"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


Friday, November 8, 2013

Gold Falls Under $1300

The combination of rising interest rates here in the US on the heels of a stronger-than-expected headline number for the jobs report and a higher Dollar left gold without much support in today's session.

Technical and psychological damage was done, first by losing the "13" handle and secondly by failing to hold near $1296.

The 1280 level did hold the metal today but I suspect it was more a case of shorts ringing the cash register after having a good week than it was a concerted buying binge. After all, if the US Dollar is prone to further gains in the week ahead, why would there be any rush to jump into gold in a large way? Why not wait for some further weakness to see if that develops and pick it up at a lower level? That would seem to be more prudent would it not?

What gold does early next week will be important. If it drops lower and fails to hold again at or near the $1280 level, odds favor a further move down to test the swing low near $1250. Bulls need to rapidly regain the "13" handle to re-establish the range trade that had been ongoing between $1300-$1305 on the bottom and $1320 on the top. Only if they can best the $1320 level do they have a shot at taking price backs towards $1338-1342.

Oh and by the way, the CFTC has gotten caught up on the Commitment of Traders data and we are now current with today's release covering the price action through Tuesday of this week.

Can we use this report to PLEASE, PLEASE but an end to this nonsense of "FLASH CRASH" chatter that is the latest fad among too many in the gold community seeking to affix the blame for a poor showing in gold to the nefarious bullion bank crowd. The data (again only thru Tuesday of this week ) shows that the brunt of the selling in gold has been originating from the Managed Money or Hedge Fund crowd.

Based on the Futures Only data, hedge funds sold a total of 10,319 futures contract in the period from Wednesday, Oct 30 - Tuesday, Nov 5. Using the Futures and Options data combined, that number grows to 13,018. Over that same period gold declined in price $37 from $1345 to $1308. This does not even include the further declines seen Wednesday thru this Friday where gold reached a low of $1280 before bouncing slightly. Clearly, the selling hitting the gold market is coming from hedge funds so let's put this latest sensational but utterly wrong concept behind us and move on to get to the truth. Note - the little bit of selling that we did see from the Commercial/Producer side of the equation came from long liquidation and not fresh short selling.

Do you not find it exasperating to see some continue to promote this ridiculous theory all the while  the largest gold ETF, GLD, continues to lose gold as Western based investors sell their holdings of the metal and buy stocks instead? What is so hard to understand about this? Investors and fund managers are looking to maximum returns. If they are long only funds, they will buy things that go up, namely equities. If they can go long or short, they will sell those things moving down, or at least failing to go up in the hopes of making some better profits on the way down. It really is as simple as that.

The question that none of those who keep promoting this rubbish can answer is what nebulous force is compelling investors to sell out their gold holdings in the ETF and gobble up equities instead? Is this same compulsion moving their fingers to hit the sell button when it comes to their gold shares as well? Is it Sauron who has returned in the form of the Necromancer and whom has cast a spell upon them all? Maybe it Darth Sidious who is using the dark side of the force filling them with an irresistible urge to sell?

Seriously, this is the sort of thing that gives many otherwise fine people in the gold community a bad name and discredits them when they really do have some good data to present that is worthy of note and thoughtful consideration. But when nearly every single move lower in gold is blamed on the bullion banks and the powers that be, it really becomes somewhat tragic.

US Dollar Strength Derailing Gold

One look at the following weekly chart pretty much says all that one needs to know about what is happening to gold and why. This week and last week, the US Dollar has been higher. Guess what happened to gold over those same two weeks? Yep - it went lower.

The two weeks previous to those the US Dollar was weaker. Guess what gold did back then? Yes - it went higher.

It is all coming back to the US Dollar once again. Simply put, rising interest rates in the US tend to favor additional strength in the US Dollar as traders fear that apparent stronger economic readings will bring the Fed back in on the TAPER SIDE of the QE equation.

When you toss in the fact that Euroland just got hit with a surprise rate reduction yesterday, is it any wonder why traders are favoring the US Dollar right now? It is also helping the greenback immensely that foreign investment appetite for US equities which continue their one-way trek higher is boosting demand for the US currency as well.

All of this adds up to some very difficult headwinds for gold to overcome.

You can see on the chart that the US Dollar is in a slight, but observable upwardly moving price channel. Moves down into support at the rising bottom trendline of the channel, are keeping the greenback above the rectangular support zone noted.

Also, note that the indicator is at levels commensurate with rallies.

By the way, for the ag guys out there such as myself, today's USDA report was considered friendly towards corn and bullish for beans while bearish for wheat. We might have seen an interim bottom in the corn market although we are still talking about a record US corn crop. USDA reduced the harvested acreage number but kicked up the per acre yield. However, the emphasis on this report seems to be on the demand side of the ledger with the agency expecting that to increase due to the low cost in comparison to previous years. Recent  export sales have moved up significantly over the last couple of weeks leading some to expect additional demand to surface.

More on this later....

Bulls Buy the Dip in Stocks - Get Rewarded Once Again

Pavlov's Dogs could not have been conditioned any better than those who have used every single bout of weakness in US equities to reload the boat and secure more stocks.

The stronger-than-expected jobs number ( combined with upward revisions to previous months ) initially jolted the market as TAPERING FEARS were running rampant as soon as the numbers hit. Down went stocks as traders began crying that the punch bowl was going to be taken away. Not to fear however; dip buyers began talking up the numbers as a good thing and thus positive for stocks ( Heads - I win; Tails - you lose). The technical support zone held and back up they went.

Note that the volume is very large on the move higher which no doubt is a great deal of short covering as once again attempting to short this market has proven to be a fool's errand. At some point, and I honestly do not have the faintest idea when, the bulls will go to the well once too often and we will finally see this bubble pop, but for now, it continues to shrug off any warnings of internal deterioration.

Each time this market has moved lower, bulls have moved in, bought the dip and then been rewarded by a move to yet another all time high. However, this time around we do have the POTENTIAL for a double top up above 1770. Shellshocked bears are going to be watching very closely for any signs of this market stalling  out. They have gone back into hibernation today but will awaken in a surly mood if the technical chart tells them to pounce.