"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

Trader Dan's Work is NOW AVAILABLE AT WWW.TRADERDAN.NET



Monday, September 30, 2013

USDA Surprises Corn and Bean Markets

The USDA released one of those famous Grain Stocks reports this morning and it immediately sent the corn and bean markets into a royal tizzy.

Analysts were way off on their projections of both old crop corn stocks and soybean stocks. By that, they were well below the actual numbers that the USDA gave us.

Apparently, the analysts failed to understand that the best cure for high prices is high prices. The simple truth is that the US has lost some market share because of the stubbornly high prices for both corn and beans in front of what is expected to be a record corn crop and the 4th largest soybean crop in history. Many farmers are being ill served by some advisory firms who refuse to accept the fact that the psychology of buyers in the grain markets have changed from the last two years.

If that were not enough, S. American supplies of both corn and beans are abundant and with planting season kicking off down there this month, there is every reason to expect large intentions in the Southern Hemisphere. Obviously weather down that way will play a major role in overall production but early indications ( and common sense for that matter) indicate a desire to plant a large amount of acreage and take advantage of the relatively high prices that the board is still offering producers.

End users of grain and beans are not foolish and unless they need the grain right away, are obviously trying to wait for more plentiful supplies to flow into the pipeline as the combines begin to roll in a big way this week.

This surprisingly bearish news for corn and beans was tempered a bit by the Wheat news  which was mixed. Ending stockpiles came in BELOW the estimates but the current year crop production is expected to be slightly larger than estimates. That is leading to choppy trading in that market for the time being.

If that were not enough, the hog market got hit with a wicked curve ball from USDA with the Quarterly Snout Count in the form of a big bearish surprise.

Were it not for the stubbornly bullish sentiment in the hog market due to the PED virus, hogs would be much lower than they are trading in today's session.

I bring up these things to point out that the futures market is signaling lower corn and soybean prices and perhaps a peak in pork prices for the short term. This will eventually feed through the pipeline and impact FOOD prices DOWNWARDLY. In other words, both reports are not signaling any inflation from this sector for a while. (Beef is still a wildcard as supplies of cattle will be tight but the question is whether or not consumers are going to pay the kind of money for beef that will be required to keep prices elevated).

With crude oil weakening as the lackluster economy stifles demand for energy, both food and energy prices are seeing some downward price pressure. That undercuts the inflation argument considerably, especially with the stagnant job market contributing to stagnant wages.

We are seeing this reflected in gold this morning which ran up to $1350 overnight only to be met with a barrage of selling. Traders/investors are not going to chase gold prices higher unless they have clear evidence of rising prices across the economy. Right now, they are not getting that unless of course one looks at the result of that abomination known as Obamacare on the premiums of health insurance policies all across the land.

There is still dip buying occurring in the gold market but that in and of itself is insufficient to take the market strongly higher and KEEP IT THERE. Gold still needs a spark, a catalyst of some sort and right now it is hard to envision what that might be.

As usual, the hedge funds hold the fortunes of gold and silver in their hands. Their next move is anyone's guess. Further clouding the picture today is that it is both the end of the month and the end of the quarter and there is a large amount of positioning and book squaring occurring which is making reading price movements quite difficult.


Saturday, September 28, 2013

Thursday, September 26, 2013

Another Piece of Economic Data - Another Reaction in Gold

The drama remains exactly the same as it has for some time now....a piece of economic news is released and it either confirms or dispels ideas of Fed tapering of bond buying. This time it was the jobless claims number which came in at 305,00 first time claims versus market expectations of 330,000. The news was interpreted as a jobs market improvement or more accurately, a job market that is not deteriorating as bad as some expected and therefore bolstered Fed tapering ideas. Up goes the US Dollar and down goes gold as a result.

Get used to this - every single economic data release is going to be dissected and examined for "clues" to our monetary masters' next move. This is the tragic state to which our once proud financial market system has been reduced. As stated many times here before, go and grab a Daisy and start plucking the pedals as you recite the phrases, "She loves me; she loves me not" and you pretty much have the modern trading algorithm.

If you have noticed, even the bond market has been reduced to playing this infernal game as it has lower today, with interest rates subsequently moving back up again. Up and down, up and down....

The only major markets seemingly unaffected by this were the equity markets which rose on the news. Then again, they rise on any news these days, whether bad or good. What else can be expected here in the land of perpetual bull markets in equities  where bear markets have been rendered an obsolete concept from days gone by.

From a technical analysis perspective, gold is having trouble maintaining its footing above key resistance centered between $1330 - $1335. Rallies are attracting selling and dips towards $1300 are attracting buying. It is still in a range until it proves which way it wants to go. Weakness in the gold mining shares would seem to indicate that it wants to break lower but thus far that has not been the case. In other words, I have no idea where this thing is headed in the short term.

I have included the RSI or Relative Strength Indicator to show you the range trade and lack of clear direction. Notice that for the better part of three weeks, this indicator has been mostly confined between 60 on the top and 20 on the bottom; not a particularly friendly reading. We did get that sharp spike on the day of the FOMC statement which took the RSI through the top of this range and looked as if more promising things were ahead for the metal but it quickly surrendered its gains with the indicator reverting back to its previous pattern.


On this time frame, the RSI would need to clear at least 65 for me to get the least bit excited about the metal but more importantly, it would have to push past the previous price peak made the day of and the day after the FOMC statement. At this point, that does not appear to be in the cards WITHOUT ANOTHER CATALYST coming from somewhere. After all, if gold cannot sustain a rally with a clear statement coming from the Fed that the economy is too weak for them to consider tapering at this time, then what in the world is it going to take to push this metal higher? My answer to that is the same - a LOSS OF CONFIDENCE in the currency and with the Dollar refusing to break down significantly right now, we are not seeing any signs of that. Perhaps the upcoming federal debt ceiling will change some minds in that regards but the jury is still out on that.

The problem for gold remains the same thing I have been saying for weeks now - speculative money is not interested in chasing prices higher. Money inflows are simply not there and without them, this market cannot sustain any rallies. Something is going to have to change in investor/trader sentiment to bring this hot money back into the gold market, and the silver market, for that matter. Until it does, it looks to me like the bears still have the advantage until proven otherwise.



Tuesday, September 24, 2013

Gold Finds a Few Friends near $1300

As many already know by now, gold had been moving steadily lower throughout the New York trading session when a late-in-that-session small wave of buying brought the market back off its worst levels and actually allowed it to trade on the plus side of unchanged for a brief moment. I am unclear as to what the reason was that caused the bounced but it did occur rather rapidly and without much fanfare or fresh news that I saw. My thinking is that some shorts who faded the move higher on the release of last week's FOMC statement, decided to ring the cash register when the market traded down both into a technical support level on the chart. Also, the market had completely surrendered all of the gains it put on related to that same FOMC release and then some. Perhaps the thinking was to go ahead and book some gains and wait for another bounce higher into which to sell.

It did not hurt gold also to have the HUI, which has been falling faster than Obama's approval ratings, finally manage a bounce higher today. That, more than anything, seems to be to have been the catalyst for the move higher off of the lows at the Comex.



Technically, market remains range bound between an overhead resistance zone noted on the chart and a support zone beneath the market which extends to psychological support at round number $1300 and to just below that level which is where the market bounced early in the session last Wednesday when the FOMC statement was released.

For gold to have a chance at moving higher now, it will need to take out that $1332 level. Whether it is setting up a large range trade between $1375 and $1305 or so remains to be seen. If it is repelled by $1332 - $1330, it will be seen as a strongly bearish reaction. If that is the case, I would look for aggressive selling that will test the bottom of support down near $1296.

The bulls bought themselves a bit of time today but they have a lot of work to attract some fresh converts to their cause.

With copper and silver both lower today, with crude oil moving lower and with the grains not managing more than a bounce higher at this point, any inflation issues that might be seen originating from the commodity complex are nowhere in sight at the present time.

Also, in what has to amount to an amazing slight of hand feat, the Fed, through its various talking heads, has managed to drive down that all important yield on the Ten Year Treasury note away from what I believe they are viewing is the DANGER ZONE of 3.0% yield. More than anything else, I believe that they are watching this very closely and will fine tune their comments and statements into corralling this particular instrument. Expect to see the DOVES appear on any approaches by the Ten Year back to that level.

Along that line, I believe gold will be ultra sensitive to this as well since it was talk about a rising interest rate environment that has been hurting the yellow metal.


And lastly, hats off to Senator Ted Cruz for doing whatever it takes to remove this albatross which should be known as the "UNAFFORDABLE" Health Care Act from around our collective necks by mounting a filibuster in the Senate.

Just yesterday I received the "good news" how affordable this abomination is for me personally with an increase of $850/year, IF, I can even keep the same plan which remains unclear at this point. My agent tells me he has been talking to all of his clients and giving them the bad news for the last two weeks. No one is happy about it, and I mean, No one and yet the political class tells us that we are stuck with it as the establishment Republicans actually are spending their energies not to get rid of this job killing, freedom sapping mess but instead are attacking Senators Cruz and Lee who are trying to get rid of it.

They are just as much to blame as the Democrats who saddled us with this pile of excrement in the first place. Ironically, the Unions, who have an unholy marriage with the Democrat Party, are furious that they are not getting waivers to opt out of the thing. Serves them right for promoting it and spending their hard-working members' dues to shove it through the Senate and into law. It is the members who are the ones who will get hurt the worst from this terrible, ill-conceived and horrendous law. Maybe, just maybe, this will be another body blow to the union leadership as their members wake up and realize how poorly served that they have been.

Oh and if that were not enough, we are back to reaching the limit of the governments' borrowing ability once again. Sigh - what an empty shell the United States has become of its once great, proud self. The way things are going, the NFL will stand for the NATIONAL FLAG FOOTBALL LEAGUE before long. They will probably do away with the Super Bowl and replace it with a "Completion" Bowl for every single team so as to make sure that no one feels left out or bypassed.

Sunday, September 22, 2013

GLD compared to Comex Gold Futures

In response to those who dismiss the idea that GLD is a measure of Western investor sentiment towards gold and therefore as such has little if anything to do with the price of gold, I present the following composite price chart as an illustration.



Please note that this chart shows the MONTHLY CLOSING PRICE only and therefore eliminates a lot of the daily "noise". Can any objective, unbiased observer of these two plotted lines state that the two lines are NOT IN PERFECT SYNC? They both rise together- they both fall together. If instead of plotting the two lines on separate scales for comparison's ease, I overlay the two price plots using no scale, the lines become indistinguishable from one another.

Keep in mind that I have no desire to enter into any discussions or arguments either pro or con as to the theory that gold is being withdrawn from GLD in order to meet higher demand in Asia and to take advantage of the higher premiums on gold in that region of very strong offtake of the physical metal. That may or may not be true. As a trader, speculation such as this does not particularly interest me as it is useless when forming an approach to a market in which one wishes to trade. Buying a market based on hunches, guesses, theories, hearsay, etc., is a very quick path towards ruin for any trader unless one has extremely deep pockets and is quite content to absorb potentially large losses.

To make money as a trader, one needs to understand market sentiment. Market sentiment is gauged by price action as well as studying the positioning of traders against with one is competing in this Zero Sum business.

My theory in trading is the KISS rule. Keep It Simple Stupid. I find it ironic to say the least that when gold was moving on to make new all time highs, and when GLD was reporting new record tonnage amounts nearly every day, we did not hear a peep out of anyone suggesting that the build in GLD reported holdings was in anywhere a bearish development. Quite the contrary; nearly everyone that I am aware of pointed to the surge in GLD holdings as evidence of superb investor demand for gold. I distinctly recall reading breathless reports about how GLD was eclipsing individual nations as one of the largest holders of gold. All of this was excitedly detailed as strongly bullish for the metal.

Now as the reported inventory of GLD shrinks we are also told by many of these same pundits that someone this too is bullish for gold because it indicates strong demand for gold, this time in Asia. Seriously folks, it seems that no matter what the holdings of GLD are, whether they are rising or whether they are falling, that it is always a bullish development! "Heads - I win; Tails - You lose".

All that I am saying is that when the price of gold was rising and moving into new all time highs, the reported holdings of GLD were rising right along with it. As the price of gold has fallen, the reported holdings of GLD have been falling right along with it. While there is no doubt in my mind that the gold being held in GLD has been sold to SOMEONE, the facts are that the reported holdings are sinking.

Since we know that Asia loves physical gold and the West seems to love paper gold, it is obvious that a large chunk of this gold has evidently moved from West to East as the inventory of GLD has been drawn down. This simply proves my point that GLD is a measure of WESTERN INVESTMENT DEMAND for gold and that currently, that demand is falling off as the large hedge funds are buying equities for return and not gold.

Is it not obvious from looking at the Commitment of Traders reports that the big Managed Money accounts are not building the kind of massive long positions that they once were back when gold was soaring into new record highs? Is it also not a fact that this same group of hedge funds has been adopting a more negative tone towards gold based on a  study of their overall short positions?

They may or may not be correct in their assessment from a longer term point of view but our modern markets have by nature become much more short-term oriented whether we like it or not.

Until I see something in the inventory of GLD that indicates GROWTH of their holdings and something on  the Commitment of Traders reports that indicates a solid shift towards a more strongly bullish view in regards to gold by the hedge fund crowd, and until I see a surge upward through overhead chart resistance in the HUI and among the various mining stocks that comprise that index, I have to go with my current assessment that Western investment demand for gold is lagging. As I have stated before, all of this could change at the drop of a hat. Those of us who have a bullish long term view towards gold will be vindicated and hopefully rewarded for our convictions but for the immediate time being, we still lack a catalyst for a sustained upward move in gold until we see some evidence on the charts that this has indeed taken place.

Lastly, for those who want to dismiss anything related to the Comex or to GLD as to having any real connection to the price of the physical metal, I would remind you that many may feel the same exact way, but until the MAJORITY of investors/traders come around to that point of view, railing against the chief barometers used by that sizeable majority will not cause a shift in the current ambivalence towards gold held by the Western investment crowd. Old habits die hard especially in the realm of investing. If you have any doubt about that, just consider the amount of money that large Western investment crowd has made by "NOT FIGHTING THE FED" even though there is a growing number of analysts who see the stock market rise as nothing but a massive bubble blown by 5 years of QE.

Fight the good fight in the meantime, continue to extol the wisdom of holding physical gold against the inevitable but do not be under any illusions about "the herd's" capacity to be irrational for longer than nearly anyone could have expected. It is the LOSS OF CONFIDENCE in the ability of the Monetary Authorities to keep this house of cards supported that will bring back Western buying into all things gold. We mortals have no way of knowing when that will occur but we will certainly recognize it when it does.

Saturday, September 21, 2013

A Good Read

Every now and then you come across an article that is well worth the time spend in reading it. The following in the Wall Street Journal is such an article.

Talk about perspective! This is from a man who is on the front lines of the employment situation in this nation.

This goes back to some of my comments related to QE and why I believe it is going to be next to impossible for the Fed to stop or taper that program until we get STRUCTURAL REFORMS. I take the Fed at its word right now that until the employment picture improves, they are not going to taper and quite frankly it will not as long as the Obama administration is in power and Obamacare is the law of the land. The thing has not even been fully implemented yet and it is already leaving a wide swath of devastation across the nation's job market. Don't believe that? Then read the following article.

Bob Funk: Where the Jobs Are—and How to Get One


The man who matches companies with workers talks about the skills gap, the harm from ObamaCare, and the incentive not to work. But he'll still find you a job.

 
By Stephen Moore
 
Here's something you don't often see in Washington: a businessman trying to repeal a law that helps his company. That's Bob Funk's latest mission in life. He's the president and founder of Express Employment Services, the fifth-largest employment agency in America, with annual sales of $2.5 billion and more than 600 franchises across the country. This year he will place nearly half a million workers in jobs.
"ObamaCare has been an absolute boon for my business," he says as we sit in his new office headquarters near downtown Oklahoma City. "I'm making a lot of money thanks to that law. We're up 8% this year. But it's just terrible for the country. I see that firsthand every day."

GLD - Still no Interest from Western Investors

One of the points I have been making about gold is that its recent gains at the Comex have been primarily driven by short covering by large hedge funds and not by the influx of fresh investment demand coming from this same group.

Whether we like it or not, the main driver of our modern markets is this hedge fund community. It is their buying and selling which moves the markets. Once upon a time the big 800 pound gorilla in the commodity markets was the Commercial category. Not any more - while the Commercials are always a force to be reckoned with, as they are generally on the opposite side of the trade from the hedge funds - these Hedge Funds are now the big boys on the block. Ignore them at your own peril.

That being said, those guys are paper pushers. They LOVE paper; they ADORE paper; they DREAM paper. In other words, they are not the least bit interested in obtaining physical supplies of much of anything as most of them are not set up for storage and other associated costs. This is one of the reasons they love the paper gold ETF's. They can flex their financial muscles and buy boatloads of these investment vehicles when it suits them or when it does not suit them, sell boatloads of the same.

What troubles me about gold right now is the lack of interest on their part to own the paper gold ETF, the largest being the SPDR Gold ETF or GLD.

Take a look at the following chart of the reported gold holdings of this enormous ETF. I have posted this chart before on my site here to demonstrate the lack of investment demand coming from the West in regards to gold. Yes, gold demand is very strong in Asia but gold needs this Western investment demand IF IT IS TO TREND HIGHER. It is NOT GETTING THAT. That is a problem if you are a bull.

Even with the recent announcement by the FOMC that the Tapering option is supposedly off the table for a while longer, it seems as if GLD is not attracting any new strong inflows of money. The tonnage is noted on the left hand side of the chart. Notice that it continues to hover near the 900 ton level and has not been able to climb back above the 1000 ton level for some time now. It might be stabilizing here but the jury is still out.

I am not sure when this will change but change it must if we are going to see gold embark on a new leg higher.

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 Weekly Markets and Metals Wrap. We will be discussing this past week's "Yo-Yo" type price action in the metals.

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/9/21_KWN_Weekly_Metals_Wrap.html

Friday, September 20, 2013

Return of the Status Quo

Gold has now surrendered half of the gains that it put on as a result of Wednesday's FOMC announcement that the TAPERING was on hold. It is currently trading at 1337 as I type these comments.

While the US equity markets are a bit weaker, the S&P 500 is still sitting firmly above the 1700 level. Interest rates on the Ten Year are near 2.75% while the grain markets are imploding lower and crude oil continues to drop off its best post-FOMC announcement levels.

In short, we are pretty much back to where we were prior to the FOMC. Why do I say this? Simple - this morning Fed governor Bullard managed to do what many in the Fed have been doing since May of this year, namely, jawboning the markets and setting them up for another possibility of tapering later this year. What has it been, 2 days since we got that FOMC press release and here we already are talking about starting the Tapering once again. Good grief! This is like some sort of sick version of the movie  "GroundHog Day".

It seems as if these people simply cannot restrain themselves from yakking away whenever a microphone is present. I do not know about some of you, but I get the distinct impression from watching these events unfold that the Fed literally has no earthly idea what to do next. They would like to start reducing the amount of bond buying but understand that they cannot, given the current economic conditions. So they talk about it perhaps to comfort themselves or even persuade themselves,  that they really are being responsible stewards of the nation's monetary policies and are aware of the inherent dangers in a near-endless barrage of money printing. The truth is that the Fed is trapped in a net of their own making and I think some of these governors realize it. Maybe some of them are making speeches as a sort of CYA strategy just in case history is not kind to them. They can point to their various speeches and say: " Hey I was out there making a case for ending this QE stuff. Don't blame me!"

As I have written repeatedly this week, these QE programs have managed to take on near immortality simply because the job market in this nation is so pathetic that many consumers simply do not have the confidence or financial wherewithal to taken on new and large loads of debt. Velocity of Money keeps moving lower, not higher and thus the driving force needed to generate strong, upward price pressures in the economy is not there. With wages flat and many working at part time jobs, where is the force going to come from to propel economic activity in this nation strongly higher?

IN a debt based system, more and more, larger and larger, amounts of debt have to be taken on for the economy to grow. It is difficult to do that if consumers are afraid to spend with the same reckless abandon as they did during the boom years. Remember when re-financing was the coolest trick in town - turn your house into a giant ATM machine and use the savings from the lower rates to go and buy that new ATV or Jet-ski? Those days are long gone so if the consumer cannot tap their home equity and wages are going nowhere, where is the cash going to come from?

Maybe the Fed should just skip this nonsense about buying MBS's and Treasuries and just send checks to every tax paying household in the US to the tune of $85 billion each and every month? I don't know about you, but I think this money would get directly injected into the economy a helluva lot faster than it does by sitting in the reserves of the big banks or in the equity markets.I guarantee you that if I were to receive a nice, big, fat check from the Fed each and every month, I would have my ATV upgraded to a woodgrain dash and chrome wheels. Heck I would buy a new Polaris RZR just for fun! A nice COBALT boat would somehow find its way into my establishment also!

Obviously I am being facetious here but I think my point is made - most of this new money being created by the Fed is not moving into the system.

What ails this nation cannot be fixed by Fed action only; it requires STRUCTURAL REFORMS, and we are not going to get that while the current administration remains in office. It really is that simple.

At this point in time, seeing that inflation is not a serious concern of most market participants, it is going to take an issue dealing with CONFIDENCE to take gold sharply higher into a sustained uptrend. Remember gold is an asset that pays no interest; therefore it must appreciate in value if it is to be of any benefit to those who buy it as an investment. That means we must have all of the elements in place that are required to drive the price of gold higher.

First and foremost among those is CONFIDENCE, especially in the currency of a nation. A loss of confidence in a nation's currency results in rising prices as the currency's loss of value is reflected in that area first. This is why I keep coming back to the commodity complex as a whole... we must see a broad-based upward move in the commodity complex before gold will find strong, SUSTAINED, new speculative inflows. Currently we are not getting that.

Perhaps at some point this will change - we will try our best to note that if it does. As far as I am concerned we are essentially in uncharted waters and all of us are trying to use the wisdom and experience we have gained from the past to decipher how this mess is going to end. It is certainly a challenge to say the least.





Thursday, September 19, 2013

Whiplash in Crude

If you ever wanted proof that the Federal Reserve has become the single largest source of market volatility, chaos and confusion, take one look at the following hourly chart of Crude Oil.

Notice that crude was moving higher prior to the announcement at the 1:00 PM Central Time hour. When they news hit about them standing pat, it rocketed higher, pulling gasoline along for the ride. The move was good for a full $2.00/barrel add on to the price.



Why did this happen? Because computer algorithms from the hedge funds started buying everything in sight without asking any questions. If it was not nailed down, they bought it. The so-called reason cited was that the policy not changing was inflationary.

Excuse me - but we have had 5 years of QE now and we still have yet to see the inflationary fruits of these policies. The reasons are numerous but most important is the fact that the jobs market in this nation is comatose. We are learning with the passing of each day the crippling effects of this most misnamed piece of legislation that was shoved down our throats, namely, the AFFORDABLE CARE act. What a pile of hooey!  Everywhere one looks health insurance costs are going up, not down and more and more we learn that employers are cutting hours and health care benefits as a result of this abomination. Hell, even the President's union buddies want no part of this monstrosity after they were among its loudest cheerleaders back in 2010.

The labor market is weak and consumers just do not seem to be in any mood to saddle themselves with loads of debt anymore. Low rates - courtesy of this QE help consumer borrowing ( as well as business borrowing ) but many consumers who are working several part times jobs to make ends meet  are in no hurry to bury themselves under a debt load again. Along that line I recently read somewhere that the NUMBER ONE dream of most Americans is no longer owning their own home but rather has become one of being debt free! That is a stunner and reflects just how pessimistic the nation at large has become as they watch the slow disintegration of their country.

Regardless, the crude oil market completely gave up any gains related to yesterday's fund buying orgy and actually lost ground sinking below the launch point generated by the FOMC release.

Here is the thing with crude as I see it - while some want to look at the crude oil market as a natural recipient of hot money playing the inflation psyche I see it as a huge drag on the national economy. Think about it - we have report after report, as noted above, of folks unable to obtain full time employment. So many are being forced to take two or even three part time jobs in order to pay their bills. What do you think happens to the spending habits of such folks when they pull their automobile or truck into the gasoline station to fill up and look with dismay at the rising price of gasoline which will not stay down for long? I have a buddy of mine up here who filled up his truck the other day with diesel ( it has duel tanks) and had the "satisfaction" of getting away with spending "only" $150.

That is money that has to be spent if he is to get around to work. That is a huge chunk of cash for most folks to have to plop down on the counter in order to keep their wheels turning. What is left over from their dwindling disposable income then must be stretched into paying higher medical insurance premiums which are now rising all across the country in every single state. You tell me that these things are somehow NOT A DRAG on the growth of the US economy! Of course they are.

The way I see this crude oil market is that it is the battleground for the war between the deflationists and the inflationists.

This is also one of the reasons I keep coming back to the overall commodity sector and watching the various commodity indices such as the Goldman Sachs Commodity Index or as some prefer to watch, the Reuters/Jefferies CRB index. If the commodity complex as a whole cannot rally strongly and sustain those gains on the heels of this latest FOMC announcement, then I suspect gold is also going to be greeted with further selling on rallies once again as soon as the rash of short covering is finished.

Keep in mind something I have said here before - the recent gains in gold prior to the FOMC release of yesterday were driven PRIMARILY by large speculator short covering and NOT by the FRESH INFLOW OF NEW HOT MONEY. If gold is to maintain any rallies, and silver also for that matter, this must change. Speculators MUST feel the urgent need to acquire both metals at successively higher prices and be willing to commit wholeheartedly to their conviction if both of these markets are going to be able to sustain these rallies and actually trend higher.

While it is nice to see both metals moving higher, we are in no way out of the woods for either of them until we see some significant changes on the price charts, changes that involve the complete obliteration of overhead resistance zones that still loom quite large.

Let's give them some time before we render a verdict and watch the price action to see what we will get next before becoming too dogmatic. Personally I worry about gold when I see the HUI surrendering so much of yesterday's gains the very next day after the big FOMC-related rally. At the very least the gold mining stocks should have seen some upside follow through. Instead they sold off and moved lower. Until I see that 280 level give way on the chart of the HUI, call me a skeptic on these miners. I have that Missouri attitude - "SHOW ME"!

If at First you don't Succeed, Try, Try again

Okay - we knew this was coming but one day after the big FOMC announcement! Please, give me a break! What I am referring to is the new "call" from Goldman Sachs that Tapering will now start in December of this year. Yes, you read that right.

Remember, it was Goldman who just a short time ago came out with a prediction of a $10 billion "dovish" tapering (their words) in September and thus advised clients based on that to buy all dips in the US equity markets and the conditions for rising stocks would still remain in place in that sort of easy money environment.

Well, lo and behold this morning news greeted me that Goldman was predicting a Fed Tapering beginning with the December 18 meeting of the FOMC. They commented that there would be insufficient data at the October meeting to change the Fed's newly announced NON-TAPER but by December this year the Fed will move. They also are predicting a complete end of the program by September 2014.

This should be interesting to watch unfold to say the least. Goldman, as well as a lot of other large firms, received a major black eye as they completely misread the Fed. I guess watching stocks soar to new all time highs however is some pretty damned good consolation for them all!

By the way, give credit to those guys who did call for a non-action on the part of the Fed over at King World News, especially Egon for going out on a limb like he did.

I can tell you one thing as a trader - I simply get out of markets before major announcements like that. I can suggest possibilities but that is just what they are, possibilities. Trading on a guess is a quick way to the poor house. If you get it right - you are a hero. If you get it wrong, your account becomes a zero. That is not trading; it is gambling and there is a world of difference between the two things.



Wednesday, September 18, 2013

Wash, Rinse, Repeat

That is basically what we got from the Fed today instead of the $10 billion cut in bond buying that the market had priced in. I mentioned yesterday that based on the very benign inflation environment, the Fed might just stand pat due to the recent lousy economic data. They did just that. Personally I think it was two factors which swayed them in this decision - more on that later.

Stocks loved it, bonds loved it and gold loved it. The Dollar hated it. What else is new?

It is perverse in the sense that interest rates on the long end of the curve had been steadily moving higher for about 3 months now based on the increasing expectations of a tapering move by the Fed. We have been paying close attention to the yield on the Ten Year Treasury and have noted that it just missed hitting the 3% level at the beginning of this month.

Here is what I consider perverse about this... consider this... the Fed starts some hawkish talk and begins to prepare the markets for a slowdown in the rate of its bond buying program. The market reacts to this apparent change in policy by bidding up interest rates. This then results in mortgage rates moving higher.

The Fed, obviously alarmed at what they believe will negatively impact the very fragile real estate market then backs away from any tapering plans whatsoever sending interest rates on the Ten Year back down to the 2.75% level where they are currently sitting as I type these comments.

Where does this leave us? Quite frankly, in an enormous mess the way I see it. The Fed does not have the luxury of doing a surprise sneak-attack on the markets without preparing them for a tapering of the bond buying program. For the Fed to announce out of the clear blue sky, without the least bit of warning, that it was going to scale back its bond buying program, would send the stock market into convulsions and rattle the entire interest rate market as well as the currency markets.

They therefore must prep the markets, plowing the ground and giving the markets time to come to terms with any change in monetary policy in order to avoid chaotic market reactions. Here is the catch however - in giving the markets time to prepare, the market response is to sell bonds along the long end of the yield curve thus resulting in rising long term rates. This negatively impacts the real estate market and borrowing in general as the rotten employment picture prevents many people from otherwise qualifying for loans that they might have previously been able to had rates remained at lower levels.

Then the times comes for the Fed to make the actual announcement that they have spent so much effort prepping the markets for only to realize that these same markets have pre-empted any need for the Fed to act. The result? - the Fed does nothing whatsoever!

 In short, I can easily envision a scenario in which the Fed is completely trapped unable to do anything at all well into the foreseeable future. It is going to take STRUCTURAL REFORMS to improve the job market and as long as the current Administration is in power, I do not see that happening any time soon. Thus the status quo continues and goes on and on and on...

In regards to gold, it is scooting higher as a large number of shorts were forced out with today's surprise move by the Fed. It did take out that overhead resistance at $1330 which is a positive and is also now trading above $1350, another resistance level. There is $1360 which I am watching right above where it is currently trading to see how it handles that. Beyond that $1380 is the next target.

The key to gold will be whether or not the speculative world believes that the continuation of the Fed's QE4 policy unabated will generate any long-anticipated inflation. Obviously the bond market does not expect any or bonds would not be moving sharply higher. Thus far inflation has been tame. It is going to take a change in perceptions in that regard to bring in a brand new wave of hot fund money into gold as well as the rest of the commodity complex.

The ironic thing about seeing crude oil and especially gasoline rallying sharply higher today is that rising energy prices, while inflationary in their own right, also have recently tended to be seen more as a brake or drag on economic activity and consumer spending and thus are seen as factors leading to a slowdown in growth rather than a catalyst for higher inflation. If specs begin piling into the energy markets based solely on the lack of tightening from the Fed, then these specs may short-circuit any hopes that the Fed has that its latest NON-MOVE will be stimulatory in nature.

Herding cats will prove easier than herding these destructive hedge funds.

Oh what a tangled web the Fed has created!

Tuesday, September 17, 2013

Commodity Sector Stagnating

I mentioned in some recent posts that gold is having trouble sustaining any rallies due to the fact that as far as the bulk of traders/investors are concerned, inflation is a non-issue right now. You have falling grain prices as the market gears up for large harvests and now you have falling crude oil prices as well. Gasoline is backing off as the driving season/ vacation time is finished. The softs are struggling with coffee prices and sugar prices unable to get much going in the way of upside action and you even the livestock markets looking like they are liable to run out of upside. In short, commodities in general are seeing little in the way of strong buying. This is negating any influence from the sector as far as contributions to higher food or energy prices.

As you can see from the following chart, the commodity sector is heading lower once again. Note that the index here is trading below the 50 day moving average ( BEARISH) and is sitting right on top of the 100 day moving average. If it cannot find its footing there, it has more downside to come. That will not help gold but especially will it not help silver which needs an inflationary environment in which to thrive.



Throw on top of that an abysmal employment situation and a Velocity of Money reading that is moving lower, and the ingredients for wholesale inflation are not anyway in sight.

Gold, being a hedge against inflation, is therefore losing one of its fundamental pillars of support.

If we did not know this already, we were reminded of it today when the inflation number for August showed a mere 0.1% increase from the month of July, shy of the 0.2% that the Labor Department reported for the month of July compared to its previous month of June.

This sets up a rather interesting scenario was the markets focus on the upcoming FOMC statement for clues of "THE TAPERING". If inflation is not a threat based on the government's numbers, then will the Fed feel any particular urgency to go ahead and announce any tapering whatsoever? Given the weak employment readings of late, they may just stand pat and do nothing but repeat the same old mantra about monitoring economic data for clues to the economy's strength, etc.

IT seems as if the number floating around out there is a $10 billion reduction in the amount of bond/MBS buying from the current $85 billion. But that may prove to be too much. It is hard to say so we will have to see what the doves say and what the hawks say and go from there. If they announce what amounts to a "dovish" statement, gold may get a bit of a relief rally but until the rest of the commodity sector sees fresh inflows of speculative money, rallies in gold look like they are going to be sold at this point with equities remaining the go-to investment of choice for the big players.

J P Morgan back in the News again

Our old "friends" over at J P Morgan are back in the news again today and not in a good fashion. It seems that the CFTC is looking deeper into the so-called "Whale" issue which concerned events back in early 2012. Comments out of the CFTC noted that they could use the new Dodd-Frank powers granted to some of the regulatory agencies to charge the firm with "RECKLESS" manipulation. Interesting to say the least....

Morgan is thus far balking at any settlement of the issue which would require them to admit manipulation on their part.

I should also note that the CFTC is focusing on a large build up in Morgan's derivative positions...

I will try to keep you up to date on this development.

Gold and silver thus far are yawning at the news as the "Whale" issue was related to the credit default swaps market.


A Change of Pace

Now, for what is really important news.... this one is especially for my readers from down under!

Australian Wild Pig Drinks 18 Beers, Gets in Fight with Cow

http://www.natureworldnews.com/articles/3981/20130914/australian-wild-pig-drinks-18-beers-gets-fight-cow.htm

Seriously--- after the horrific news from yesterday involving that Naval Yard shooting, I thought that it might be helpful to get a bit of news that is not so saddening. One cannot read the reports from that terrible crime scene without realizing that something is wrong with the culture in this nation. At times it seems as if we are rotting from within. Virtue, honor, decency are becoming the truest of scarce commodities. Once again however we learn about another shooter with mental illness issues - how do these people keep falling through the cracks and are thus enabled to carry out their twisted deeds?

Monday, September 16, 2013

Gold Cannot Shrug off Bearish Sentiment

Rallies continue to be sold in the yellow metal as the bounce higher ran out of steam near a tough resistance level at $1330. Many traders were watching to see how gold would react on any approaches to this level and whether or not it could maintain its gains having secured a foothold there. It did not... that triggered some long liquidation as well as bringing in fresh short sellers.

Bears are trying to break the market down below the $1300 level. Bulls are attempting to hold it above there. We will know very soon which side has the advantage near term. Rallies however continue to be seen, for now, as fresh selling opportunities. It is going to take some more positive performance on the price charts for that to change. The failure to hold above $1330 is not helpful to the bulls in that regard.

There seemed to be some strange goings on in the Treasury market today with the long bond soaring to 131' 12 overnight only to puke out most of its gains as the trading session wore on. Treasuries look as unsure of their next move as the gold market does right now. Higher yields seem to be here to stay but no one knows exactly "how high" those yields will be before stabilizing. The truth is that the US economy is in no shape to handle higher interest rates and most bond traders realize that. They are also trying to come to terms however with any Federal Reserve "tapering" or "lack of tapering" to gauge whether they should be buying bonds or selling bonds. Each piece of economic news is therefore having an overexaggerated impact on the long bond as it confirms or denies traders' perspectives. The result is more volatility and herky-jerky type price action as firm convictions are lacking.

Markets like these are the realm of the one- three minute bar chart geeks and scalpers.

Sunday, September 15, 2013

Summers Drops out of the Fed Chairman Contest - Dollar Weakens

The market is interpreting Larry Summers's withdrawal from consideration as Ben Bernanke's replacement for head of the Federal Reserve as negative for the dollar and thus as a positive for gold this evening. The reason? - Summers's was viewed as a more hawkish replacement for the soon-to-be retiring Bernanke. That leaves the door open further for Yellen, who is viewed as very dovish and thus more inclined to stay the course on the Fed bond buying program.

Gold has responded higher on the news but has run into a solid wall of selling just above key short-term resistance at $1330. The December contract has posted a high thus far of $1336. It will take a further push through this level in either European trading or in the New York session to run the bears out who sold into the news.

I find it rather interesting to note a very large rally in the long bond as the market there is fully one point higher on the same news. In other words, US interest rates on the long end of the curve are dropping with traders seeing a dove replacing Bernanke. Of course the S&P 500 is greeting the Summers news as wildly bullish for US equities with that index clearing 1700 in Asian trade. It looks as if it is Happy Days are Here Again for equity bulls as the punch bowl will be spiked further if the current sentiment now being reflected in this overnight trading is indeed correct.

We will have to closely watch the FOMC meeting for further clues into subsequent action but for now, Wall Street loves it.

I am concerned for gold however - if it cannot clear this overhead chart resistance on news that is obviously impacting the Dollar, the Treasury markets and the equity markets to this extent, then I am not sure exactly what it is going to take to move it into a sustained uptrend. I do want to note however that there is widespread weakness in the grain markets this evening as wide swaths of the Midwest were hit with significant rains over the weekend. That will tend to pressure food prices somewhat if this downward trend continues and thus take some of the heat off the food inflation front. Also undercutting strength in gold this evening is weakness in crude oil/energies.

We wait to see what New York bring us....

Saturday, September 14, 2013

Friday, September 13, 2013

Surprise Late Session Rally in Gold

I just completed my weekend interview with Eric King over at King World News for the Metals Wrap. We were discussing the very late in the session price action in gold and talking about the impact of the news story that he broke with Andrew Maguire about the whistleblowers from Morgan and the gold price manipulation scheme.

I remarked at how unexpected the late-in-the-day rally was to me and was wondering what might have caused the surge in volume late on a Friday to produce it.

It certainly appears that as the story made the rounds, a lot of interest was generated in buying both from fresh longs now looking for a bottom as a result and some nervous bears who were unsure how the market would react to it.

We now await the open of trade in Asia Sunday evening to see how traders over there will react to the story and whether or not gold can at least clear the $1330 level to signal whether or not another short term bottom is in the market.

I am putting up a THREE HOUR CHART, to show you the spike upward during the last three hours of trading. I also noticed that for a Friday afternoon, the volume was unusually high. Normally, we see hardly any volume whatsoever that time of the day on a Friday as most traders are long gone for the weekend.

Should be interesting Sunday night - just not sure what we are going to get....

Same Play; Different Act for Gold

Nothing has changed in the least iota for gold - it continues to drop through one support level after another as traders/investors simply have no incentive/desire to chase this market higher. If anything, they are shorting it.

This is why I have been trying to publicly rebut that nonsense out there that gold is in backwardation and is therefore wildly bullish. Guess what? The market action tells me that it could care less about that sort of claptrap. You will get some who should recant this stuff but instead they will blame it on the nefarious bullion banks instead.

Also, while JP Morgan was the big buyer/stopper during last month's gold delivery process, this month they have been issuers/sellers out of their House account, albeit not to the same extent that they were buying last month.

Look, I agree that the feds have a vested interest in keeping the gold price under wraps as it competes directly with the  US Dollar but we have a proven track record of the Commitment of Traders for over 12 years now detailing that the nasty bullion banks are always selling DURING UP MOVES... if they do anything while price is breaking lower, they are covering shorts or buying. The current wave of selling that has been occurring in the gold market this week is largely due to hedge funds, not the bullion banks.

We will get this week's  report later on today and I can analyze it then but it should be noted that it will not include the price action from Wednesday through today and I can tell you fairly confidently that it was not bullion bank selling that took the market down through $1360 - $1350 and again through $1320. It was hedge funds... what the bullion banks were doing was selling up near $1400 as the remaining vestiges of hedge fund shorts who were exiting were buying. They provide the cap and then let the hedge fund computers take over but they DO NOT CHASE PRICE LOWER. PERIOD!

Arguing against the price action is a fool's errand and is the last refuge for those who are wrong and cannot admit it. As I have said many times, there is nothing to be ashamed at when one is wrong about a market's direction. We all have been there ( I surely have many times) as we are all mere mortals and are not omniscient (there is only one Being that is). The key is to quickly admit that the market does not agree with you and take corrective action if you are a trader so as to avoid suffering serious losses. Doggedly refusing to acknowledge the obvious however is a recipe for disaster especially in the futures markets where the extreme leverage can inflict such carnage in such a short period of time.

What I am taking away from the recent price action is that gold is back to experiencing "Tapering" jitters. Hedge funds apparently are more and more losing their concerns about the degree or extent of any Fed tapering and thus are becoming emboldened to play gold from the short side as there is yet no solid evidence of widespread inflation issues. Just today Goldman came out with a recommendation for investors to use any bouts of weakness in the equity markets to accumulate stocks as they see a "dovish" tapering of only $10 billion per month if the Fed moves in that direction.

While that may be good for stocks in Goldman's view, apparently gold is getting increasingly nervous about it.

Incidentally, one has to marvel at how the Dow people included Goldman and Visa in the Dow "INDUSTRIALS". My suggestion is that they just scrap the entire term and replace it with "those stocks which go up". I am waiting for them to throw out another one of the Dow 30 and replace it with Tesla.

There is a mixed signal coming from the food sector where the grain markets have become a two-sided affair. On the one hand, the corn market finally experienced an epiphany today as it comes to terms with what looks like a record breaking corn crop. Corn prices scored a THREE YEAR LOW today. Corn is such an integral part of the protein side of our diets as it is the main feed ingredient for cattle, hogs and poultry. With falling corn prices hopefully comes cheaper meat/poultry over the longer term although near terms issues will dictate current price levels. That will tend to keep food prices a bit tamer than they would have otherwise been thus pulling away a key part of the inflation picture.

On the other hand, soybeans have been on a tear of late as the recent bout of hot/dry weather over large parts of the Midwest have turned what at one time looked like a record breaking crop into a much lower than originally expected national yield. This will impact poultry producers and hog producers to a certain extent but not nearly as much as corn will impact them in the other direction in my view.

All in all, I do not see the same upward price pressures in the food sector looking out as I did at this time last year. It could be some of the eagerness to press gold lower is coming from this concern. For whatever the reason, the gold market is simply not attracting sufficient buying interest from Western investors to drive it higher at the current time.

About the only positive that I could see in the gold sector today was the fact that the HUI did not implode even though it remains lower as I type these comments.

The yield on the Ten Year remains just shy of the 3% level having backed off from that key point this week. Still, when one considers that at the first of May the yield was 1.6%, that is rather stunning for the degree of increase in less than 5 months. After all, it has almost doubled!

As far as the gold chart goes - it is the same from yesterday except the price is lower. Gold is perched quite precariously right at a chart support level, which if it does not hold, will allow the market to fall through psychological support at the $1300 level. It barely held on today moving to within less than $5 before rebounding somewhat. It is trying to hold here in the afternoon which is constructive but I need to see this market push back above $1330 before I would be a bit more comfortable or optimistic about it.

The thing that gets my attention is the fact that the ADX line is continuing to rise as the price moves lower. This is indicative of a market that is entering a trending phase but as I stated yesterday, I generally like to see the ADX ABOVE the 20 level to confirm that. The indicator does however show the bears currently in control of the market with the market unable to stay above the 50 day moving average as it did yesterday. The prognosis near term is for further weakness unless the bulls can come out swinging Sunday evening and force some sort of abrupt turnaround.


Thursday, September 12, 2013

Gold gets "Whack-A-Moled"

Some of you might remember that cheapie little kids game called "Whack A Mole" in which you get a plastic hammer in order to beat the crap out of the little mole that sticks its head up through the plastic opening in the slide. Well, that is what gold reminded me of today. All it took for the metal to get "whacked" down through support was a jobless claims number. Once that hit the wires it was all downhill for the metal. And yes, it is not helping matters none that the Syria situation has turned into "Peace in our Times" as far as traders are concerned.

I mentioned in yesterday's piece that gold could drop down into the next support level near $1330 - $1325 should its support level give way. That is where it is currently sitting and truthfully, it looks like bears are growling and wanting more. If the market cannot hold above $1320, it can easily drop down to test the psychologically important $1300 level. Bulls would not want to see gold lose its "13" handle as that would be devastating psychologically, especially during a time of the year in which we generally have pretty hefty physical offtake over in Asia ahead of the festival seasons.

We simply have to wait and see what kind of response we get to the various economic data releases that are hitting the wire in order to get a better feel as to whether or not gold is going to hold support or not. The only thing I believe I can clearly say is that the bears have regained the short-term momentum in this market.

The following chart notes the ADX indicator which I like to use to judge trend strength. Notice that the ADX line has been moving lower, indicative of a LACK OF TREND. It is now rising, albeit ever so slightly while the -DMI ( Negative Directional Indicator) is also rising and is trading above the + DMI ( Positive Directional Indicator - blue line).  That is very clear - the market is moving sideways to lower with bearish forces in control. I do not know how to spell it out any clearer.



The shorter term 10 day moving average has completed a downside cross of the 20 day moving average which is a negative signal. I will be the first to admit that moving averages can be useless during phases in which markets are choppy as they can generate signals which can get you whipsawed but the facts are that the hedge funds are still in love with the things and thus they cannot be ignored. The fact that the price has now dropped below all four of the moving averages noted on this chart will get the attention of their algos... My thinking is that hedge funds are in the process of rebuilding those recently lifted short positions - the ones they were covering for most of the last two months and what drove the price over $200 off the low. That is not what any bulls want to hear right now. Perhaps some news will hit the wires that demands no break or let up whatsoever in the Fed Bond Buying adventure but that is an unknown and we have to work with what we have at the current time.

The HUI fell completely apart today ( again).... it has major support near 220 - 217 which it had better hold or else....

Silver proved just how fickle it can be as it was blasted into the nether regions today. The 50 day moving average is about 50 cents or so below today's close ( $21.38).... one would expect it to encounter some buying near that level if nothing else from some short covering. If not, the charts indicate a drop into a former congestion zone from $20.25 - $19.75.

Even as I type these late afternoon comments, price for both of the metals is continuing to sink lower....the damage on the charts is significant once again with the bulls under the gun to hold the market here or face increased losses.



Wednesday, September 11, 2013

Gold looks hesitant

By now it should be obvious that any Syrian premium that was in the gold market has now been effectively rung out. Price gains due to geopolitical events tend to be quite fleeting unless the events escalate which in this case they did not. As far as the market is now concerned, Syria is off the map and most traders realize nothing is going to happen over there to change the status quo in the least bit.

That means other drivers for gold are now coming back into focus. While the US dollar is weaker today, it is not helping gold much with the exception of perhaps allowing it to remain above an important level of chart support. From my perspective, the markets looks "heavy".

I keep coming back to the same thing I have been focusing on for the last couple of weeks now - namely - the recent gains in gold have come mainly from hedge fund short covering as their short positions had become rather large from an historical perspective. Now that they have covered a large number of those shorts ( bought them back) there is simply no additional source of buying on a large enough scale to take the market through important overhead chart resistance levels. Large speculators do not have any technical reasons to chase the price of the metal higher and thus they are NOT ENTERING this market in large numbers. Without thrust to counteract the pull of gravity, markets will tend to follow the path of least resistance and that is lower. It will take some sort of economic data news release to trigger any strong, concerted, and more importantly, SUSTAINED NEW BUYING.

As you can see from the price chart, gold is perched right on top of an important chart support level that extends from $1360 - $1355 or so. Bears are gunning to break it down through this region for they realize, if they do, that price will fall rather rapidly to $1325 - $1320. For the bulls to get anything going beyond this boring, nothing-to-the-upside aspect, they will need to clear $1380 at a bare minimum but more importantly, recapture that "14" handle.



The fact that the mining shares seem rather comatose right now is not aiding the cause of the metal. Also, it does not help gold to see interest rates rising here in the US especially since most investors believe that inflation is a non-existent threat for the time being.

The one thing gold has going for it right now is that it is into a period in which it normally is strong from a seasonal perspective. That brings us to same factors which have always been supportive, namely far-Eastern buying of the metal. The question is the same however as it has been for some time now - can the physical market demand for the metal be enough to support a market which is lacking any serious investment demand from the West? The answer to that question is also the same - Yes, the physical market demand can put a floor of support under the gold price but it is important to understand that this demand, while it can be most impressive, is insufficient to generate a sustained bullish uptrend. That will not happen unless western based investors decide to chase the price higher, something which they are not currently doing.

One more thing - at the risk of beating a dead horse - you will note that for all this erroneous talk of "backwardation", the gold price simply cannot make much headway to the upside.

Tuesday, September 10, 2013

Miners' Hedging back in the News

While reading through some of the newswires stories this AM, I came across an interesting report about Pan American Silver.

You might recall that I had recently written that I believed we were going to see the increased use of hedging among gold and silver miners in order to get themselves some downside price protection and to actually lock in some profits during a period in time of wildly unpredictable price swings in the precious metals.

The story from Down Jones reports comments from CEO Geoff Burns as stating that PAAS had recently instituted hedges in order to reduce risk originating from the wild price swings. Here is his quote:

"Our action may have inadvertently sent the wrong message to the market and to our shareholders about our hedging philosophy and our view of the long-term prospects for silver and gold".

He also stated that he was "considerably more optimistic" about the short term prospects for both metals.

"More importantly, we need to unequivocally reassure our shareholders that the company's fundamental philosophy is still that of not hedging our precious metal production, thereby providing maximum exposure to the price of silver".

The report went on to say that PAAS had entered into forward contracts ( a means of hedging) 20% of its forecasted silver production and 18% of gold production.

They are now delivering the metal and repurchasing in order to close out all of these forward contracts before the end of the current year.

The thing I came away from reading the report is that the company instituted these hedges as part of "a short-term tactical response" to market conditions.

Apparently PAAS feels that the worst of the price decline in the precious metals is over. Remember, this is the thinking of one mining company but I did find it interesting that they were willing to employ some strategic hedging. They are to be commended for that in my opinion as mining companies should not be in the business of losing profits from mining operations. If they can lock in a decent profit on some of their production and mitigate or eliminate that risk, then they are wise to do so.

I would suggest that mining companies do not have the best track record when it comes to the prediction of gold and silver prices. I am of the opinion that any business, whether it be mining, agriculture, etc., that does not take steps to mitigate price risk is taking reckless chances with its shareholders' wealth. It in essence, has become a speculator in its own right. As a speculator, I do not need any mining company I might have chosen to invest in to be speculating on my behalf. I want them to show CONSISTENT and GROWING profits. If hedging is a means to do that, then so be it. I would much rather have a company that misses some upside rather than one that becomes unprofitable and ends up losing money for me. Heck, I can do that easily enough myself as a commodity trader!

Monday, September 9, 2013

No Worries in the Equity Markets

It is interesting to watch the day to day shifts in sentiment among traders/investors as the news headlines change in regards to Syria.

President Putin just made a master stroke of genius in taking our Keystone Cops bumbling leaders to school, i. e., Obama and Secretary of State Kerry, ( you know that fierce warrior who intimated that any punitive stroke of Syria inflicted by the US would be itty, bitty, teeny, tiny.) I am reminded of Alan Jackson's classic C&W hit, "It's all Right to be Little Bitty".

Seems as if no one in the Administration expected Putin to seize upon their hapless confusion and suggest that Assad should put his chemical weapons under international supervision. Whoops! there goes the imperative to punish Assad swiftly!

The markets sure seem to take it that way because it was off to the races in the equity world again today with the DOW pushing past 15,000 and the S&P closing on its session high.

Take a look at the S&P 500 chart - it has pushed right back up to the 50 day moving average once again after plunging below it on Syria fears.


Gold, after looking like it was going to try to push through $1400, swiftly succumbed to selling pressure in spite of the strength in the Euro. It sure does seem as if that "14" handle is proving to be difficult for the metal to hold right now. Same goes for silver in the sense that maintaining itself above the $24 level for any length of time is also elusive. As mentioned in the KWN Metals Wrap over the weekend, both of these markets need a steady influx of brand new, eager, speculative buyers to sustain their upward path and right now they are NOT getting that. They will not unless they can first clear those overhead chart resistance levels mentioned in that interview.

As we were reminded by last week's horrific payrolls number, the US economy is limping along with many Americans suffering and unable to secure viable FULL TIME employment. That does not apparently matter to Wall Street however.

I have been relatively quiet of late in regards to commenting on market action merely because I simply do not seem to have any clear sense of where some of these markets are heading from day to day. Reactions to various economic data releases, many which conflict the previous day's release, are unpredictable at best and bizarre at worst. To watch a market move higher on rotten economic news merely because it would argue for a delay in any Federal Reserve Tapering activity is clear evidence to this long-time trader that our financial market system no longer has much, if any, connection to anything real.

Still one cannot argue with the tape if they hope to be profitable as a trader and that means you either have to hold your nose and take your positions accordingly or do nothing and sit on the sidelines. Doing nothing however as a trader means no income so you have little if any choice but to roll with the tide.

Personally, America's nakedness is being exposed for the entire world to see. We are naked politically with a buffoon and his crew for our leaders, a man who has become a laughingstock outside of his adoring sycophants here in the US media. We are naked financially with a debt the size of which boggles ones mind if they are honest and clear-thinking. We are naked ethically which can be seen in the degeneracy our entertainment industry with the trash that it regularly spews out. We are naked intellectually, because we are to damned ignorant to learn from the lessons of history and lastly we are naked spiritually, because we have become gods unto ourselves.

So much for my soapbox for today. Watching the farce that this nation is becoming is too much for me to take without hoping that there are millions of my fellow citizens who feel the same way.

As far as gold goes, it needs a breakout on the technical price charts to get anything exciting going and to clear it from the range trade it is currently in.

Saturday, September 7, 2013

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. KWN is back online after experiencing some unusual issues with their website....

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/9/7_KWN_Weekly_Metals_Wrap.html

Thursday, September 5, 2013

Ten Year Treasury Closing in on 3% Yield

First of all, apologies for not being able to post this week. The vagaries in the grain markets have been making me old before my time. Then again, the volatility in most nearly anything that resembles a commodity futures market these days is becoming almost unbearable at times. There is simply too much hot money moving into and out of markets on the drop of a dime for traders to get much in the way of rest.

There are two nasty habits that I have developed over the years - one is eating; the other is sleeping. I figure if I could give up both of those, I would have more spare time on my hands than I knew what to do with. It seems I am working on giving up the latter with the markets acting in the manner in which they have of late.

A quick comment in passing - gold has surrendered its "Syria" premium. I warned of this in some posts last week. Buying gold based on geopolitical fears always requires one to be very nimble and very quick as a trader because the events can change so rapidly that gains oftentimes prove quite effervescent.

Mr. Obama's buffoonish handling of this entire matter has resulted in any fears of imminent missile attacks being quickly surrendered. Most traders are now taking a wait and see attitude. With Russia's President Putin forcefully resisting any US action, many are thinking that the crisis is going to simply fade away for the immediate future. Personally I never thought I would live to see the day in which I put more confidence in Russia's President than I did in my own nation's President.

Also, the more I learn about the nature of these so-called "moderate reformers"  as our imperious leaders are dubbing them, the less I like them. Say what you will about Assad, Christian churches and individuals were generally safe under his reign. The "moderate reformers" are now butchering them. And we are supposed to be siding with them??? What kind of idiocy is that?

What this means to gold traders is that we are back to focusing on other drivers for the price of gold. That brings me to interest rates. One of the biggest headwinds that gold is facing is rising interest rates in the US. Those are coming on the heels of what many seem to feel is improving US economic data. That is translating to more of "THE TAPER". Some of you might not be old enough to remember a fun television show years ago called "Fantasy Island".

In the opening to the show each week, the little fellow ( I think his name was Tatoo or something) used to be shown looking up into the sky and shouting out the phrase, "THE PLANE, THE PLANE". Or as it is better pronounced, "DEE PLANE, DEE PLANE"!

That is what this tapering talk reminds me of. Everyone is looking around waiting for the various economic data releases and when they get them, they immediately cry out, "DEE TAPER, DEE TAPER".



Thus when we get friendly economic news, interest rates push higher as Treasuries get sold. That drives the Dollar higher on the crosses and puts pressure on the gold market. Remember, outside of the gold community, many investors view gold as a non-interest bearing asset. Thus in a rising interest rate environment, one in which real rates are not negative, gold tends to experience selling pressure. Again, I am not advocating anything here - I am merely stating the sentiment of many large investors. Gold traders need to understand this.

That being said, take a look at the following chart of the Ten Year Treasury Note. It just missed hitting the 3% mark by less than 20 basis points today! Yields have not been at this level since July 2011, more than two years ago!

This is some of the reason that gold is getting sold down today. Additionally, technical factors such as its inability to hold above $1400 are bringing in long liquidation and some fresh shorting. Shorts began hunting for stops below $1380 in the December and got them. That is bringing in more selling as stale longs are bailing out and fresh shorts are moving in.

Now that $1380 has fallen, the next level of chart support comes in at the 50 day moving average down near the $1360 - $1355 level. Bulls need to either hold it there or to quickly take it back up through $1400 to show their mettle.



Weakness in the mining shares has also been working to undermine gold as the HUI failed to extend past a strong chart resistance level near 280.

Just be prepared for more volatility as the market reacts to each and every bit of economic data/geopolitical events. No one ever said trading was easy; if it was, all of us would be busy counting our coconuts on our personal S. Pacific island.