While we all know that the official government CPI numbers are a fantasy, it is still rather interesting to see where gold has run into overhead resistance based on this inflation adjusted chart.
Wednesday, November 30, 2011
Monthly Gold Chart - Closing Price Only
I still marvel when looking at these charts at those who continue to denigrate gold and particularly those who deny it is a safe haven.
While we all know that the official government CPI numbers are a fantasy, it is still rather interesting to see where gold has run into overhead resistance based on this inflation adjusted chart.
While we all know that the official government CPI numbers are a fantasy, it is still rather interesting to see where gold has run into overhead resistance based on this inflation adjusted chart.
Crude Oil prices - Collateral Damage
Once again the WTI crude oil market is testing the psychological $100 level. After mounting a huge rally over the last two months that took price from down near $75/bbl to over $100/bbl, crude prices retreated as fears surfaced concerning the ongoing crisis in Europe. While tensions with Iran have kept prices from tanking, it is a given that crude oil was not exempt from risk aversion trades and fears of an overall global financial slowdown.
However, as traders have begun anticipating action by the Central Banks to deal with this crisis, crude has floated back up again. Today's spiking of the punch bowl by the Fed and its cohorts at 5 other Central Banks, has driven crude back above the $100 level.
I find this quite fascinating because this is exactly the same thing that forced the Fed to eventually try to backpedal on its QE efforts earlier this year and pull the plug back in June when QE2 was due to expire. Bernanke and company realized that the cost of providing this liquidity binge was a weaker Dollar and surging energy prices. Only when the pain at the gas pump became large enough to elicit howls of complaints from voting constituents did we see Congressional leaders start complaining about the Fed. Prior to rising energy prices and soaring food prices, most of these leaders were silent enough especially as the same liquidity bursts kicked the price of US equities higher. After all there is nothing that most politicians love better than to see the DOW going up while they are in office.
What we are going to be carefully monitoring is how crude oil prices move in the days and weeks ahead. Any moves by the Central Banks to keep the liquidity crisis from becoming a full-blown solvency crisis are going to drive crude oil, along with the rest of the commodity complex, higher. What happens if crude then moves back above $115 barrel and looks like it is going to mount an upside breakout? Will rising energy prices undercut any so-called "growth" in those economies being targetted by these Central Banks?
Once again, we are back to what was said way back when the Fed first started up its QE program - they cannot selectively move equity prices higher and improve the economy WITHOUT also getting a sharp rise in commodities, including food and energy. Hedge fund money flows are not selective - they buy everything in sight and there is nothing the Fed or any other Central Bank can do to prevent this. One way or the other, there is going to be fallout - either failing banks, falling prices, rising unemployment or surging prices, particularly energy and food once again.
However, as traders have begun anticipating action by the Central Banks to deal with this crisis, crude has floated back up again. Today's spiking of the punch bowl by the Fed and its cohorts at 5 other Central Banks, has driven crude back above the $100 level.
I find this quite fascinating because this is exactly the same thing that forced the Fed to eventually try to backpedal on its QE efforts earlier this year and pull the plug back in June when QE2 was due to expire. Bernanke and company realized that the cost of providing this liquidity binge was a weaker Dollar and surging energy prices. Only when the pain at the gas pump became large enough to elicit howls of complaints from voting constituents did we see Congressional leaders start complaining about the Fed. Prior to rising energy prices and soaring food prices, most of these leaders were silent enough especially as the same liquidity bursts kicked the price of US equities higher. After all there is nothing that most politicians love better than to see the DOW going up while they are in office.
What we are going to be carefully monitoring is how crude oil prices move in the days and weeks ahead. Any moves by the Central Banks to keep the liquidity crisis from becoming a full-blown solvency crisis are going to drive crude oil, along with the rest of the commodity complex, higher. What happens if crude then moves back above $115 barrel and looks like it is going to mount an upside breakout? Will rising energy prices undercut any so-called "growth" in those economies being targetted by these Central Banks?
Once again, we are back to what was said way back when the Fed first started up its QE program - they cannot selectively move equity prices higher and improve the economy WITHOUT also getting a sharp rise in commodities, including food and energy. Hedge fund money flows are not selective - they buy everything in sight and there is nothing the Fed or any other Central Bank can do to prevent this. One way or the other, there is going to be fallout - either failing banks, falling prices, rising unemployment or surging prices, particularly energy and food once again.
Fundamental Spark for Silver and for Gold?
Today's actions by the Fed, in concert with 5 other Central Banks, plus the move by China to lower bank reserve requirements 50 basis points, the first time they have done so in three years, has provided today's fireworks across the commodity and equity marks. It is RISK ON time once again for the hedgies.
I mentioned in my analysis of the COT report yesterday, that the metals needed some sort of fundamental spark to break them out of their respective trading ranges. Perhaps we have that, at least for today, in the form of easing of liquidity concerns. That is unclear to me at this point since this really does not do anything to address the structural issues leading up to the sovereign debt issues. It is simply keeping a liquidity crisis from becoming a full-blown insolvency crisis.
This might explain why after the initial blast higher in the markets on the euphoria around the Central Bank actions, that the markets have not been able to continue adding to their early session gains. Traders are maybe having second thoughts about all this. I know I sure am. While it will temporarily help ease lending concerns, it still does not address the sinking value of all that sovereign debt on the books of the big European banks, nor of that on the books of some US banks. It seems to me we are going to have to see a very clear, unambiguous signal that Germany is going to go along with a large role for the ECB and maybe even a Eurobond market before traders will get more aggressive to the upside.
Regardless, silver has been able to capture its first line of technical chart resistance centered near the $32.50 level. This is its first visit back to this level in a week's time. That has served to reinforce the support level that formed just below the $31 level. For this market to now get anything going to the upside, it is going to have to first convincingly clear $33.50 and then exceed $35. Only then will it have a shot at anything more than a return to the top of its recent trading range.
Charts to follow later....
I mentioned in my analysis of the COT report yesterday, that the metals needed some sort of fundamental spark to break them out of their respective trading ranges. Perhaps we have that, at least for today, in the form of easing of liquidity concerns. That is unclear to me at this point since this really does not do anything to address the structural issues leading up to the sovereign debt issues. It is simply keeping a liquidity crisis from becoming a full-blown insolvency crisis.
This might explain why after the initial blast higher in the markets on the euphoria around the Central Bank actions, that the markets have not been able to continue adding to their early session gains. Traders are maybe having second thoughts about all this. I know I sure am. While it will temporarily help ease lending concerns, it still does not address the sinking value of all that sovereign debt on the books of the big European banks, nor of that on the books of some US banks. It seems to me we are going to have to see a very clear, unambiguous signal that Germany is going to go along with a large role for the ECB and maybe even a Eurobond market before traders will get more aggressive to the upside.
Regardless, silver has been able to capture its first line of technical chart resistance centered near the $32.50 level. This is its first visit back to this level in a week's time. That has served to reinforce the support level that formed just below the $31 level. For this market to now get anything going to the upside, it is going to have to first convincingly clear $33.50 and then exceed $35. Only then will it have a shot at anything more than a return to the top of its recent trading range.
Charts to follow later....
Tuesday, November 29, 2011
Commitment of Traders reports confirms effects of Risk Aversion trades
This past week's COT report was delayed until Monday (yesterday) on account of the Thanksgiving holiday. It does however confirm the market price action in both gold and silver which are currently stuck in no-man's land experiencing range bound trade with firm resistance on rallies and good support on dips.
Simply put - speculative interest in the metals has dampened off considerably as more and more traders/funds move to a cash position and lower their overall exposure to the commodity sector in general (risk assets). This is particularly evident among the general public, the small spec category, which have fled both silver and gold. In the case of gold, this category of traders is now holding the smallest net long position since February 2010. They have also cut their net long exposure to gold about 44% since the peak made back in March of this year.
The big hedge funds continue to draw down net long exposure as well. This is not a recipe for higher prices.
While the reports indicate that a thorough cleansing process of both metals has been underway, it also confirms why neither market can currently get anything sustained to the upside. There is simply not enough speculative interest to push prices sharply higher at this time. Something will have to change on the fundamental front that triggers a strong desire on the part of the speculators to bid up the prices of both metals.
Keep in mind, there is nothing bullish about COT reports which show a fall off in speculative demand. Our modern markets are driven by money flows and money flows come from speculators. Until and unless they come into a market in a sustained fashion, prices will not be able to escape pressure related to commercial selling. The only thing "bullish" about this week's reports is that they do show plenty of room for this sort of speculative interest to build ONCE SOMETHING TRIGGERS THAT BUYING INTEREST. Until it does, neither one of these markets will be able to escape the range trade that currently holds them in check.
One other thing - a large part of the fall off in open interest in both metals is due to spread trades being taken off. Those are primarily a function of speculators playing differentials between various contract months. The fall off in the number of spreads also confirms the waning speculative interest in both markets.
Lastly, Silver continues to see the Swap Dealers increasing the size of their net long position. You've got to go back to April 2009 to see anything resembling this size exposure to the long side in silver by this category. That is rather interesting. This category is difficult to decipher because they can be putting on positions for clients, trading for themselves or hedging private contracts. But it could be that this is the reason silver has thus far been able to consistently bounce off the $30 support level. The Swap Dealers seem to be pretty comfortable with long side exposure in the metal down there. My guess is that if and when silver prices do eventually mount an upside breech of overhead resistance and begin a trending move higher, these traders will be selling out longs, booking profits and then moving back to the short side in a more conventional pattern for what we are accustomed to seeing with this group.
Simply put - speculative interest in the metals has dampened off considerably as more and more traders/funds move to a cash position and lower their overall exposure to the commodity sector in general (risk assets). This is particularly evident among the general public, the small spec category, which have fled both silver and gold. In the case of gold, this category of traders is now holding the smallest net long position since February 2010. They have also cut their net long exposure to gold about 44% since the peak made back in March of this year.
The big hedge funds continue to draw down net long exposure as well. This is not a recipe for higher prices.
While the reports indicate that a thorough cleansing process of both metals has been underway, it also confirms why neither market can currently get anything sustained to the upside. There is simply not enough speculative interest to push prices sharply higher at this time. Something will have to change on the fundamental front that triggers a strong desire on the part of the speculators to bid up the prices of both metals.
Keep in mind, there is nothing bullish about COT reports which show a fall off in speculative demand. Our modern markets are driven by money flows and money flows come from speculators. Until and unless they come into a market in a sustained fashion, prices will not be able to escape pressure related to commercial selling. The only thing "bullish" about this week's reports is that they do show plenty of room for this sort of speculative interest to build ONCE SOMETHING TRIGGERS THAT BUYING INTEREST. Until it does, neither one of these markets will be able to escape the range trade that currently holds them in check.
One other thing - a large part of the fall off in open interest in both metals is due to spread trades being taken off. Those are primarily a function of speculators playing differentials between various contract months. The fall off in the number of spreads also confirms the waning speculative interest in both markets.
Lastly, Silver continues to see the Swap Dealers increasing the size of their net long position. You've got to go back to April 2009 to see anything resembling this size exposure to the long side in silver by this category. That is rather interesting. This category is difficult to decipher because they can be putting on positions for clients, trading for themselves or hedging private contracts. But it could be that this is the reason silver has thus far been able to consistently bounce off the $30 support level. The Swap Dealers seem to be pretty comfortable with long side exposure in the metal down there. My guess is that if and when silver prices do eventually mount an upside breech of overhead resistance and begin a trending move higher, these traders will be selling out longs, booking profits and then moving back to the short side in a more conventional pattern for what we are accustomed to seeing with this group.
Monday, November 28, 2011
Risk on - Everything got fixed overnight
Talk about potential IMF loans to Italy had everyone feeling slap-happy in today's trading session, especially seeing that the finanical world did not come to an end over the US Thanksgiving holiday weekend.
Back on came the risk trades; up went the equity markets; up went the commodity markets in general and down went the US Dollar.
Both gold and silver moved higher with silver leading the way in this "risk environment".
If you note the gold chart below, it ran to $1720, the next resistance level noted on the chart, where it then encountered some selling pressure which kept it from getting too far out from that level. I would like to see this market stay above $1725 for at least one bar before thinking it can mount a run back towards $1750 with its first stop on that journey near $1735.
Gold did manage to claw its way back above the upper tine of the bearish pitchfork which should now serve to support the market on any dip lower IF THIS MARKET is going to have a shot at turning the psychology a bit friendlier. For that to occur, it seems to me we are going to see some sort of fundamental spark which would undercut the recent strength in the US Dollar. Traders may be selling the Dollar today but that could all very quickly reverse if today's euphoria turns sour.
Simply put - there is no clear cut trend in gold, or for that matter silver right now as far too much depends on perceptions involving conditions across the Eurozone.
Wax on - Wax off - Risk on - Risk off. That is the story once again.
Back on came the risk trades; up went the equity markets; up went the commodity markets in general and down went the US Dollar.
Both gold and silver moved higher with silver leading the way in this "risk environment".
If you note the gold chart below, it ran to $1720, the next resistance level noted on the chart, where it then encountered some selling pressure which kept it from getting too far out from that level. I would like to see this market stay above $1725 for at least one bar before thinking it can mount a run back towards $1750 with its first stop on that journey near $1735.
Gold did manage to claw its way back above the upper tine of the bearish pitchfork which should now serve to support the market on any dip lower IF THIS MARKET is going to have a shot at turning the psychology a bit friendlier. For that to occur, it seems to me we are going to see some sort of fundamental spark which would undercut the recent strength in the US Dollar. Traders may be selling the Dollar today but that could all very quickly reverse if today's euphoria turns sour.
Simply put - there is no clear cut trend in gold, or for that matter silver right now as far too much depends on perceptions involving conditions across the Eurozone.
Wax on - Wax off - Risk on - Risk off. That is the story once again.
Saturday, November 26, 2011
Trader Dan on King World News Weekly Metals Wrap
Please click on the following link to listen in to my radio interview with Eric King on the KWN Weekly Metals Wrap.
Wednesday, November 23, 2011
Happy Thanksgiving to my American readers
We do indeed have much to still be thankful for in this wondrous land of ours.
The Wall Street Journal has a fine tradition of reprinting some wonderful reading each and every year in honor of our Thanksgiving holiday. May I suggest taking a bit of time to read these two fine articles and reflect on the sacrifices made by those who came to these shores more than 400 years ago and by those who looked upon what they had created years later and recorded their thoughts.
http://online.wsj.com/article/SB10001424052970204323904577037921612867912.html?mod=WSJ_Opinion_AboveLEFTTop
The Wall Street Journal has a fine tradition of reprinting some wonderful reading each and every year in honor of our Thanksgiving holiday. May I suggest taking a bit of time to read these two fine articles and reflect on the sacrifices made by those who came to these shores more than 400 years ago and by those who looked upon what they had created years later and recorded their thoughts.
The Desolate Wilderness
A chronicle of the Pilgrims' arrival at Plymouth, as recorded by Nathaniel Morton.
http://online.wsj.com/article/SB10001424052970204323904577037920016916462.html?mod=WSJ_Opinion_AboveLEFTTopAnd the Fair Land
'For all our social discord we yet remain the longest enduring society of free men governing themselves without benefit of kings or dictators
http://online.wsj.com/article/SB10001424052970204323904577037921612867912.html?mod=WSJ_Opinion_AboveLEFTTop
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