"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat
Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput
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The strength in the US Dollar is continuing to batter gold, ( not to mention a whole host of commodity markets) as the inverse connection between the two asserts itself.
Not only that, but continued outflows from the gold ETF, GLD and declining inflation expectations, are all undercutting the price of the yellow metal.
Here is a look at the US Dollar chart on an intermediate term. Note that the greenback is still trading within a 21 month long trading range but is approaching the upper portion of that range. Light resistance is near today's session high. Above that is the 85 level.
The RSI (shown below) is near 80 and at the highest level in over 4 years! Clearly this is one strong market at the moment.
Helping to further aid the Dollar today is the news that polling data out of Scotland shows a majority there now in favor of independence. This is pressuring the British Pound, which is one of the currencies that make up the basket comprising the USDX.
It is therefore rather humorous to continue reading the various breathless emails in my box detailing one more nail in the coffin of the US Dollar. All the while the currency marches relentlessly higher! One wonders how many of these people peddling this stuff ever bother to look at a simple price chart.
Needless to say, the strong Dollar is making for an ugly looking gold chart and ugly looking gold mining share charts as well.
The volatile juniors are still up for the year but the chart is currently negative with the index trading below all of its major moving averages and with various technical indicators all in clear bearish modes. The index looks to be on track for testing the bottom of its range near 32.
The HUI failed to hold the gap on the chart and is also in a bearish posture at the moment.
Gold bulls had better hope psychological support at $1250 holds or gold will revisit key support at $1240.
The Euro continues to fail at one support level after another and looks like it is heading to 1.2800. The weaker the Euro gets, the more difficulty gold is going to have.
On the grain front, we are watching the current forecast models for indications of the upcoming frost event see whether or not temps drop as low as were originally expected late last week. Today's models are showing the frost line further north but traders are still a bit jumpy and will be until the event comes and goes or the forecasts showing something more conclusive and less threatening. This afternoon's crop condition reports are expected to show phenomenal numbers so the grain bulls are praying for an early killing frost to bail them out.
I will try to get something up later after the USDA gives us those numbers.
It has become axiomatic, for good reason, that the mining shares tend to lead the gold price whether they are moving higher or moving lower. For whatever reason, the connection is fairly solid and has been for many years.
That being said, the combination of a deteriorating chart for the metal and the fact that the ratio ( HUI to Gold) is rolling over, does not bode well for gold at the moment.
Take a look at the following chart noting the HUI/Gold ratio and comparing that to the Gold price ( dark blue line). Can you see the very close connection? You can almost lay the gold price atop this ratio and see where it is generally headed as the lines follow each other quite closely.
It is pretty accurate with some brief exceptions. I have noted one of those within the ellipse area in late July the shares seemed to hold up a bit better than the overall gold price. Come August however, the relationship seems to have been restored.
The indicator below is tracking the movement generating both buy and sell signals on the metal based off the action of the shares. As you can see, it is currently in a bearish mode.
Here is a chart of the GDXJ or juniors. It failed to extend past 46 and now looks like it is heading back down to the bottom of a potential range near 34-33.
"Stick a fork in it - it's done!" is a common expression one hears down in Texas during Bar-B-Q season.
One could say the same thing about the Euro after the ECB slashed interest rates from 0.15% to a paltry 0.05%. I suppose the only thing left is to slash to absolute zero at this point and start handing out money to the general public.
Regardless, the Euro went "KERPLUNK" and the Dollar soared higher as the interest rate differentials between the two continue to be accentuated in the minds of forex traders.
Take a look at the Euro chart below. After a brief period of consolidation in early August, the currency has been careening lower, crashing through one layer of chart support after another.
If today's low near the 1.300 level fails to generate any buyers, another 200 point plunge to down near 1.2800 is not out of the question. The RSI is deeply oversold but when it comes to currencies, oversold or overbought rarely mean much if anything.
With the Eurozone economy sluggish at best ( and being hurt by sanctions imposed on Russia ), there is simply not much reason for traders to turn aggressive buyers of the common currency as the Central Bank is trying everything but its own version of QE at this point.
They have made the usual calls for banks to lend but what good does that do if not enough want to borrow? Negative interest rates to essentially punish banks for not lending seem to be foolish to me as it only encourages reckless lending to those not credit worthy and thus creates another entire set of problems in my view.
Meanwhile, the counterpart of the Euro, AKA, the Dollar, is soaring. Look at the weekly chart for some longer term perspective.
The USDX has gained 5.5% since early May of this year and is currently working back to the top side of a more than two year long range trade. There is some light resistance near 84 with more formidable resistance near 85. If the Dollar breaks through both levels, one would have to say that a run to 88-89 is not out of the question.
The Daily chart shows a powerful uptrend underway. Simply put, it has become a matter of dueling economic performances. Traders are looking at the relative performance of the various nations/zones whose currencies comprise the USDX and compared those to that of the US and are voting in favor of the US.
This strength in the Dollar also tends to depress commodity prices in general. One thing that concerns me is that we are getting a surge higher in the Dollar at exactly the same time we are getting more and more confirmation of a bumper corn and bean crop. As a rising Dollar makes US grain/beans more expensive on the global market against our competition, prices may have to take into account the higher Dollar. Translation - foreign buyers of US grain may be waiting for prices to fall yet further than they otherwise would have to help offset the stronger greenback.
One last thing- this rise in the US Dollar is not going to make it any easier for gold to rise in price. In foreign currency terms, gold is doing okay, especially Eurogold but as said before here many times, it is geopolitical events supporting the metal.
As far as Europeans are concerned, an interest rate environment such as the ECB is creating, is a two-edged sword. On the one hand, it lowers the opportunity cost of holding gold since bonds there pay next to nothing and thus incentivizes ownership of gold. On the other hand, the stronger Dollar ( via weaker Euro) raises the price of the metal and thus makes it more expensive to buy and own.
That is why one must view the chart to gauge which view will dominate. If Eurogold takes out the psychological and technical resistance level of 1000, then maybe we have something. For now, it is range bound.
Not much to add to the chart, which is essentially a composite of some of the grain markets. This is going to help with any inflation pressures on the food front. We still have some high-priced beef and pork ( at the retail level) to deal with but those prices will be coming down in the next few weeks.
Along this line, check out the latest on the TIPS Spread and the Gold Price. It hit a 5 month low today!
As mentioned many times here recently, the market is taking the view that inflationary pressures in the broader economy are not a serious concern. More headwinds for gold which is higher today due to disappointment in an earlier-announced cease fire in the Ukraine which turned out to be merely an outline for a cease-fire and not the real deal.
One last quick comment: Any faltering of demand out of Asia ( India/China) will most assuredly allow gold to test support near $1240. India tends to buy ahead of its major festival but one wonders if that will be enough to offset declining interest in the metal elsewhere.
Western-oriented investment demand continues to be limp judging by the ETF, GLD. I narrowed the usual chart I have been posting to the start of 2013 so that you can see for yourself the lackluster demand for the metal. While some want to assert a bullish case for gold based on the lack of heavy liquidation in this fund that we have seen in the past, the problem is that there is nothing on the immediate horizon to replace that lost interest on the buy side.
I have been trading grains for a long, long time and I am having to really search what is left of my memory to recall seeing the corn crop in such a dramatically fine condition this late in the season. I am sure there were years but truth be told, it is the bad years we remember more so than the outstanding years.
USDA gave us the numbers for the past week and they are outstanding. 93% of the nation's corn crop is in fair to excellent condition. The Good/Excellent condition category actually ticked up 1%. The breakdown is as follows:
CURRENT PREVIOUS WEEK LAST YEAR
Excellent: 22% 21% 14%
Good : 52% 52% 42%
Fair : 19% 20% 28%
As I have said here previously, as we move closer to harvest, the general appearance of the corn plant tends to show some deterioration as the plant's energy is being directed into the ear. That can lead to some slight drop in the overall condition of the plant as far as its general appearance is concerned. Thus far that is not even showing up.
90% of the crop is in the Dough stage compared to 82% a year ago and the 5-year average of 89%.
The only concern might be the Dent stage is showing 35% compared to 39% a year ago and the 5-year average of 59%. That is certainly behind. My view on this is that the perfect growing weather ( warmth and continued moisture) is slowing down the maturation process of the ear. In dry years, maturity tends to move ahead for the ear but at the expense of filling. You get an ear that matures quicker but one whose kernels are smaller and weigh less. What this lagging dent tells me is that we are going to have some pretty hefty weights and large kernels. That should increase the overall size of the harvest when it finally does commence. Any of you agronomists out there who read the site might want to chime in on that if I have missed anything.
Hopefully, we will not get any hard, early killing frost as we wait for the crop to finish up.
On the soybean front, bulls were talking up excessive rains in some areas today as a reason to buy beans. SDS chatter was also making the rounds ( waterlogged fields can be conducive to SDS). However, the overall condition of the soybean crop actually improved last week. An astonishing 94% of the crop is rated Fair to Excellent.
Here are how things stand.
CURRENT WEEK PREVIOUS WEEK LAST YEAR
Excellent: 18% 18% 11%
Good: 54% 52% 43%
Fair: 22% 23% 31%
Those rains last week, especially in the drier areas, made a marked improvement in the overall crop condition rating.
95% of the crop is in the pod setting stage versus 91% last year at this time and the 5-year average of 95%. The Southern states are showing leaf dropping ahead of last year at this time and the 5-year average, with the exception of Mississippi, which is well ahead of last year but lagging the 5 year average somewhat.
It is hard to see anything bullish in these reports. At this stage of the growing season, warmth is needed to finish things up. Farmers are now watching the weather and hoping that Mother Nature does not surprise with any early hard freeze as this year's crop growing season winds down. It seems to me that the frost angle is about all that the bulls have left at this stage.
Geopolitical events had been supporting gold of late but those can only carry the metal so far when several fundamental factors were acting as a strong headwind against a further rise in its price.
We have mentioned falling inflationary fears as evidenced by the TIPS spread, falling commodity prices as evidenced by the GSCI and a stronger Dollar, not to mention a stock market than continues to make all time highs.
We have had reports of falling demand for gold but those were being ignored as traders chose to focus on events in Ukraine, Iraq/Syria, and to some extent, Gaza.
Apparently today was the day that those who were buying gold based on geopolitical events threw in the towel.
With the US Dollar trading above the 83 level on the USDX and with crude oil plunging nearly $3.00 at one point, if inflation fears were the reason some were buying gold, those fears evaporated today. The ISM number only fueled further talk of higher interest rates in the US. When one contrasts that sort of talk with chatter that the ECB may actually move to lower rates, it is not hard to understand why the Dollar is rallying. Rates in Japan are certainly not going to move higher any time soon.
The Aussie has been moving in a tight range between 94 and 92 against the US Dollar for nearly 5 months now. It will be interesting to see whether this key commodity-based currency will undergo some sort of breakout from that range.
From a technical analysis standpoint, the Dollar is in a strong trending move higher as evidenced by the ADX over 50. While the Euro is trading down slightly, the bulk of the gains in the Dollar today have been at the expense of the Yen, and the various commodity currencies.
Gold fell through chart support at last week's low and remains below that level as I type these comments. There is some light support near the $1260 level with stronger support near $1240. Indicators are negative at the moment with the ADX indicating the lack of a clear trend with more of a grinding type move lower.
Beans are trading higher as bulls talk up the recent rains as being excessive and hurting quality in some locations. That remains to be seen. Early harvest reports from the South are strong. The market may have to wait until closer to harvest before deciding to wring out what is left of any weather premium in both corn and beans. Heat/warmth now to finish the crop are what are needed as rains have ensured adequate moisture in most growing regions. I have not seen any forecasts of an early killing frost at this point.
We'll get the crop condition/progress reports this afternoon as they were not published yesterday due to the Labor Day holiday.
Just a short set of comments this evening. They deal with the usual, "The world is going to move away from the Dollar any day now" chatter.
If it is, it sure isn't showing up in the Foreign Central Bank holdings of Treasuries that are in custody at the New York Federal Reserve.
Here is the chart.
Look folks, I am just as concerned about the US Dollar as the next guy but when I look at the competition, I see one set of assorted problems or another. What that means is that the idea that the world is going to drop the Dollar and move to some sort of as of yet undefined currency in which to conduct the bulk of its trade simply does not carry much weight with me at this time.
Could this happen - yes, it could at some point but I have no idea what it might take to make the world move en masse away from the greenback and to some other currency or basket of currencies. We have all read the stories and heard the talk for years now. The problem with the talk is that there is not yet a viable substitute. If one does arise, hopefully we will be able to see it.
For now however, the US Dollar is still moving higher against several of the majors and US Treasuries seem to be finding willing buyers, even as interest rates move lower over geopolitical uncertainty and safe haven buying.
The world - at least as foreign central banks are concerned - seem more than happy to continue buying US Treasuries. Given the size of the US national debt, that is somewhat consoling for now.
One quick look at the inflation expectations chart or TIPS spread - it continues to move lower. Those buying gold are not buying it out of fears of inflation - they are buying it over geopolitical concerns.
One of the interesting things about markets is the speed at which they can fall in price compared to the length of time it takes them to rise. That is the reason that you will sometimes hear certain traders speaking of having a preference for being on the short side of a market. Such is not always the case ( I remember vividly Minneapolis wheat hitting $25/bushel one year and October Cattle being locked limit up for days on a Canadian Mad Cow case some years ago) but it does seem to happen more often than the reverse.
Case in point is this September Bean contract which has now managed to lose in two days, what it took 7 to put on. The collapse in those spreads has been intensely dramatic.
Take a look at the chart below and you will see what I am referring to.
The Euro managed a bit of a pop higher early in the session but surrendered that as the session wore on. It appears to be lacking much in the way of chart support until one nears the 1.3100 level. The chart shows the RSI down in oversold territory so a bounce is possible at any time but the pattern is decidedly bearish. Oversold conditions can last for quite some time before a market corrects them. It should also be noted that oversold ( or overbought ) readings can often be corrected by a market meandering sideways for a period.
Not much to say about today's markets overall than to note that the S&P 500 hit and pushed through the 2000 level today. The strength of this bull market has been nothing short of astonishing. Who knows how long it will last but those who have not fought the tape and gone with the move have made some enormous profits.
One of the reasons that the market continues to perform so well is that inflation expectations are simply no where to be found at the moment.
Take a look at the TIPS spread chart ( updated through 8/25) and see for yourself. Can you can how the spread continues to fall. It is now at the lowest level it has been in for the last 4 months. That is telling us that the market expectation for rising inflationary pressures is declining.
Geopolitical events are continuing to keep the gold price from succumbing to the general deflationary bias in the markets right now although it should be noted that Western investment demand, as measured by the GLD, continues to be less than impressive. Total gold holdings are down 2.6 tons on the year. Asian demand seems to be firm at the moment, especially out of India, but as has been the case for so long now, Asian demand in and of itself cannot produce a bull market in the metal. That requires Western-based investment demand and even more importantly, the momentum based crowd. Quite frankly, the latter are not interested in gold at the moment as they are too busy making money in the equity markets.
Another chart of the US Dollar - it is hanging around the resistance zone noted on the chart. If it clears that, I do not see much in the way of overhead chart resistance above there until near 83.50 and up.
The strength in the Dollar, combined with the fundamentals from the various commodity markets that go into making this GSCI, has led to a sharp fall in the overall sector. It remains lower on the year after recently hitting a 16 month low.
