Pre-Easter Weekend Comments

Today's Payrolls number for the month of March came in at 120K, far less than the market was expecting. The response of those futures markets which were still open for trading was swift and immediate - Emini S&P 500 futures dropped sharply while the US long bond staged a nearly two point rally.

So much for notions that the economy is performing well enough that the QE3 option is off the table.

The markets will not interpret this abysmal number as the start of a new and lower trend in employment but it will serve to squelch some of the uncalled for and certainly undeserved euphoria about the state of the US economic recovery that we have been treated to of late by the spinmeisters and various talking heads.

Some might try talking up the insignificant drop in the unemployment rate to 8.2% but that is another cute statistical gimmick brought about by the fact that the participation rate fell once again. Fewer people in the overall work force tends to push the unemployment number down masking the true condition of the chronically out of work who have simply given up looking for work.

Some are going to wait for the next month's numbers to see if this one was a one-off but for the time being, it should at least serve to stop the mouths of those pooh-poohing the notion that another round of QE is not going to be considered at some point. The economy may be plodding along but it is certainly not setting any records as far as increasing growth goes.

One other thing to consider here - not only will job growth need to do better than 250,000 month to get people excited, it also has to be growing fast enough to provide jobs for new additions to the work force - namely college grads and high school seniors who will be graduating within the next two months. Exactly where are they supposed to find work? It is one thing to have an economy growing at a rate fast enough to bring back into it those who have been unemployed and looking for work for more months than they can remember - but what about these new graduates also?

In the meantime I thought I would post a couple of charts detailing the Custodial Accounts for Foreign Central BAnks at the US FEderal Reserve.

Take a look at these and you can get a bit of an idea about foreign central bank appetite for US government and government agency debt.

I am quite curious as to whether or not these Treasury holdings have reached a plateau. They have remained under the $2.75 Trillion level for some time now. Have we reached a point where they are saying "NO MAS!" ?

If so, then will the Fed step up its purchases of US TReasuries to make up for the fall off in demand? All very good questions that we need to monitor as they will serve to show us whether or not our foreign "bankers" are willing to finance further our profligage ways.

Happy Easter to all my Christian readers and a Blessed Passover to my Jewish ones.

Weekly Gold Chart

Gold did not have a good week falling below chart support at the 50 week moving average for only the second time since the bottom made way back in late 2008/early 2009. As you can see, since then it had only violated this important chart level once and that was the very last week of trading in 2011. You might recall that funds were then dumping longs, booking profits before year end and moving out of commodities over fears of European sovereign debt meltdowns.

The start of the new year brought with it expectations of increased liquidity coming from Western Central Banks to deal with the fallout from that sovereign debt crisis and the deflationary impact it would necessarily have on global financial markets. As the new year unfolded, funds increased exposure to the commodity sector in general and to gold in particular, that is until Uncle Ben and his merry band of dollar creators decided to try talking down the commodity sector and herding these pesky funds into the equity markets instead.

Seeing the importance of this chart level now violated, it is imperative that bulls push the price back up through it before the end of next week's trade. Two consecutive weekly closes below this level would not augur well moving forward.

As long as gold holds above the red lines shown on the chart and labelled as chart support, it will be okay as it still remains in a very broad range defined by a top at $1800 and a bottom down near $1535 - $1530.

Central Bank buying has been quite strong down at that latter level and I would expect that to continue should price indeed move down towards that level.

As far as any upside momentum goes for the metal, it is going to have to firmly clear and hold the $1680 level before it can generate the least bit of excitement.

Swiss National Bank intervenes to undercut Franc Strength

While the Swiss Franc is lower today against the Dollar (as is the case with all of the European  majors), it has been gaining against the Euro as nervous investors in Europe weigh further escalation in the region's ongoing sovereign debt crisis.

Note the following ratio chart or the cross I have created to give you an idea of what has been happening with that particular cross. The Swiss Franc has been the beneficiary of investor preference going back to the beginning of the Fed's stimulus party in late 2008.

European sovereign debt fears then further contributed to increasing gains in the value of the Franc against the Euro as investors on the Continent began looking for a safe haven alternative to US Treasuries. Apparently that has led the Swiss National Bank to once again intervene into the foreign exchange markets. They are determined to prevent the Swissie from rising any further against the Euro.

This is an interesting development since it may serve to preclude any further investor flows from Europe into the Franc leaving them with one less safe haven to run into in the event that things begin spiraling downhill once again over there. With issues now arising related to Spain and Italy not out of the woods yet, this is the sort of thing that has the potential to give rise to a series of investment flows back into gold on the Continent.

If that is the case, EuroGold will begin to move higher and that will work to steady the US Dollar price of Gold.

The jury is still out on this but it does indeed bear watching.

Food Inflation back in the News

Reuters is carrying an article discussing the rising cost of food ( By the way, the US monetary authorities all tell us that is not true as their parrots have trained them to repeat the words. "there is no inflation; inflation is subdued") in an article that I have linked to.

Eric King and I have been discussing this on our recent KWN Weekly Metals Wrap interviews but it seems to have gone unnoticed by many in the financial press until now.

While the Continuous Commodity Index ( CCI ) has been moving lower again, this is more a function of the outflow of hedge fund money from the sector as they jam into the equity markets, the obedient lapdogs of the Fed that they are. The rest of them have been too busy getting whipsawed to death in the commodity markets.

With current stocks of both corn and soybeans tight, and energy costs remaining stubbornly high, it was just a matter of time before those at the final end of the pipeline had no choice but to pass on those costs to the consumer if they wished to remain in business.

Keep in mind that high gasoline and diesel prices impact the cost of food from a transportation viewpoint ( trucking them to market ) and from a planting point of view ( running tractors and other farm equipment requires fuel).

I am of the opinion that the rise in the broad US equity markets is more a case of paper asset inflation than anything connected to a true signal of strength in the underlying US economy. After all, that freshly printed money has to go somewhere and why not into stocks. In an ultra low interest rate environment, the Fed can easily herd their lapdogs into stocks to prop up that all-important "economic indicator".

As it becomes more clear to others that the need for continued accomodative monetary policy is the only option left for the Fed ( let them even hint at trying to remove it and watch what will happen to their beloved equity market rally), gold will get its legs back under it and stabilize prior to making another leg higher.

Food inflation seen back on the table as prices rise

 

Wed Apr 4, 2012 6:01pm EDT

* Strong correlation with high oil price* Corn, soybeans gain on physical markets in March -FAO data
* U.S. soybean futures jump in March on tight supply concerns
By Svetlana Kovalyova
MILAN, April 5 (Reuters) - World food prices are likely to rise for a third successive month in March, and could gain further beyond that, with expensive oil and chronically low stocks of some key grains putting food inflation firmly back on the economic agenda.

http://www.reuters.com/article/2012/04/04/food-fao-idUSL6E8F42J520120404

A Happy Ending News Story - Dogs RULE!

Those of you who are dog lovers as I am, will be absolutely edified by the following story detailing the heroics of Man's Best Friend. A cat would have probably run and hid under the sofa...

Pit Bull Shot In The Head Trying To Protect Owner, But Miraculously Survives

'Kilo' Didn't Take Too Kindly To Gunman Pushing Into Staten Island Home

April 4, 2012 11:01 PM

http://newyork.cbslocal.com/2012/04/04/pit-bull-shot-in-the-head-trying-to-protect-owner-but-miraculously-survives/

Today's comments

The mining shares continue being pummelled to the point where one wonders who is left in the sector to sell them at these levels.

Take a look at the following chart and marvel:

How many of us who were trading the shares can forget what happened to them back in the summer of 2008 when the credit crisis erupted causing an avalanche of selling across the paper and hard asset sectors. When the S&P 500 was crushed  ( it lost over 50% of its value plunging from over 1500 to down under 750) the mining shares were unceremoniously trampled under the feet of men.

During that stage, the shares seriously underperformed against gold bullion losing value at a much faster rate than did the metal itself. The result was to take the HUI/Gold ratio down to levels not seen since the very early stages of the bull market in gold.

Look at where these same shares are now in relation to gold bullion again! Yep - you guessed it - down nearly to the exact same level that they had fallen against gold back in 2008.

Yet, today's finishing quote for the S&P 500 was at 1393; a far cry from near the 740 level to which it had fallen back then.

Compare this to the monthly chart of the HUI and note their abysmal performance with the index now closing at levels last seen back in July 2010!

Looks like the guys who bought Apple were the smart ones and those who bought the shares expecting them to match the performance of gold have now ended up looking foolish. Investing is an art that demands a great deal of patience (at least it used to before the Fed perfected the art of creating funny money) but the patience of most of the gold mining share owners is about exhausted. The only ones left in the shares are the very strongest of hands at this point.

Gold is seeing a bit of buying across Asia this evening but the damage on the technical price charts has been done. We are now seeing hedge funds becoming active shorters of the Comex gold contract. They still remain net long (even with the liquidation) but a growing percentage of this category of traders is playing gold from the short side. This means that rallies are going to be sold UNLESS gold can clearly get back above $1680. A trip back towards $1660 will flush a few of the weaker handed shorts out but not until and unless gold proves that it has what it takes to stay above $1680 will some of the stronger shorts begin getting squeezed out.

We now have a boatload of brand, new fresh short positions by this category, all of which were put on below $1660. Keep an eye on how it behaves should it make it back to that level.

Downside support near $1600 is now in play with a breach of that setting the stage for an even deeper drop down towards $1570.

The FOMC Strikes Again

All one needs to know about how the Fed is attempting to knock down the price of commodities in general was demonstrated in today's FOMC minutes.

The idea that I believe it wants to keep uppermost in the mind of traders is that the US economy is recovering, very slowly, but recovering - enough to justify the idea that growth will be steady, that employment will be increasing  - slowly  - but that there are still headwinds.

However those headwinds, while they bear watching, are not sufficiently strong enough to derail the recovery - this will prevent any slipping back into recession. If they are - of course the ever vigilant Fed stands ready to act - if not now however.

This means that equities should move higher as long as the economy is growing and moving forward, even if it is moving forward at a snail's pace.

One of those headwinds, which they were very concerned to make known, was the idea that GLOBAL GROWTH is slow (hint, hint - CHINA). That means less need for commodities! Again - HINT- HINT.

This notion is designed to take away the idea of an IMMEDIATE QE3 which works to herd the cattle-brained hedge funds (insert theme from "RAWHIDE" here with Ben playing the part of the trail boss)  into selling commodities in general. Down goes copper, platinum, other base metals, other tangibles, etc. - only the markets which have the strongest set of fundamentals on the supply/demand equation are able to withstand the barrage of hedge fund, one way, selling pressure which then immediatey follows the minutes as surely as night follows day.

Thus, if the global economic growth is slow and there is not the same demand for commodities as there was previously, and if there is no need for an immediate round of QE3 - then where oh where can the hedge funds make money? Answer - where else but in equities.

We then see commodities mauled while stocks initially tank but then rapidly bounce off their worst levels of the session to end only modestly lower. Yep - no inflation here anywhere - see - just look at the commodity indices and you can see that our near zero interest rate policies are not creating the faintest whisp of inflation. Oh, ignore that gasoline price chart - it's definitely pesky but we can always have the political branch open up the spigots on the Strategic Petroleum Reserve in time for the General Election and deal with that if those prices are still too high at the gas pump come August or September and the Dear Comrade's poll numbers are not any better.

Yes, Virginia - modern price controls without price controls. What a marvelous innovation from our monetary masters.

Now if they can just get that pesky bond market to cooperate and turn around after today's plunge out of disappointment that the Fed will not be buying bonds forthwith. Ah, but that is another day's work for our saviors.

Gold Chart

Gold managed to claw its way back above important technical resistance near the $1680 level in today's trade and is thus far holding above that number, albeit just barely. The market needs to push away from $1680 with some conviction and demonstrate that it can attract enough buyers at this level to take it firmly up and then through $1700. If it can do that, we have a solid shot at the $1720 level.

If it fails to sustain its footing above $1680, it will fall back within the recent trading range that it has been carving out with the bottom down near $1650 - $1640.

By the way, the Dollar continues to sink and unless it can recapture the 79 level immediately, it looks like it is heading for a test of support down near 78. Note that all of the shorter term moving averages and the 50 day are now all trending lower in sync again.