Gold Chart updated

Here is an updated 12 hour gold chart showing the resistance level between 1620-1630 which so far has been able to hold gold's upward progress.

Note that gold did spike below the $1600 briefly out of disappointment with the comments from the FOMC but rebounded as dip buyers believe (hope springs eternal) that the Fed will certainly act next month. Also some are expecting some gold friendly statements from the ECB as far as measures they will undertake to support the Euro and deal with the sovereign debt issues over that way.

Regardless, the market failed at the upside of the newest congestion zone and thus remains trapped within that pattern albeit with a slight upside bias at this time.

New Slogan - Ban the Machines

To add to the plethora of bumper stickers promoting nearly every cause in the universe, "Hug a Tree", "Save the Whales", "Think Green" and my favorite "Dads Against Daughters Dating - DADD", maybe we can all add this one: "Ban the Machines".

I am of course referring to the near biblical plague on the financial markets otherwise known as the High Frequency Trading Algorithms.

There is no redeeming value whatsoever in these things - none.

Knight Capital Trading Glitches Strike Wall Street

Wall Street was hit by a messy opening on Wednesday due to technology glitches at Knight Capital Group (KCG: 7.99, -2.34, -22.65%), causing confusion and shares of the market maker to plunge more than 20%.
The Securities and Exchange Commission is talking to the New York Stock Exchange over erroneous Knight Capital trades, sources told FOX Business's Charles Gasparino. The SEC and NYSE are examining possible algorithm mishaps and looking into a possible “fat finger” trading error, while Knight told Gasparino it is looking into the trading problems.


Read more: http://www.foxbusiness.com/investing/2012/08/01/nyse-reviews-early-morning-trades/#ixzz22JezZAj3

 

Chatter begins that Ethanol Mandate is going to be Cut

I mentioned a short time ago that talk was growing - scratch that - extreme disgust was growing - among livestock and poultry producers - concerning the federal mandate for ethanol. In the midst of the most extreme drought to hit the US corn and bean growing region since 1988, supplies of corn have been shrinking to very tight levels. However, a good deal of this can be attributed to the federal mandate requiring ethanol blended gasoline. Some of you may know, but this ethanol comes mainly from distilling corn.

As a matter of fact, approximately 40% of all corn demand goes to this boondoogle. While the by product of ethanol demand, DDGS, can be fed to livestock, the facts are that without this mandate, a large share of the corn grown in this nation would be otherwise available for feed use, something that has not been lost on the nation's livestock and poultry producers who are suffering extreme hardships as they watch their feed costs escalate into the stratosphere, destroying their profits in the process and threatening their very livelihoods.

I suspect that this the level of this outrage is going to continue to increase in the weeks and months ahead. I also suspect that more and more pressure is going to be brought to bear upon the policy makers to temporarily rescind this mandate to alleviate the tightness in the supply situation for corn.

The question is whether this comes prior to the election or after the election. Keep in mind that Senators and Congressmen from farm belt states have generally been in favor of this mandate as it has, in the past, helped push demand higher for corn and thus favored a large number of their constituents. However, Senators and Congressmen from those states with large concentration of beef, dairy, pork and poultry producers have tended to be on the opposite side of this issue.

This could very well turn out to be a tremendous factor in determining when the bull market in corn comes to an end. A temporary rescinding of the mandate would lead to a decent sized drop in the price of corn and would tend to lessen some of the recent upward price pressures on the entire food complex.

We will continue to monitor this situation and keep the readers posted.

US Olympic Metals Winners - Introduction to Taxes 101

You push your body beyond the point of exhaustion. You spend endless hours away from friends and family honing your skills. You travel from city to city, from state to state and from country to country competing gaining experience in your sport. You have little spare time to enjoy the smaller things in life. While friends and acquaintances are texting and chatting about the latest movie or music video release, you are at the gym, in the pool, on the track, etc. Why? Because you are driven by a desire to be the BEST in the world.

After enduring the hardships, frustrations, trials, tribulations, setbacks, you finally succeed in making it to the Olympics to represent your country. There all the years of training and dedication finally pay off and you finish in the number 1, 2, or 3 spot, claiming a metal that shows the entire world you are indeed the best or among the best in the world. And then what...

If you are an American, the IRS comes knocking on the door with its hand out taking its "fair share" of your earnings.

Go for the Gold! (Pay the IRS.)

10:35 AM, Aug 1, 2012 • By JONATHAN V. LAST

Because conservatives are scrooges, the good folks at Americans for Tax Reform have gone through the fine print to find out what our Olympians will have to cough up to the IRS should they be lucky enough to win any medals in London.

Even by the standards of our government, the numbers are insane.

For instance: Americans who win bronze will pay a $2 tax on the medal itself. But the bronze comes with a modest prize—$10,000 as an honorarium for devoting your entire life to being the third best athlete on the planet in your chosen discipline. And the IRS will take $3,500 of that, thank you very much.

To read the rest of the article, please click on the following link:

http://www.weeklystandard.com/blogs/go-gold-pay-irs_649187.html

Caution ahead of the Fed

With all the hype preceding this week's Fed meeting, not to mention the usual circus atmosphere surrounding some potential action from the ECB, my advice to both gold and silver traders is to be EXTREMELY CAUTIOUS. The market has worked itself into a tizzy in my view as it salivates at the further prospect of additional liquidity measures being undertaken by both Central Banks.

When markets are in this state of mind, you will end up either being a HERO or a ZERO. In other words, you are now in the precarious position of having your fate determined by the roll of the dice. If you get it right, and the Central Banks act when you expect them to, you will be a hero. If you get it wrong, and the Central Banks disappoint, you are dead meat. Frankly, that is not the way to be a long term survivor in these markets. Yes, you may hit it big and congratulate yourself but what happens if you miss???

Personally I do not believe Bernanke has the appetite to go with another round of QE at this time. Maybe in September but not now. Why? Simple - look at the current yield on the Ten Year:

Do you really think that the problem with the economy is that longer term yields are not low enough to stimulate borrowing? How much lower do you think that the Fed might be able to drive this yield by launching another round of bond buying? Perversely enough, if the Fed were to actually pull the trigger, the market will probably do the exact opposite with Yields moving HIGHER instead. After all, yields are moving lower or stuck near historic lows because the market fears the fallout from excessive amounts of debt in the system which is weighing on global and domestic growth. If the psychology were to somehow shift to fears of inflation, yields on this Ten Year will start moving higher. That would actually short circuit any attempt by the Fed to push yields lower so as to stimulate new borrowing.

My own view is why mess with bond buying programs if the market is already doing the work for you on its own?

Then there is the level of the S&P 500. Does this look remotely like a market that is serious trouble??? While we technicians can pour over our indicators and study the internals of this market like the soothsayers of old studied the entrails of slaughtered sheep, the average Joe looks at his stock portfolio and basically yawns. Now, if the S&P 500 were flirting with the 1000 level, this would be a different story; however, as with the yields on Treasuries, why mess with things if the market is doing what you want it to do without taking any additional steps such as another round of bond buying?

Keep in mind that Central Bankers will ALWAYS RESORT TO VERBAL INTERVENTION first to see if that can accomplish their intentions without having to resort to the actual intervention. The latter will proceed only if the market calls their bluff on the former. At that point, in order to preserve their credibility, the CB's will then act.

Think about what the Fed has managed to do thus far (and we might add the ECB which is now getting into the game). They have driven yields down to historic lows and the stock market to not far from its all time high without having to engage in another round of politically toxic Quantitative Easing. Why should they proceed this month with plans to start another round forthwith?

My view is that they will do nothing except more of the same - namely - tell the markets that they are monitoring the economy closely and stand ready to act should the conditions warrant. That is what is so perverse about this stock market rally - the disconnect from stocks and the actual economic conditions is becoming more and more strained with the passing of each week.

As the economy continues to slow the stock market has continued to shrug off each new release of economic data confirming the slowdown. The entire rally has been predicated on the supposition that the rotten economic data will surely force the hand of the Fed to act. But put yourself in Bernanke's place and try to see it through his eyes.

WHo is calling the shots here - the market or the Fed? If the Fed is seen as nothing else but an errand boy of the markets, acquiescing to its demands come hell or high water, then what good is the Fed? After all, if the market determines Central Bank responses, then why have a Central Bank at all? Why not merely take a poll among the investor/hedge fund camp and see what they want and just have it implemented by the Fed? Basically we end up with the situation where the markets say "JUMP" and the Fed responds by saying "HOW HIGH?" Personally I do not think Bernanke is going to allow this to happen.

Now, if the market were to suddenly collapse and a selling rout occur across all asset classes, then the Fed would act.

Of course, the Fed could surprise everyone and announce this week another round of QE which would have serious implications as far as food prices would go. With grains being devastated by the drought and reaching historic highs, a new round of bond buying would send more hot money flows into the commodity sector in an even larger way and would drive prices even higher for a short time. I suspect that it would also shut off demand but for the very short term, it would send shock waves through the food supply chain.

I have said all this to merely emphasize the point, gold traders and silver traders for that matter, be careful out there. It is not the time to play reckless. The market will always be there tomorrow should you miss a move today. Remember that.

Trader Dan on King World News Markets and Metals Wrap

Please click on the following link to listen in to my regular weekly radio interview with Eric King on the KWN Markets and Metals Wrap.

http://tinyurl.com/czua7fl

 

 

Gold Chart and Comments

ECB President Draghi apparently has developed a severe case of loose lips as he cannot seemingly keep his mouth from issuing words into the atmosphere fast enough of late. The man has decided to initiate a round of verbal intervention directed at his stinking currency and as a collateral note, the global equity markets.

Yesterday it was: "we will save the Euro at all costs". Today it is "let's propose another round of bond buying and lower interest rates".

Just like that, it was music to the ears of the hedge fund community which wasted no time dutifully responding like the obedient lemmings that they are, jamming the S&P 500 higher, jamming nearly every single commodity market higher, and dumping the Dollar whilst simultaneously falling in love with the rotten Euro. Voila''!  Problem solved - all is right with the world once again as the candy store will now be open.

A point of interest in all this Central Bank madness - the extremely commodity sector-sensitive Australian Dollar has been staging quite a rally on the back of all this bond buying hype. Based on what I am seeing occur in these markets, the hedge funds are now repositioning on the long side of the commodity sector in glorious anticipation of the now "no way it is not going to happen" round of QE that is coming practically tomorrow as far as they are concerned. With this much anticipation, if the Fed disappoints, heaven help us all for these brain-dead funds will annihilate the commodity sector as they all rush to the exits simultaneously.

One has to wonder if a great deal of this has now become captive to the US political election season with Bernanke doing what he can do to keep his boss in office.

As I have stated many times already, we are now witnessing a metamorphosis of the US financial system from one which takes its signals from fundamentals and supply/demand factors to one which is nothing but a product of Central Bank activity or inactivity. The entire house of cards is being held together by liquidity infusions - if the market doesn't get its fix, it promptly sells off until it so unnerves its masters, that they have no choice but to feed the habit for fear of a huge withdrawal symptom manifesting itself.

That brings us to gold upon which none of this madness is being lost. The yellow metal has been behaving quite strongly on the charts this week ever since the first solid hint of an upcoming QE hit the wires. Note that while it has continued within the consolidation range on the chart that I have noted as "NEWEST CONGESTION ZONE", the lows over the last couple of weeks have been occuring at a slightly higher level. In other words, the buyers are coming in sooner instead of waiting for price to drop back to the bottom of the range. They seem actually more worried that they are NOT GOING TO BE ABLE TO BUY THE METAL LOWER and as a result are stepping up to the plate sooner rather than later.

This has put a bit of an uptrend on the chart over the last two weeks and while the metal is still not decisively through the top of the range, it is sure as heck looking like it is only a matter of time before it does so. A push through the $1640 level that maintains that height on any subsequent retreat in price, will then set it up for a push through $1650 and a test of $1665 and then $1680. If the Fed does indeed launch another round of QE, so too will gold launch. If they fail to act, the metal will drift lower again to see if it can keep its important handle of "16" in front  of the price.

It is no coincidence that the gold price is moving higher when one looks at the weekly chart of the US DOllar, which has put in a massive outside reversal signal. This is what will happen to the Dollar, particularly with all those hedge funds positioned on the long side, if the QE comes. It will be obliterated.

A brief note on silver - Silver actually was struggling today until the news hit the wire that Draghi was going to propose another round of bond buying and lower interest rates. That was enough to rattle the shorts who promptly raced to the exits and push it back off the lows and closer to solid resistance near the $28 level. If it can clear this level next week, it should move to $29 relatively easily.

First - Smithfield - Now - Pilgrims' Pride

With the grain markets the center of the commodity universe this year on account of the fierce drought that has gripped the midWest for what now seems like an eternity, commodity firms have been reaping a bonanza pushing the "buy those grains" theme for new speculators.

What has happened however is that corn prices have reached a point where the market is doing what it is supposed to be doing, namely shutting off demand.

First we learned that Smithfield, the nations' largest pork producer, began importing corn from Brazil. Even with the shipping costs to the EAst Coast, South American corn was still cheaper than US corn at the Gulf.

Now we learn today that Pilgrim's Pride, the world's second largest chicken producer, is working on an agreement to also import corn from Brazil.

While this does not signal an end to the bull run, it is a third warning shot across the bow, the first being shrinking ethanol margins, the second being Smithfield.

By the way, for those of you who might have missed it, check out my written interview with Eric King of King World News on the action in the gold market yesterday.

http://tinyurl.com/d88o3pw