"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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I have mentioned that one sector of the commodity complex that has been able to defy the general selling trend that strikes the overall sector during RISK AVERSION or SLOWING GROWTH trades, has been the grain sector.
The reason? Simple - the fundamentals on the SUPPLY side are so strong due to the horrendous drought impact that any setback in price related to algorithm selling has been met with very strong buying from fundamental based buyers.
As the drought continues to ravage the crops here in the US, wheat has been pulled higher due to inclement growing weather in the Black Sea region. The end of all this has been to take my personal GRain Index to levels nearly equal to the peak prior to the onset of the 2008 credit crisis here in the US.
Unlike that time period however, when the entire commodity sector was running wildly higher and crude oil was making a go at the $150/bbl level, the commodity sector is being GENERALLY sold as an asset class due to fears of a slowdown on the DEMAND side of the equation.
It is going to be interesting to watch to see if demand for the grains can be sustained at these lofty levels.
Regardless, with this all important ESSENTIAL sector moving to these near record levels, suffice it to say that consumers and end users are going to feel the impact in the months ahead, if not already. The last thing that cash strapped consumers wanted or needed was further stick shock at the grocery counter.
My guess is that this huge move in the grain sector is going to put a serious dent in the disposable income of the average consumer and that this is going to be witnessed in another hit to the retail sales moving forward. Simply put - more and more of the shrinking pie of consumer income is going to end up going to food costs in the coming months. That is not exactly bullish for the US economy nor the global economy for that matter.
With one sector of the commodity complex moving sharply higher and other sectors languishing, we are once again being treated to yet another set of conflicting crosswinds that will muddy the prognosis between fears of inflation and fears of deflation.
Nothing has changed in the complexion of the gold market for nearly two months now. It is rangebound in a consolidation pattern. What this means is quite simple - all predictions of gold either collapsing or soaring are just that - predictions - the truth is until this market breaks out of its trading pattern, no one knows with 100% certainty exactly where it it is going or what it is going to do next.
The best traders never hurry a market nor do they curse it because it does not act like they want it to do - they just accept it for what it is currently doing and watch for an opportunity to act.
Having said that, most floor locals are enjoying this range trade - they put their kids through college in these kinds of markets since they are able to sell at the top of the range as they watch the order flow and buy it all back near the bottom of the trading range, again, as they watch the order flow. In the event the market deviates from its pattern trade, they will go with the breakout and see how far it can run before the momentum ebbs.
Most novice traders will buy near the top of the range, expecting a breakout, only to watch the market reverse on them and stop them out with a nice fat loss. They will also sell near the bottom of the range as all the bearish analysts and prognosticators surface, only to watch the market snare them in a bear trap and snatch their money away from them.
To be successful, one has to recognize the pattern a market is in and respect it.
I obviously have a long term bullish bias towards this metal due to what I know is happening in the currency markets and the actions of the Central Banks and other monetary authorities. I do also know however that until the MAJORITY OF TRADERS become convinced that the next real thing to FEAR is INFLATION, gold is going to have trouble maintaining any rallies.
As I have stated here many times over the last two months - the current mindset of most traders is one of fearing a global slowdown or deflationary pressures. The only thing that snaps them out of that is anticipation of further Central Bank activity along the monetary stimulus front.
Another way of saying this is that the ONLY THING PREVENTING AN OUTRIGHT WAVE OF SELLING PRESSURE ACROSS THE RISK ASSET SECTOR IS HOPE FOR FURTHER CENTRAL BANK LIQUIDITY PROVIDING MEASURES. Whenever the market thinks that the economic data is rotten enough to pressure the Fed into acting on the monetary front, they will bid up both equities and commodities in general. Whenever the opposite is true, and the market is depressed as it loses hope for any immediate or forthcoming stimulus, down goes the equity markets and the commodity markets, in general. (As stated before, the fundamentals in some markets are so strong, as is the case with the grains, that they can defy the general RISK OFF Trade).
Until we get some sort of resolution to this stalemate, the odds favor a continuation of the current trading pattern. As usual, we will be closely monitoring price action to see if we can spot any potential shift in this current sentiment.
Please click on the following link to listen in to my regular weekly radio interview with Eric King of King World News on the Markets and Metals Wrap.
The breech of the 400 level in the HUI has brought out some further stop-loss related selling as well as fresh shorting by hungry bears in the sector. GoldCorp's news from yesterday is still impacting the miners in general.
That being said, the underperformance of the mining shares against the price of Gold is dropping this important ratio down toward those levels which have been considered as "undervalued" once again. While it is small consolation to mining equity bulls to see the value of their holdings being diminished once again, it does appear that we are entering a region that should engender value based accumulation sooner rather than later.
In one sense, the miners are suffering from the same fate as gold bullion as it waits for further signs of QE from the Federal Reserve. However, there are also some cases where disappointing fundamental news has given some hedge funds the boldness to ply those ratio spread trades of theirs once again.
Please take a bit of time to check out my recent written interview with Eric King of KIng World News as we discuss the technical price chart of the US Dollar and some general concepts about price action.
It should be kept in mind that a rallying Dollar tends to bring pressure across most of the commodity complex as a sector. There are exceptions however and we note those.
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/7/12_Crucial_Chart_%26_What_to_Expect_From_US_Dollar,_Euro_%26_Gold.html
While the near term chart picture for the US Dollar is decidedly friendly, more and more frequently we are reading reports such as the following out of Dow Jones.
It is not difficult to see where all of this is heading. The US is declining and going the way of all empires and kingdoms throughout history who spent themselves into oblivion and refused to consider the long term implications of their policies.
Esau squandered his birthright for a bowl of stew. The US monetary authorities and inept political leaders have squandered the Dollar's reserve currency status for what??? A pox on the whole pathetic batch of them all.
DJ Australia's Swan: To Discuss With China Possible Direct Conversion of Australian Dollar, Yuan
HONG KONG--Australia will discuss with China officials the potential for
direct conversion of the Australian dollar and the Chinese yuan for
transactions completed in mainland China, Australian Treasurer Wayne Swan said
Wednesday.
"This has the potential over time to help reduce the cost of trade between
Australia and China," said Mr. Swan, who spoke at a forum in Hong Kong before
heading to Beijing for discussions with officials on yuan internationalization.
Mr. Swan said Australia has strongly supported China's move toward a freely
traded currency, and toward "a fully integrated economy that will very soon
lead the world."
Taking a look at silver on the weekly chart it is not too difficult to see that it has been in a well-defined downtrend since peaking in the spring of last year. Rallies are being sold but dips into the region near $27.00 - $26.00 have been bought. The result has been to form a perfect triangle pattern on the chart. This latter or bottom level of support has thus become CRITICAL to the future prospects of the metal.
It is getting very close to this downside line again this week. Bears are going to continue to try to press it to see if they can push enough longs out of the market to break it lower. If the bulls falter or waver in the least, the metal will buckle and then drop very quickly to the 75% Fibonacci Retracement level near $25.47 with the $25 level also within range.
To get anything going to the upside in this market is going to require a push through the $30 level that can maintain a handle of "30" in front of this market.
The rally in the US Dollar continues not out of any particular set of strong fundamentals in the US but rather out of a general aversion to the Euro and by consequence, to the European currencies.
While the Fed seems to be basically standing pat for the immediate moment, the Bank of England has announced another round of its bond buying program while the ECB has lowered rates. Given that backdrop and the lingering fears and uncertainty over the bailout mechanism put in place by the European finance ministers and political leaders, traders continue to bid up the Dollar. This buying is a reflection of the unease among traders over current market conditions. People are confused to say the least and when they are, moves tend to be exaggerated as liquidity is falling off with some either lightening up or simply moving to the sidelines altogether.
That being said, this buying has pushed the Dollar right smack dab to an important technical resistance level on its longer term chart. If you note, it has already bested both the 50% and the 61.8% Fibonacci retracement levels of the entire decline from back in 2010 to 2011. It remains above this latter level this week. If it can push through that overhead resistance line, there does not appear to be a whole lot between it and the 2010 peak. That means it would have the potential to make a run towards the 89 level.
While that seems difficult to envision for some Dollar bears, given the pathetic condition of the US economy and it fiscal woes, one has to keep in mind that compared to the Euro, it looks good! (that is not saying much but the USDX is weighted against the "value" of other major currencies). We will have to wait and see should the Dollar indeed manage to move higher as we could normally expect to see pressure across the commodity sector in general.
I would imagine that conditions in the Eurozone would have to begin deteriorating more rapidly to see the Dollar accomplish this feat. If that were the case, traders would most assuredly work those "slowing global growth" trades once again. That would bring some further pressure on the silver market. It would also however ramp up pressure on the US Fed to move forward with their next round of bond buying, a factor which, if traders are convinced is coming, would see the grey metal shrug off that selling pressure and move higher in anticipation of the next wave of liquidation injections.
