Please click on the following link to listen in to my regular weekly audio interview with Eric King over at the KWN Metals Wrap.
http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/10/19_KWN_Weekly_Metals_Wrap.html
Saturday, October 19, 2013
Friday, October 18, 2013
No follow through for Gold
Once again gold reminded us all of the serious obstacles it faces in generating any widespread interest outside of the usual circles comprised of gold bugs and other die hard fans of the metal. It puts on a spectacular upside spectacle one day and the next it just seems to wither up and die. That is what happens when you get a sharp burst of short covering - violent moves higher which quickly run their course - that cannot attract any follow through momentum based buying but instead runs into another round of eager sellers.
In other words, the metal is still stuck in a trading range unable to break out either way with much conviction. I think this goes to the point of what I have been saying of late - until or unless we see some sort of event/events which precipitate a change in the CONFIDENCE of the global investment community towards the monetary authorities and/or political leaders, rallies in the metal are going to be viewed as selling opportunities. Why? Because the investment community is convinced, absolutely, that there is no inflation nor will there be any for the foreseeable future.
Need proof of this - see the following chart (again - for the umpteenth time). Commodity prices are relatively stable and have been for some time now. If anything, the sector has a slightly negative bias to its chart as the index has been slowly grinding lower the last two years now. This is the reason gold, and especially silver, are going nowhere. The momentum based crowd is not interested in chasing prices higher nor will they be until or unless there is solid evidence that the "BUY TANGIBLES" theme is back in vogue.
Much of this will depend on what the fortunes of the US Dollar are over through the end of the year. The dollar is weak but has not completely broken through technical chart support. I would only become concerned about the Dollar if it were to first mount a WEEKLY CLOSE below the 79 level but more so if it crashed through 78. That to me would indicate that a SHIFT IN SENTIMENT towards the greenback has indeed occurred. That would signal that LOSS of CONFIDENCE thing that I just mentioned. Should that take place, I do believe we would see a concern that inflation would result from the weakening currency and that would bring about the possibility of TANGIBLE asset buying once more on the part of the speculative community. That is simply not present right now.
What is present is the mania in US equities. This beats even the craze leading up to the 2000 fiasco if you ask me. The VIX or Volatility Index is plumbing multi-year lows as the S&P 500 pushes into one new record high after another. There is NO FEAR out there anywhere in sight. The only fear that I can see at this point is the FEAR OF MISSING OUT ON A MARKET THAT CAN NEVER STOP GOING HIGHER. Yes, indeed, the era of the never-ending bull market in stocks is firmly upon us.
Tell me something, how in the world is gold ever going to mount any sort of sustained move higher or generate the sustained buying (another way of saying the same thing) necessary to push it constantly upwards when the stock market makes one new high week after week - This all the while the pundits and other talking heads assure us that stocks are still cheap! Who wants gold when you are guaranteed spectacular profits in a NO WAY YOU CAN LOSE MONEY scenario, all courtesy of the fools at the Federal Reserve who still cannot see a bubble if it walked up to them and slapped them across their clueless faces?
When even the perma bulls begin to say out loud what many of us have been saying for years now (this market is resistant to any bad news of any kind) you know you damn well have a mania taking place. The deal is however, that as a trader or shorter-term oriented investor, you have to put aside any reservations you have and go with the herd if you are going to make any money. All I can say however is that you had better be quick on the draw and be able to get the heck out of Dodge in a hurry if things turn sour. Until it does, enjoy the ride.
A quick look at the gold chart... This is a 4 hour chart. Notice the trading pattern - a broad range noted within the colored rectangles making support and resistance. Also notice that since the short covering burst higher yesterday on pretty good volume, that same volume just dried up as the price approached the top of the trading near $1330 - $1340. What that tells me is that speculators are not the least bit interested in chasing the price higher RIGHT NOW. For that to change, we will need to see something on the technical price chart where a overhead resistance levels gives way in convincing fashion. That will draw the momentum crowd into the long side. For now, they are either shorting the market or staying out of it altogether as they seek more profitable opportunities to deploy their massive capital firepower elsewhere.
One last thing - let me comment on something going around the web drawn from my friends over at GATA. This will probably not endear me to some but I feel it needs to be said as there is too much trading misinformation out there. It seems that some keep taking note of large sell orders hitting the gold market during relatively thin trading conditions taking price lower. This is made a big deal out of and offered as proof positive that some nefarious powers want to break gold lower in order to discredit the metal and is thus part of the manipulation scheme.
Let me first and foremost note that I firmly believe the powers that be here in the West carefully monitor the gold price and that they are active through the bullion banks to try to keep the metal under wraps and prevent it from careening higher. However, and this is key - this occurs during times when gold is in a strong, sustained uptrend especially when bullish enthusiasm and excitement is at its best. Gold does compete with the US Dollar and thus it is important that anything that tends to undermine confidence in that Dollar or more specifically in the political and monetary leaders of the US be kept under wraps as much as is possible.
That being said, when gold is moving lower, the bullion banks are generally buyers, not sellers. The sellers are hedge funds and other large speculators. Just take a look at the Commitment of Traders report if you doubt that. Here is a good question for those who keep incorrectly pointing to these large sell orders as evidence that the culprits (whom they always equate to the bullion banks/government ) are deliberately suppressing the price of gold - how come we never hear a peep out of you when the gold price is shooting sharply higher with massive buy orders driving up through series after series of previously placed stop loss orders? Where is it written that the price can only be driven downward by some nefarious force seeking to maximize their trading profits? Can there not be those large capitalized traders who seek to push a market sharply higher and inflict the maximum amount of pain possible to short sellers when they spot market conditions that permit this?
Look, I trade a host of markets nearly round the clock and I can tell you point blank that in many of the markets I trade, especially the grains and the livestock markets, during the early morning hours here in the US, all manner of crap takes place. I have lost track of the number of times that some hedge fund or large spec has come in and jammed prices higher or lower, depending on which way there were positioned and then waited for the stops to get set off in order to make a quick killing. Every entity that pulls this sort of stunt is of course picking an opportune time in which to maximize the impact of their order placement. There is nothing the least bit out of the ordinary about this, even if one happens to believe it is certainly unethical as I do. ( I believe the exchanges' decisions to move to 24 hour round-the-clock trading in some markets was a huge mistake as it lends itself to this sort of legalized theft).
Gold therefore is no exception to this nor is there any reason for me to believe that anything occurring in there recently is anything out of the ordinary. Hedge funds, whom I believe have destroyed the integrity of our markets, are a like a plague of locusts that have descended upon us as they shove markets all over the place, many times without rhyme or reason. They are not the least bit interested in maximizing a selling price - they are interested in pushing price in the direction in which they are positioned.
Also, keep in mind that once upon a time, in a galaxy far, far away, large sellers or large buyers went about their business in as quiet and sophisticated method as was possible. They tried to hide their large sells or large buys so as not to alert other traders to what they were doing and thereby get in or get out before the herd came along. Those that followed such skilled practices are for the most part, long gone, dead or retired. The modern hedge fund has a computer that replaces the brains of the trader and it is programmed to sell a certain amount or buy a certain amount of contracts without regard to its impact on most occasions. In other words, they are brutally clumsy because the idea is to simply get out and get out FIRST before the next guy. Why wait and try to be sly about it when the entire trading strategy consists of responding to whatever the last price tic happens to be?
How I view this gold market right now then is that hedge funds, while still net long the market, have been increasingly interested in playing gold from the short side. That means they will be selling rallies or seeking to knock price lower when they feel like they can do so and have the greatest impact on price. What is necessary to prevent gold from succumbing to their selling then is for those who are interested in buying the metal to come in and make their presence felt with the same gusto/determination that the short sellers are exhibiting. If and when they do, we can pick that up on the price chart as it shows up as a SUPPORT level. If their buying is sufficiently large enough, they can force the price higher and in turn pick off the buy stops of other short sellers and turn the tables on them. That is what happened yesterday.
Let's see what next week brings to us and whether or not gold resumes its range trade and heads lower or if bulls can chase it higher and up and out of the top of that trading band.
In other words, the metal is still stuck in a trading range unable to break out either way with much conviction. I think this goes to the point of what I have been saying of late - until or unless we see some sort of event/events which precipitate a change in the CONFIDENCE of the global investment community towards the monetary authorities and/or political leaders, rallies in the metal are going to be viewed as selling opportunities. Why? Because the investment community is convinced, absolutely, that there is no inflation nor will there be any for the foreseeable future.
Need proof of this - see the following chart (again - for the umpteenth time). Commodity prices are relatively stable and have been for some time now. If anything, the sector has a slightly negative bias to its chart as the index has been slowly grinding lower the last two years now. This is the reason gold, and especially silver, are going nowhere. The momentum based crowd is not interested in chasing prices higher nor will they be until or unless there is solid evidence that the "BUY TANGIBLES" theme is back in vogue.
Much of this will depend on what the fortunes of the US Dollar are over through the end of the year. The dollar is weak but has not completely broken through technical chart support. I would only become concerned about the Dollar if it were to first mount a WEEKLY CLOSE below the 79 level but more so if it crashed through 78. That to me would indicate that a SHIFT IN SENTIMENT towards the greenback has indeed occurred. That would signal that LOSS of CONFIDENCE thing that I just mentioned. Should that take place, I do believe we would see a concern that inflation would result from the weakening currency and that would bring about the possibility of TANGIBLE asset buying once more on the part of the speculative community. That is simply not present right now.
What is present is the mania in US equities. This beats even the craze leading up to the 2000 fiasco if you ask me. The VIX or Volatility Index is plumbing multi-year lows as the S&P 500 pushes into one new record high after another. There is NO FEAR out there anywhere in sight. The only fear that I can see at this point is the FEAR OF MISSING OUT ON A MARKET THAT CAN NEVER STOP GOING HIGHER. Yes, indeed, the era of the never-ending bull market in stocks is firmly upon us.
Tell me something, how in the world is gold ever going to mount any sort of sustained move higher or generate the sustained buying (another way of saying the same thing) necessary to push it constantly upwards when the stock market makes one new high week after week - This all the while the pundits and other talking heads assure us that stocks are still cheap! Who wants gold when you are guaranteed spectacular profits in a NO WAY YOU CAN LOSE MONEY scenario, all courtesy of the fools at the Federal Reserve who still cannot see a bubble if it walked up to them and slapped them across their clueless faces?
When even the perma bulls begin to say out loud what many of us have been saying for years now (this market is resistant to any bad news of any kind) you know you damn well have a mania taking place. The deal is however, that as a trader or shorter-term oriented investor, you have to put aside any reservations you have and go with the herd if you are going to make any money. All I can say however is that you had better be quick on the draw and be able to get the heck out of Dodge in a hurry if things turn sour. Until it does, enjoy the ride.
A quick look at the gold chart... This is a 4 hour chart. Notice the trading pattern - a broad range noted within the colored rectangles making support and resistance. Also notice that since the short covering burst higher yesterday on pretty good volume, that same volume just dried up as the price approached the top of the trading near $1330 - $1340. What that tells me is that speculators are not the least bit interested in chasing the price higher RIGHT NOW. For that to change, we will need to see something on the technical price chart where a overhead resistance levels gives way in convincing fashion. That will draw the momentum crowd into the long side. For now, they are either shorting the market or staying out of it altogether as they seek more profitable opportunities to deploy their massive capital firepower elsewhere.
One last thing - let me comment on something going around the web drawn from my friends over at GATA. This will probably not endear me to some but I feel it needs to be said as there is too much trading misinformation out there. It seems that some keep taking note of large sell orders hitting the gold market during relatively thin trading conditions taking price lower. This is made a big deal out of and offered as proof positive that some nefarious powers want to break gold lower in order to discredit the metal and is thus part of the manipulation scheme.
Let me first and foremost note that I firmly believe the powers that be here in the West carefully monitor the gold price and that they are active through the bullion banks to try to keep the metal under wraps and prevent it from careening higher. However, and this is key - this occurs during times when gold is in a strong, sustained uptrend especially when bullish enthusiasm and excitement is at its best. Gold does compete with the US Dollar and thus it is important that anything that tends to undermine confidence in that Dollar or more specifically in the political and monetary leaders of the US be kept under wraps as much as is possible.
That being said, when gold is moving lower, the bullion banks are generally buyers, not sellers. The sellers are hedge funds and other large speculators. Just take a look at the Commitment of Traders report if you doubt that. Here is a good question for those who keep incorrectly pointing to these large sell orders as evidence that the culprits (whom they always equate to the bullion banks/government ) are deliberately suppressing the price of gold - how come we never hear a peep out of you when the gold price is shooting sharply higher with massive buy orders driving up through series after series of previously placed stop loss orders? Where is it written that the price can only be driven downward by some nefarious force seeking to maximize their trading profits? Can there not be those large capitalized traders who seek to push a market sharply higher and inflict the maximum amount of pain possible to short sellers when they spot market conditions that permit this?
Look, I trade a host of markets nearly round the clock and I can tell you point blank that in many of the markets I trade, especially the grains and the livestock markets, during the early morning hours here in the US, all manner of crap takes place. I have lost track of the number of times that some hedge fund or large spec has come in and jammed prices higher or lower, depending on which way there were positioned and then waited for the stops to get set off in order to make a quick killing. Every entity that pulls this sort of stunt is of course picking an opportune time in which to maximize the impact of their order placement. There is nothing the least bit out of the ordinary about this, even if one happens to believe it is certainly unethical as I do. ( I believe the exchanges' decisions to move to 24 hour round-the-clock trading in some markets was a huge mistake as it lends itself to this sort of legalized theft).
Gold therefore is no exception to this nor is there any reason for me to believe that anything occurring in there recently is anything out of the ordinary. Hedge funds, whom I believe have destroyed the integrity of our markets, are a like a plague of locusts that have descended upon us as they shove markets all over the place, many times without rhyme or reason. They are not the least bit interested in maximizing a selling price - they are interested in pushing price in the direction in which they are positioned.
Also, keep in mind that once upon a time, in a galaxy far, far away, large sellers or large buyers went about their business in as quiet and sophisticated method as was possible. They tried to hide their large sells or large buys so as not to alert other traders to what they were doing and thereby get in or get out before the herd came along. Those that followed such skilled practices are for the most part, long gone, dead or retired. The modern hedge fund has a computer that replaces the brains of the trader and it is programmed to sell a certain amount or buy a certain amount of contracts without regard to its impact on most occasions. In other words, they are brutally clumsy because the idea is to simply get out and get out FIRST before the next guy. Why wait and try to be sly about it when the entire trading strategy consists of responding to whatever the last price tic happens to be?
How I view this gold market right now then is that hedge funds, while still net long the market, have been increasingly interested in playing gold from the short side. That means they will be selling rallies or seeking to knock price lower when they feel like they can do so and have the greatest impact on price. What is necessary to prevent gold from succumbing to their selling then is for those who are interested in buying the metal to come in and make their presence felt with the same gusto/determination that the short sellers are exhibiting. If and when they do, we can pick that up on the price chart as it shows up as a SUPPORT level. If their buying is sufficiently large enough, they can force the price higher and in turn pick off the buy stops of other short sellers and turn the tables on them. That is what happened yesterday.
Let's see what next week brings to us and whether or not gold resumes its range trade and heads lower or if bulls can chase it higher and up and out of the top of that trading band.
Thursday, October 17, 2013
Still Searching for My Stomach
Apologies for little postings of late - I have been having a love/hate relationship with my computer as has been giving me grief. That and the fact that these markets are grinding me down as I try to read that which is nearly unreadable right now.
I have had my kids drag me on enough amusement park rides to know that I hate the blasted things but compared to what gold has been doing the last few days, I am beginning to have second thoughts about that. As a matter of fact, if I could make a living riding roller coasters and barrels of fun, etc. instead of having to trade these markets, I might just retire from this madness.
The kind of volatility we are seeing favors one group only, the HFT crowd, who love this unpredictable and meaningless "noise" that so many different commodity markets are currently exhibiting.
Take gold for example - most, including myself, believed that as soon as we got resolution on the borrowing limit deal here in the US, gold would sell off while equities would rally. Guess what - equities rallied and gold did too. Prior to that most of us thought gold would move higher on threats of US default while stocks would sell off. Guess what - gold sold off just like equities.
The two markets have been moving in the same direction more than they have been parting company it seems. Counterintuitive, is a word one hears bandied about when it comes to gold these days. Counterintuitive seems to sum up most of the commodity markets in general anymore. Not much makes the least bit of sense.
Gold seemed to use the government shutdown and budget deal as a reason to rally today based on comments being made by various Fed governors. In a rare display of unanimity, the governors all stated that there was not going to be any Fed bond buying slowdown ( NO TAPER) because the government shutdown had resulted in a slowing of economic activity, not to mention the fact that not even the Fed had any access to the usual government economic data.
When traders figured out this Fed speak as being brutal for the Dollar, they proceeded to beat the snot out of the greenback. That was all that gold needed for an excuse to rally. Keep in mind that this is something I am trying to repeatedly emphasize - since there are no visible inflation signs as far as the investment class is concerned, and since there does not appear to be any chance of the economy growing rapidly with an increase in the Velocity of Money, it is going to take an issue of CONFIDENCE to get gold moving higher. That is what we saw today. Traders took note of the response of the Chinese to the US fiscal mess and lack of serious leadership in Washington DC and combined that with the ultra low interest rate continuing into the indefinite future based on those various Fed governors, and ran en masse out of the US Dollar.
You can also be assured that the deal that our feckless leaders came up with ASSURES us that we will be watching another replay of the dog and pony show come late January/early February next year once again. In other words, the circus show taking place at Versaille on the Potomac hardly inspires any sane thinking individual or gives them the least bit of confidence that those buffoons heading up the political parties have the faintest clue the kind of long lasting damage that they are inflicting on the nation as a whole.
Personally the establishment elites disgust me.
Either way, once the Dollar dropped through chart support, some strong buying in gold tripped the overhead buy stops and up, up, up she went. By the way ladies and gents, this was another one of those stunning short covering events in which hedgies were leaning on the short side and got caught off guard and were forced to run. One thing that concerns me about these kinds of rallies - as a general rule they tend to be rather short lived; furious, exciting, dramatic, but not enduring. Specs have had a tendency to sell into these rallies of late so we will have to be careful and not read too much into the price action of one day but at least gold managed to recapture that "13" handle, which takes some of the excessive bearishness out of the market, at least for a day or so.
The key for gold is whether or not bulls can build on today's performance and actually take out some more overhead chart resistance levels or whether the bears will show up at these areas and meet them as willing and eager sellers. We will know soon enough, especially with the Friday curse ahead of us. If the bulls can close the market over $1300 for the week, they will have dodged a serious bullet. That does not get them out of the wood however' it just buys them some time and a bit of breathing space since the intermediate trend is still down.
If you notice the market broke down below the bottom of the recent trading range but recovered quickly and negated what looked to be a bearish wave lower. Until I see the price break out of the topside of this range however, and that means clearing $1330 for starters but particularly $1350, I cannot get too excited about the metal's future prospects, barring a further collapse lower in the US Dollar. If the Dollar cracks up, gold will take out overhead resistance and will see a further wave of short covering that will set up a run towards $1380 and then on to $1400. Right now, I am watching to see where the various sides will manifest themselves for further clues into this market which has been nearly impossible to predict of late.
Saturday, October 12, 2013
Velocity of Money Falling
The following chart is a bit dated as it only covers through the first quarter of this year but even at that, the trend is glaringly obvious - down!
Combine this with a CRB index or Goldman Sachs Commodity Index that cannot gain any upside traction, abysmal to miniscule job creation and of those, many are now part time jobs thanks to Obamacare, flat to relatively stagnant wages, and you can understand why, even without this chart, that the factors necessary to push prices sharply higher are currently missing.
I also would include something which is more anecdotal but which I feel is also a contributing factor to the deflationary pressures being exerted upon the US economy in general, namely, the fallout from Obamacare in the area of soaring health insurance for a large number of Americans. You have already or will have very soon, heard the horror stories as they continue to increase about health insurance premiums tripling for many Americans. In an environment in which wages are flat, that price increase comes right off the top of the consumers' disposable income. That means less money available for discretionary spending.
I believe this is what we are seeing reflected in this chart.
From the standpoint of gold, this helps explain why the metal keeps sinking lower. With the US Dollar not falling apart, the urgency to own the metal is subsiding among Western-based investors. That is evident from the continued drawdown in the reported gold holdings of the giant ETF, GLD.
Also, when one considers especially an artificially goosed US equity market working its way higher and higher throwing off ridiculous gains practically month after month, investment capital is going to need a compelling reason to be taken out of that sector and allocated into gold. Since gold pays no yield all investment gains from the metal must necessarily come from capital appreciation. In other words, if the price of gold does not keep rising, why own it when the Fed has created a perpetual motion machine in the form of US stocks?
This is why I keep coming back to the same point that I have been making - it is going to take something, some event, some occurrence, something, to break CONFIDENCE in the US Dollar or in the US monetary and political leaders for gold to respond upward in price.
Most of you who read this site, and I myself believe that the US is on an unsustainable path which is going to end badly. I believe over the long term, we will be proven correct but here is the current issue - as bad as the US is, does anyone believe that the UK, Japan, the Euro Zone, etc are really and truthfully any better? They have the same problem as we do, out of control spending at their national levels and gargantuan debt levels. There remains malinvestment in China which has its own set of problems while Brazil also has its issues to deal with.
The current monetary system, with the US Dollar as the Reserve currency is fatally wounded but what is there realistically to replace it at this point? Answer - nothing! At some point there will be but for now, the game continues. This is what allows the Federal Reserve to enlarge its balance sheet to obscene levels ( it is currently sitting near a mind-blowing $3.7 TRILLION and rising) without the Dollar imploding into Hades. It should come as no news to those who are informed that thanks to the Federal Reserve's shortsightedly stupid programs known as Quantitative Easing, the Fed is now the largest owner of US Treasury debt in the world. This is a Ponzi scheme, the likes of which the world has never seen and will never see again for it is one of near Cosmic Proportions.
Which brings me to another point - no nation out there which is holding US Treasury obligations as part of their reserves wants to see the Dollar crash and the "value" of those reserves go up in smoke. Thus, no one rocks the boat other than some bilateral trade agreements here and there and noise about a new reserve currency. For all that noise and all those grumblings, the US Dollar is still enthroned as the king of the current monetary system.
This is why I go back to what I have been saying when it comes to gold - only if confidence is lost in the US Dollar will we see gold sentiment shift here in the West. I would watch the Dollar more closely than anything right now as a result. Interestingly enough or perversely enough if your mind thinks like mine, a rising interest rate environment would theoretically make US Treasury debt more attractive in the sense of better yields but this same rise in interest rates tends to crush any incipient forms of life in the US economy further aggravating its already out of control national debt ( less economic activity means lower tax revenues). If that were not bad enough in itself, it also makes servicing any interest payments of newly issued debt even more challenging for a country whose DEBT to GDP ratio is already over 100%. And yet, this rising interest rate environment is what had pulled the Dollar higher until recently.
In the long term this is why I believe gold will ultimately benefit but between the long term and the shorter term in which trading/investment decisions are made, there remains some formidable headwinds to the upward progress in the price of gold.
Combine this with a CRB index or Goldman Sachs Commodity Index that cannot gain any upside traction, abysmal to miniscule job creation and of those, many are now part time jobs thanks to Obamacare, flat to relatively stagnant wages, and you can understand why, even without this chart, that the factors necessary to push prices sharply higher are currently missing.
I also would include something which is more anecdotal but which I feel is also a contributing factor to the deflationary pressures being exerted upon the US economy in general, namely, the fallout from Obamacare in the area of soaring health insurance for a large number of Americans. You have already or will have very soon, heard the horror stories as they continue to increase about health insurance premiums tripling for many Americans. In an environment in which wages are flat, that price increase comes right off the top of the consumers' disposable income. That means less money available for discretionary spending.
I believe this is what we are seeing reflected in this chart.
From the standpoint of gold, this helps explain why the metal keeps sinking lower. With the US Dollar not falling apart, the urgency to own the metal is subsiding among Western-based investors. That is evident from the continued drawdown in the reported gold holdings of the giant ETF, GLD.
Also, when one considers especially an artificially goosed US equity market working its way higher and higher throwing off ridiculous gains practically month after month, investment capital is going to need a compelling reason to be taken out of that sector and allocated into gold. Since gold pays no yield all investment gains from the metal must necessarily come from capital appreciation. In other words, if the price of gold does not keep rising, why own it when the Fed has created a perpetual motion machine in the form of US stocks?
This is why I keep coming back to the same point that I have been making - it is going to take something, some event, some occurrence, something, to break CONFIDENCE in the US Dollar or in the US monetary and political leaders for gold to respond upward in price.
Most of you who read this site, and I myself believe that the US is on an unsustainable path which is going to end badly. I believe over the long term, we will be proven correct but here is the current issue - as bad as the US is, does anyone believe that the UK, Japan, the Euro Zone, etc are really and truthfully any better? They have the same problem as we do, out of control spending at their national levels and gargantuan debt levels. There remains malinvestment in China which has its own set of problems while Brazil also has its issues to deal with.
The current monetary system, with the US Dollar as the Reserve currency is fatally wounded but what is there realistically to replace it at this point? Answer - nothing! At some point there will be but for now, the game continues. This is what allows the Federal Reserve to enlarge its balance sheet to obscene levels ( it is currently sitting near a mind-blowing $3.7 TRILLION and rising) without the Dollar imploding into Hades. It should come as no news to those who are informed that thanks to the Federal Reserve's shortsightedly stupid programs known as Quantitative Easing, the Fed is now the largest owner of US Treasury debt in the world. This is a Ponzi scheme, the likes of which the world has never seen and will never see again for it is one of near Cosmic Proportions.
Which brings me to another point - no nation out there which is holding US Treasury obligations as part of their reserves wants to see the Dollar crash and the "value" of those reserves go up in smoke. Thus, no one rocks the boat other than some bilateral trade agreements here and there and noise about a new reserve currency. For all that noise and all those grumblings, the US Dollar is still enthroned as the king of the current monetary system.
This is why I go back to what I have been saying when it comes to gold - only if confidence is lost in the US Dollar will we see gold sentiment shift here in the West. I would watch the Dollar more closely than anything right now as a result. Interestingly enough or perversely enough if your mind thinks like mine, a rising interest rate environment would theoretically make US Treasury debt more attractive in the sense of better yields but this same rise in interest rates tends to crush any incipient forms of life in the US economy further aggravating its already out of control national debt ( less economic activity means lower tax revenues). If that were not bad enough in itself, it also makes servicing any interest payments of newly issued debt even more challenging for a country whose DEBT to GDP ratio is already over 100%. And yet, this rising interest rate environment is what had pulled the Dollar higher until recently.
In the long term this is why I believe gold will ultimately benefit but between the long term and the shorter term in which trading/investment decisions are made, there remains some formidable headwinds to the upward progress in the price of gold.
Trader Dan Interviewed at King World News Markets and Metals Wrap
Please click on the following link to listen in to my regular weekly audio interview with Eric King over at the KWN Markets and Metals Wrap.
http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/10/12_KWN_Weekly_Metals_Wrap.html
http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/10/12_KWN_Weekly_Metals_Wrap.html
Friday, October 11, 2013
Investment Demand for Gold in the West continues to Weaken
Love or it hate it, the largest gold ETF on the planet, GLD, is still one of the best, if not the best indicator of the size of Western investment demand for the yellow metal.
As noted here many times now, the reported gold tonnage in this vehicle, continues to sink.
You thus have two key indicators here in the West, GLD and the HUI or index of gold shares, both of which are telling us that gold has fallen out of favor with the investment class. Whether we like this or not is immaterial. It is a fact and reflects the sentiment towards gold here in the West. To be successful at trading one must learn to accept what the market is saying even if you disagree with it. That means becoming a hard-nosed, thick-skinned realist and tuning out anything to the contrary.
When sentiment turns, you either turn with it or lose money. It is really that painfully simple.
Now, you may be correct in the long run and your view may ultimately be vindicated, but you could end up broke by then. Let the market itself speak to you and tell you when it has come around to your way of thinking. Otherwise, you are apt to look as foolish as someone spitting into a hurricane. It may make you feel better than you are defiant and standing tall, but all you are going to end up with for your effort is a wet face, courtesy of yourself!
Here is a chart of the total tonnage of GLD. Notice how it continues to sink lower and lower. Until this disgorging of gold is over and the trend reverses, rallies in gold will be sold. While Asian demand will be strong, in and of itself that is insufficient to reverse the disgorging trend here in the West.
As noted here many times now, the reported gold tonnage in this vehicle, continues to sink.
You thus have two key indicators here in the West, GLD and the HUI or index of gold shares, both of which are telling us that gold has fallen out of favor with the investment class. Whether we like this or not is immaterial. It is a fact and reflects the sentiment towards gold here in the West. To be successful at trading one must learn to accept what the market is saying even if you disagree with it. That means becoming a hard-nosed, thick-skinned realist and tuning out anything to the contrary.
When sentiment turns, you either turn with it or lose money. It is really that painfully simple.
Now, you may be correct in the long run and your view may ultimately be vindicated, but you could end up broke by then. Let the market itself speak to you and tell you when it has come around to your way of thinking. Otherwise, you are apt to look as foolish as someone spitting into a hurricane. It may make you feel better than you are defiant and standing tall, but all you are going to end up with for your effort is a wet face, courtesy of yourself!
Here is a chart of the total tonnage of GLD. Notice how it continues to sink lower and lower. Until this disgorging of gold is over and the trend reverses, rallies in gold will be sold. While Asian demand will be strong, in and of itself that is insufficient to reverse the disgorging trend here in the West.
Wednesday, October 9, 2013
What are the Gold Shares Saying?
The HUI to gold ratio continues to plumb new lows over the last few months having already moved well below the spike bottom made back in late 2008 when the first news about Quantitative Easing hit the markets. The falling ratio is disturbing.
Either one of two things is going to happen - either gold shares are going to stage a rebound sooner rather than later or the price of gold is going to start moving lower at a faster rate than the shares. There always remains the possibility that both will rise higher in sync with the shares outperforming to the upside. That would restore the ratio but thus far the technical charts of the HUI index do not show any serious buying by anyone but the value crowd.
The ratio has fallen through every single Fibonacci retracement level shown on the chart drawn off the 2000 low and the 2003 high. Classic Fibonacci theory would tell us that if the 75% retracement level is bested, odds favor the entire move being erased. that is more than sobering; it is a catastrophe.
It is telling that no matter what gold does, the shares simply cannot seem to gain much in the way of traction to the upside. Perhaps that will change but thus far the shares, which have been rather good at predicting in what direction the price of gold will be going, are heading lower.
One wonders just how far this ratio will continue to move. This is the reason that I have strongly recommended to miners that if they have the opportunity to lock in some good profits on gold under production, that they do so, at least a decent percentage of that production, to ensure those profits. In other words, hedge or use some forward contract methods so that they do not sit there and watch the metal sink lower on them without any downside price protection.
The ratio at such low levels would seem to be saying that there is a distinct possibility of lower gold prices ahead. Gold at $1300 is certainly not the same as gold at $1900 but if a miner can dig it out of the ground and secure profits at that price, why risk all of those profits? Something is going on in the mining shares which simply makes investors reluctant to buy them even after such a protracted decline. Perhaps investors are wondering whether profits are in the picture before they put hard earned capital at risk.
Either one of two things is going to happen - either gold shares are going to stage a rebound sooner rather than later or the price of gold is going to start moving lower at a faster rate than the shares. There always remains the possibility that both will rise higher in sync with the shares outperforming to the upside. That would restore the ratio but thus far the technical charts of the HUI index do not show any serious buying by anyone but the value crowd.
The ratio has fallen through every single Fibonacci retracement level shown on the chart drawn off the 2000 low and the 2003 high. Classic Fibonacci theory would tell us that if the 75% retracement level is bested, odds favor the entire move being erased. that is more than sobering; it is a catastrophe.
It is telling that no matter what gold does, the shares simply cannot seem to gain much in the way of traction to the upside. Perhaps that will change but thus far the shares, which have been rather good at predicting in what direction the price of gold will be going, are heading lower.
One wonders just how far this ratio will continue to move. This is the reason that I have strongly recommended to miners that if they have the opportunity to lock in some good profits on gold under production, that they do so, at least a decent percentage of that production, to ensure those profits. In other words, hedge or use some forward contract methods so that they do not sit there and watch the metal sink lower on them without any downside price protection.
The ratio at such low levels would seem to be saying that there is a distinct possibility of lower gold prices ahead. Gold at $1300 is certainly not the same as gold at $1900 but if a miner can dig it out of the ground and secure profits at that price, why risk all of those profits? Something is going on in the mining shares which simply makes investors reluctant to buy them even after such a protracted decline. Perhaps investors are wondering whether profits are in the picture before they put hard earned capital at risk.
Gold Stuck in Limbo
It cannot get into heaven and it does not yet appear to be headed down into hell. So it goes nowhere bouncing up and down, without any apparent rhyme or reason. In short, trading gold right now is a complete waste of time unless you are a glutton for punishment or have the absolute shortest of time spans before pulling the trigger on an ultra short term trade. Translation - unless you want to scalp this market, leave it be until it makes some sense.
I still feel that the intermediate and even the short term trend is down but with the sort of wild intraday price swings it is currently experiencing, there are better opportunities elsewhere to trade.
It does seem as if there is a large enough contingent of dip buyers who are trying to keep it levitated above $1300 to make it tough for the market to actually break and stay below that psychological support level. Based on the current action in the mining shares however, odds favor a breakdown of that level sooner rather than later in my view. While the HUI did manage to close near the high end of today's session ( some of the individual stocks that comprise this index actually closed in the green), the chart pattern on the HUI still looks atrocious. I would want to see some improvement in the miners before feeling any positive vibes toward the actual metal.
It was rather comical reading the comments today from those who were foolish enough to try offering reasons for the inexplicable. First was the news that Yellen - Ms. Dove of Doves, will be heading the Fed. That was viewed as friendly towards stocks and somewhat towards gold. Then the market seemed to focus back on the partial government shutdown and upcoming debt ceiling battle and that brought out the forces of deflation. Then we got some employment numbers from private firm ADP. "Go this way and that way and this way and that way".
When the FOMC news hit the wire gold was all over the place as traders tried to make sense of the oracles who sit on that committee.
Some FOMC governors wanted to taper; some did not; some were concerned about the Fed's credibility; some were concerned about this and some were concerned about that. Some wanted to taper before year's end. All of this is moot in my view because what some may or may not want is rather immaterial in my view. What is not immaterial and what will ultimately have the final say is the economic data coming our way. I repeat, it is difficult for me to see them tapering anytime soon based on the anemic, miserable state of the US economy.
Back to the charts only briefly for the reasons explained above ( it is stuck in a range trade).
Price remains stuck in a very broad range between $1280 or so on the bottom and $1340 or so on the top. Within that broad range is a secondary range with $1300 or so on the bottom and $1320 or so on the top. Bulls have no chance of getting anything going until they clear $1340 and keep the price from falling back below that level. Bears have no chance of getting anything sustained to the downside until they push through $1280 and prevent price from recapturing that level.
The current bias is negative based on the indicators presented with those favoring the bears. Additionally, volume on up bars is lackluster reflecting the lack of bullish enthusiasm.
Simply put, I am not sure how much longer this will continue but until one side or the other grabs the ball and runs with it, we appear to be stuck in limbo. Hopefully something will change soon and we can get some sort of decent trend, even if it is down to at least escape this nauseating go-nowhere - do nothing market.
What I am watching is the slide in crude oil prices along with lower gasoline prices. That is certainly not contributing any upward pressure on the overall commodity complex in general which continues to slide lower. It is difficult to see gold managing any sort of lasting rally as long as this index drifts to the downside.
I still feel that the intermediate and even the short term trend is down but with the sort of wild intraday price swings it is currently experiencing, there are better opportunities elsewhere to trade.
It does seem as if there is a large enough contingent of dip buyers who are trying to keep it levitated above $1300 to make it tough for the market to actually break and stay below that psychological support level. Based on the current action in the mining shares however, odds favor a breakdown of that level sooner rather than later in my view. While the HUI did manage to close near the high end of today's session ( some of the individual stocks that comprise this index actually closed in the green), the chart pattern on the HUI still looks atrocious. I would want to see some improvement in the miners before feeling any positive vibes toward the actual metal.
It was rather comical reading the comments today from those who were foolish enough to try offering reasons for the inexplicable. First was the news that Yellen - Ms. Dove of Doves, will be heading the Fed. That was viewed as friendly towards stocks and somewhat towards gold. Then the market seemed to focus back on the partial government shutdown and upcoming debt ceiling battle and that brought out the forces of deflation. Then we got some employment numbers from private firm ADP. "Go this way and that way and this way and that way".
When the FOMC news hit the wire gold was all over the place as traders tried to make sense of the oracles who sit on that committee.
Some FOMC governors wanted to taper; some did not; some were concerned about the Fed's credibility; some were concerned about this and some were concerned about that. Some wanted to taper before year's end. All of this is moot in my view because what some may or may not want is rather immaterial in my view. What is not immaterial and what will ultimately have the final say is the economic data coming our way. I repeat, it is difficult for me to see them tapering anytime soon based on the anemic, miserable state of the US economy.
Back to the charts only briefly for the reasons explained above ( it is stuck in a range trade).
Price remains stuck in a very broad range between $1280 or so on the bottom and $1340 or so on the top. Within that broad range is a secondary range with $1300 or so on the bottom and $1320 or so on the top. Bulls have no chance of getting anything going until they clear $1340 and keep the price from falling back below that level. Bears have no chance of getting anything sustained to the downside until they push through $1280 and prevent price from recapturing that level.
The current bias is negative based on the indicators presented with those favoring the bears. Additionally, volume on up bars is lackluster reflecting the lack of bullish enthusiasm.
Simply put, I am not sure how much longer this will continue but until one side or the other grabs the ball and runs with it, we appear to be stuck in limbo. Hopefully something will change soon and we can get some sort of decent trend, even if it is down to at least escape this nauseating go-nowhere - do nothing market.
What I am watching is the slide in crude oil prices along with lower gasoline prices. That is certainly not contributing any upward pressure on the overall commodity complex in general which continues to slide lower. It is difficult to see gold managing any sort of lasting rally as long as this index drifts to the downside.
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