moment they focus on one thing - the next moment they are looking at something else. Pick your daisy, pluck the pedals off, repeat the phrase, " She love me; she loves me not" and you have a pretty good description of what takes place on some days in these confused markets.
Speaking of confused markets - Jack had his magic beans but the soybean pit has its magic word, "CHINA". it was old news but China reported huge demand for US beans. That sent visions of empty bins here in the US and up they went. Yesterday they went flying high only to implode lower. Today they went sharply higher yet again ( for now). For the sake of illustration, here is a one hour chart of the old crop bean contract. And these gold guys think they have seen price volatility. Soybeans make gold trading look like it is similar to watching paint dry.
Observe the huge swings in price, soaring rallies followed by steep plunges only to reverse sharply at move higher again followed by another steep drop. Behold what wonders hedge fund computers have wrought!
Moving to touch on the currencies a bit - The Draghi verbal takedown of the Euro that began back when it was near the 1.400 level, has been most effective in undercutting that currency. It has fallen about 2.5% against the greenback since the second week of May and is now perched above a major chart support zone.
If you notice the ADX, it is rising and above 25 indicating the presence of a trending move lower. Bears are currently in control. Bulls have a shot at holding the Euro near current levels but if they do not, we should see it drop initially to slightly below the 1.36 level. Failure there and 1.35 is in store.
Since the Euro makes up such a large portion of the basket of currencies that comprise the US Dollar Index ( USDX), any sharp fall in the Euro will tend to magnify any upward movements in the Dollar. This will need to be watched closely for if the Dollar begins to gain some additional tailwinds pushing it up, gold is going to test that key chart support region near $1280 yet again.
Keep in mind that these currencies have been extremely volatile due to the ebb and flow of safe haven plays of late ( ask any Yen traders about this if you are doubters). Currencies are always sensitive to anything their respective Central Bankers might say but given the current environment, they are even more so at the current time.
That being said, I am especially on alert for interest rate movements here in the US or in the Euro Zone. Current thinking is that while the market does not expect any rate hikes here in the US until at least next year, odds favor higher rates here much sooner than in the Euro Zone. Some are talking interest rate reductions in the Euro zone if it does not show some more increased growth by the time the next ECB meeting occurs next month. Either that or some form of QE coming from the ECB. We shall see but this type of talk tends to pressure the Euro at the expense of the Dollar. I am also noticing on the crosses that the British Pound is gaining on the Euro as well. UK retail sales were very strong in April according to data released today over there. That fed talk of a higher rates there in the UK as well.
Another bit of foreign news - Moody's Investor Service released a report noting concerns over China's housing market. They lowered the sector rating outlook from stable to negative. " A significant slowdown in residential property sales growth, high inventory levels and weakening liquidity over the coming 12 months" was the key phrase. Copper seemed to take it cues from that as it put in its lowest close since May 9.
On the energy front, can anyone say "Soaring Crude Oil Prices". Crude is working its way back higher again after only the briefest of forays beneath the $100 level early this month. In looking at the price action of this key market, I have to wonder if it is telling us something about the health of the US economy. Like just about everyone else out there, I am unclear on the exact picture when it comes to US growth. Some data looks promising when it comes out; some data looks negative.
Obviously, in the face of big supply coming from domestic shale production, demand is staying quite strong. Is the US economy driving this alone?
The chart shows some heavy overhead resistance near and around the $105 zone. Thus far that level has capped the price rise. If crude clears that, it should trade to $108 in short order. Can it? I have no idea but am watching.
On a different note - check out the following link when you can:
http://www.hollywoodreporter.com/news/fast-furious-7-insurance-claim-706037
It concerns the wildly successful "Fast and Furious" franchise. Many of you are no doubt familiar with the very sad passing of Paul Walker, one of the main stars in this series of movies. Apparently, they are planning on some technological tricks to keep his character going in the planned 7th installment. This is similar to what they did with the movie, "Tron - Legacy" where they used the same technology to overlay a younger face of the actor Jeff Bridges on a different actor. I guess it is "progress" but the whole thing strikes me as pretty weird, almost morbid, when it comes to replacing an actor that has passed away with a computerized image.
If I were a Hollywood actor, I would be a bit nervous about this. Before long, they will not need any actors - they will be able to do the whole thing with computer generated characters. That should lower the cost of making the movie which I am sure will be passed on to us, the consumer, in the form of lower theater ticket costs. ( note this is sarcasm here) Have any of you out there been to the movies lately and grabbed some pop corn and a drink? Yikes! I mentioned just recently having some fun with the movie "Godzilla" but I can report that another thing that the monsters savaged besides Honolulu, Las Vegas and San Francisco was my wallet.
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