Thursday, December 30, 2010

DAN NORCINI'S THURSDAY COMMENT ON JIM SINCLAIR'S TRACK RECORD

Posted: Dec 30 2010     By: Dan Norcini      Post Edited: December 30, 2010 at 2:48 pm
Filed under: Trader Dan Norcini

Dear Friends,
Most of the emails I have received the past couple of weeks that are related to Jim’s prediction of $1,650 gold in January of 2011 have been gracious and have expressed heartfelt appreciation for Jim’s steady hand of guidance over the past 7 or so years. The deep admiration for Jim’s selfless giving of his years of experience in the financial realm, has shown through so many of these emails. It truly is an uplifting experience to read them. For those of you who have taken the time to do so, my sincere and heartfelt thanks.

Sadly, there are some who instead of focusing on the nearly flawless track record that Jim has secured over these past years in providing general price levels that would act as signposts along the way of this now decade long bull market in gold, have chosen to carp and criticize because gold is not within a $100 or so of Jim’s price prediction for next month. To those of you who are so small minded and so ungrateful for the many benefits that have been freely given to you by my dear friend, I can only say that perhaps you would be best served by going elsewhere for your regular reading on the state of the gold market. It is evident that some of you are far wiser than the rest of us and are much more in tune with the gold market than Jim can ever possibly hope to be.

I would also suggest that since the world is in such need of your acumen and wisdom, you start up your own web site and provide your commentary to all free of charge, all the while maintaining the cost of servicing that web site out of your own financial resources.
The rest of us mere mortals, whom will benefit from such knowledge that drips from your lips like ripe pomegranates, will then have the luxury of watching you put your money where your mouth is, AHEAD OF THE FACT.

Here is the truth – those of us who are professional traders make our living IN THE MARKET, not OFF OF THE MARKET. We have to possess the courage of our convictions and put our money on the line every single day. Sometimes we get it right; sometimes we don’t. The key to measuring success in this business however is not how we make out  on each individual trade but rather how we do on our collective trades. If we are right more often than wrong, we succeed and thrive. If not, we are soon gone and looking for a different profession. Those of you back seat drivers who are only brave enough to call a market after the fact would do well to remember that before becoming too full of yourselves.

Here is wishing all our readers, even the jerks, a Happy, Safe and Prosperous New Year. Thank you for the many kind words of encouragement and appreciation that we have received over the past year. I do not know what the year that lies ahead holds for all of us, but one thing I am certain of, the policies being advocated by the current Federal Reserve, and those being followed by the ECB and the BOJ for that matter, will not end well for anyone. If printing money into existence was the path to lasting prosperity, nations far wiser and of more duration than ours, would have long ago discovered it. History, unfortunately, is not on the side of such things.

GT sez:  BRAVO!

NEW YEAR CME HOLIDAY SCHEDULE

http://www.cmegroup.com/tools-information/holiday-calendar/files/2011-new-years.pdf

Wednesday, December 29, 2010

DAN NORCINI'S TUESDAY COMMENTS WITH CHART

http://jsmineset.com/wp-content/uploads/2010/12/December2810Gold.pdf

Trader Dan Comments On Soaring Commodity Prices and Plunging Bond Prices

Posted: Dec 28 2010     By: Dan Norcini      Post Edited: December 28, 2010 at 2:03 pm
Filed under: Trader Dan Norcini
Dear Friends,
Thanks to our diligent internet news sleuth, JB Slear, the following story is brought your way.
Tie this story about the fall in US home prices together with what is happening in the commodity sector and the long bond to see where this is headed.

Home prices are falling for one reason – lack of demand coupled with a growing supply due to the wave of foreclosure properties which are adding additional supply to the market.
The market interpreted today’s data release as evidence that the Fed’s $600 billion + QE policy would not be ending anytime soon. That brought another surge of fund related buying into the commodity sector with the result that the CCI (Continuous Commodity Index) has now kissed its former all time high made back in the summer of 2008 long goodbye. It shot above 622 and appears to be accelerating, even at the end of the year when we would normally expect to see profit taking in the sector by longs who have profited immensely in 2010.

I find it astonishing that fresh money is being committed to the sector as the calendar year winds down. This is highly unusual as this time of year is historically known as the time for book squaring. What it is telling us is that fund managers have no intention at this point of abandoning a strategy that has paid handsome dividends to them and will undoubtedly be looking to up their ante at the beginning of the New Year. Look for fresh highs early next year in the sector based on what is occurring in some of the various commodities. Sugar, after putting in a 30+ year high, has shot to yet another fresh high in today’s session. Soybeans registered a 26 month high. Ditto for corn. Copper is now trading at $4.30 a pound! Crude oil continues to hold above $90.

The bond market, after being fiddled with by the monetary authorities in the hopes of hoodwinking the public into believing that inflation pressures are subdued, promptly fell apart plunging a full point as participants are watching with great alarm the surge in the CCI.

This combination, soaring commodity prices which are certain to erode consumer disposable income, and plunging bond prices which are a prelude to higher long term interest rates, are certain to make it even more difficult for would-be home buyers to enter a real estate market already being plagued by a lack of demand. Throw in a good dose of higher gasoline prices at the pump and it becomes all too obvious what we can look forward to in the coming year. I guess we have all been naughty over the past year because it appears that Santa Ben and his band of elves at the Fed have brought us all a gigantic lump of coal.

Wednesday, December 22, 2010

DAN NORCINI'S WEDNESDAY COMMENTS WITH CHARTS

Posted: Dec 22 2010     By: Dan Norcini      Post Edited: December 22, 2010 at 5:47 pm
Filed under: Trader Dan Norcini
Dear Friends,
Observing the price action in the commodity markets today has given me great reason for concern for that which I feared seems to have occurred, namely, the crude oil market has broken out to the upside. I suppose it was just a matter of time based on the orgy of fund buying across the commodity sector but I was secretly hoping that we might avoid such a close mainly to prevent what now seems to be a certain price rise for the cost of energy. Heretofore, the soaring CCI (Continuous Commodity Index) has been moving higher mainly based on food and metal costs. Now we have the trifecta where the three main segments of that index are moving higher in tandem. Actually, given the extent of the price run in the food and metals sector, the energy sector has a lot of ground to make up.

Yesterday crude put in its best close in 26 months. Today it has closed above what has become both technical and psychological chart resistance at the $90 level. Should it end this trading week above $90, holiday trading conditions or no holiday trading conditions, it will put in its best weekly close since October 2008. Moving forward into the New Year, it looks most probable that it is going to make a run at $100.

My fear mentioned above is that in addition to consumers soon to get walloped with sticker shock at the grocery stores within the space of a few months as the price rise works its way through the distribution channels, they were also going to get hit with rising gasoline and energy costs, a double whammy for their pocketbooks at the time that many can ill afford it. There are so many struggling families dealing with lost incomes and underemployment for those fortunate enough to have found work, that any further price pressures on the energy front would act to take some of them over the edge financially. Many are having to cut expenses drastically in an attempt to stay in their homes. How soaring food and energy costs are supposed to benefit the economy escapes me.

The ivory tower types of the monetary realm are completely disconnected from the havoc and harm that they have caused so many with their incredibly short-sighted and foolhardy monetary policies. The Federal Reserve is presiding over the deliberate and planned unleashing of the inflation genie without the least bit of concern as to how that is going to affect the average middle class American. Words cannot express the contempt and disdain I have for this group of elitists. Keep in mind how this entire debacle began and the “medicine” that has been brought forth to supposedly cure it. If this is the cure, they are only succeeding in slowly killing the patient.

There does not seem to be any end in sight to the continued money creation efforts of the Fed so all that we can do is attempt to protect ourselves and our loved ones from their depredations upon our life savings. The bond market, while currently being artificially propped up by these snake oil salesmen, looks heavy, even in spite of the massive buys it is seeing as the Fed makes the purchases that are part of its QE (money printing) program. Once that market breaks down in earnest, it will not take much to see a cascade of selling erupt as bond holders head to the exits. I suspect that the Chinese are more than seriously concerned about their national wealth, a large part of which still remains trapped in these worthless IOU’s called Treasury Debt.
Long term rates could then rise quite rapidly as bondholders experience a selling panic and feverishly attempt to avoid being the last man standing in what might well become a sort of perverse game of musical chairs. Their actions will create a cycle in which selling intensifies. The resulting rise in longer term interest rates will work to continue depress the Real estate sector not to mention hit thousands of homeowners trapped in adjustable rate mortgages which will then reset to a rate that may force even more of them out of their homes. Quite frankly, I see nothing on the horizon preventing this from occurring at this point because the Fed cannot create enough money to buy up all the outstanding Treasury debt that is going to be unloaded. Oh they conceivably could I suppose but at what cost to the Dollar!

Jim has said it more than once over the last few years that these derivative creators and vile peddlers have destroyed us all in their greed. Many of you have not understood what he has been saying or perhaps felt that it was an overreaction. Rest assured, the fallout from this sordid mess is now rapidly descending upon us.
(emphasis by GT)

The Fed created this travesty under the tenure of Mr. Greenspan who never saw a potential problem on the horizon without throwing money at it. For that, he was stupidly hailed as “The Maestro”. His madness, of lowering interest rates to ridiculously low levels, gave rise to the hedge fund industry and its attempts to then find yield in any sector that it could. The wave of speculative frenzy unleashed then crashed into one sector after another only abating when the derivative market blew all to hell which was inevitable. Enter Mr. Bernanke, who then revitalized the beast of speculative frenzy by one upping his predecessor. Much like Beowolf’s golden horn raised the dragon, Bernanke’s QE idiocy fan the fires of leveraged insanity as he practically begged the hedge funds to buy commodities to induce inflation and ward of his ridiculous fear of deflation. The results are now obvious. Nice going guys – you can sit in your ivory tower and quietly study the effects of your brain child while Middle America slowly dies of price asphyxiation. A pox on your entire house.
DAN'S CHARTS:
http://jsmineset.com/wp-content/uploads/2010/12/December2210Crude.pdf
http://jsmineset.com/wp-content/uploads/2010/12/clip_image00219.jpg

Monday, December 20, 2010

Gold/Bonds Ratio Chart From Trader Dan Norcini

Posted: Dec 18 2010     By: Dan Norcini      Post Edited: December 18, 2010 at 7:08 pm
Filed under: Trader Dan Norcini
Dear Friends,
This is the chart I referenced in my radio interview of this week.

There are several things to note in this chart. First is the direction of the ratio – a strong, sharp, sustained thrust higher which has shattered a level not seen in 30+ years. That tells us that Gold has become the definitive safe haven and that bonds are rapidly falling out of favor compared to the security of the metal. For this ratio to reverse, it would take much higher rates of return to draw capital back into bonds and out of the metal. Where that rate might be is anyone’s guess but suffice it to say, it would be considerably higher than today’s levels. This event would first however wreak havoc on the real estate sector as it would shove interest rates to a level that would prevent many would-be buyers from obtaining loans.

It is good to remember that it took double digit interest rates back in 1980 to finally break the back of the inflation monster. Think about where rates are today and you can see that the Fed has no intention whatsoever of even remotely trying to rein in this wild horse. Even if they did, the current state of the “recovery” would prevent them from so doing.

The second thing to note about the ratio is the SPEED at which it has turned and moved higher. It is accelerating and that tells us that the shift from deflationary fears to inflationary fears is entering high gear among the general investing public. In short, inflation psychology is taking hold and taking hold quickly. You may be hearing all sorts of blather from talking heads and pundits on financial LA-LA Land TV about how tame inflation is but the fact is that this ratio is shouting loudly that all such drivel is BS. The charts do not lie and you can count on them giving you a much clearer picture of where investor psychology is moving long before the talking heads catch on.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2010/12/Gold-Bond-ratio-chart-12-17-2010.pdf

Friday, December 17, 2010

Bond Chart From Trader Dan

http://jsmineset.com/wp-content/uploads/2010/12/December1710Bonds.pdf

Continuous Commodity Index Chart From Trader Dan

Posted: Dec 17 2010     By: Dan Norcini      Post Edited: December 17, 2010 at 5:29 pm
Filed under: Trader Dan Norcini
Dear CIGAs,
Based on a few emails that I am receiving that are related to my comments on the CCI chart, I thought it best to respond here so as not to have to field so many individual answers as my time is limited.

Some are misinterpreting my comments about the commodity sector being in a bubble as if I am saying gold is in a bubble. It is not. What I am saying is that I believe, based on what I can see of the normal fundamental supply/demand situation, that hedge fund buying in the commodity sector has pushed several of these individual commodity markets into bubbles.
Let’s start with what my view of a bubble is. It is an event created by an infusion of SPECULATIVE money that is not tied directly to actual changes in the real physical supply/demand equation of a commodity or asset. Bubbles are very difficult to recognize for just about all of us until after the fact but one thing is common to them all – they are all the result of a huge inflow of hot money chasing the “investment du jour”; one that has been hyped as a “no lose investment”.

The result is that buyers pay ever higher and higher prices for a product or asset with little if no concern what its fair value might actually be. In the process a sort of mania develops in which there is no fear of prices ever moving lower. The only direction that the bulk of people think the market is going to move is higher. Caution is lost in such a situation with greed taking over as those on the long side of the market become extremely confident that prices will work in only one direction – higher.

Without citing any of the commodity markets specifically because I do not want to have some blindly selling, let me just say that when commodity type funds or hedge funds buy commodities as an investment, they generally do not pick and choose markets. They buy an ENTIRE BASKET OF COMMODITIES based on the composition of the particular commodity index that they are tracking. What this translates to in an example might be a firm looking to invest $50 million of client money, will spread that $50 million across every commodity futures market that comprise the index they are using as a benchmark. SOME of these commodity markets will indeed justify the buys; others, whose fundamentals are not overly bullish, will nonetheless also move higher as this speculative investment flows into them as well.

Granted, investment demand is part of the supply/demand equation in any commodity and must be factored in when price discovery is occurring, but the nature of these flows is that they are extremely fickle, and can evaporate almost instantaneously should any sort of external development occur which might be viewed as hostile to the environment which is leading to the surge in demand from this particular corner.

Do you recall how sharply many of the commodity markets dropped when news came out that China was hiking interest rates a piddly ¼% in an attempt to get inflation under control? One would have thought that Armageddon had been unleashed on the commodity sector judging from the speed at which money flew out of the complex. Of course, those slides in price have been erased but the fact is these flows are very, very transient at times. In those markets in which demand for the underlying commodity is based mainly on these investment flows, price can collapse in a hurry once the support coming from such flows is gone or evaporates.
This brings us back to what Jim has been warning about for some time now, as has Monty and myself – namely – currency induced cost push inflation is going to occur. The Fact that the CCI is soaring and is within a whisker of taking out its all time high made back in the summer of 2008 when the sector was in a bubble just prior to the unfolding of the credit crisis, is evidence that this currency related event is indeed occurring precisely as Jim said it would. Hedge funds are buying hard assets as protection against a general global trend of currency devaluation. Regardless of whether or not the fundamentals justify these high prices for some commodities, they are all generally rising as these hot money flows rush into the sector.

It is my contention that SOME OF THESE commodities are now in bubble territory as a result.
Does that imply that prices are now going to collapse? Hardly! No one can predict with any degree of certainty WHEN a bubble might pop and prices drop. The market will follow the path of least resistance, which is higher, until some external event triggers a sell off that then feeds on itself as the hot money flees the investment altogether. That can take price to levels unheard of and certainly not supported by any real world supply/demand equation.

All I am saying with today’s comments on the CCI chart is that I would prefer to see the bubble pop and prices drop rather than have to live through an event which some seem to be hastening, if only to see the price of their gold and silver move higher, namely hyperinflation. I am on then record here as saying I do not want to have to live through such a thing. It is more horrific than many can imagine and if given the choice would prefer to see a sound currency, a sound economy and a sound fiscal structure for our nation’s government. Given the fact that there seems to be little chance for two of these and maybe, truth be told, all three, prudence dictates that we prepare for the worst and hope for the best.

While some commodities are in a bubble, gold is not. It is a currency.
Behind the price of the soaring commodity complex is the story of the debauchment of fiat currencies. That is why gold is shining and will continue to shine. The Fed wanted to create inflation – they have gotten their wish.

Hopefully, this clarifies things a bit.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2010/12/December1710CCI.pdf

DAN NORCINI'S FRIDAY COMMENTS WITH GOLD CHART

http://jsmineset.com/wp-content/uploads/2010/12/December1710Gold.pdf

Wednesday, December 15, 2010

DAN NORCINI'S WEDNESDAY COMMENTS WITH CHART

Posted: Dec 15 2010     By: Dan Norcini      Post Edited: December 15, 2010 at 2:40 pm
Filed under: Trader Dan Norcini
Dear CIGAs,
Price action in both gold and silver is indicative of the beginnings of holiday trade as players begin squaring books ahead of the year’s end and move to the sidelines in anticipation of taking some time off. Potential exists for some rather strange moves in price. Try not to read too much into it as both longs and shorts exit the market only to return at the start of the New Year’s first full trading week. Pit locals LOVE this time of year as it gives them a chance at picking the pockets of both longs and shorts as they can use the thin trading conditions to go after both upside and downside stops. A lot of them put their kids through college based on the money they secure during holiday trading conditions. Stops are easy money for them although occasionally one or two fund traders will hang around long enough to mess with their plans.
Technically, gold needs two consecutive closes above $1400 to kick it up towards $1420. Downside support exists near the $1375 level with bears hoping to break it down below there and push it towards $1355 or so. Look for dip buyers to be active should that occur.

Silver needs to secure at least one PIT SESSION CLOSE over $30 to give it a shot at taking out the recent peak near $30.75. As stated in previous posts and in my recent radio interviews, silver is not acting like a massive short squeeze is occurring. We will know it from the price action when that occurs. Right now, it is not. The current state of the silver market is one of resting below a critical resistance level.  There is good buying showing up on dips towards $28.50. Silver shorts would dearly love to take out $28 but so far the quality of the buying that has been occurring is thwarting them from so doing.

The HUI is stuck in the same situation as both metals. The recent top near 600 is strong resistance with sellers digging in their heels up there but buyers appear active on forays towards the 560 level. The end result is a sort of range trade or consolidation period.

The big story, bigger than the action in both the metal’s pits, is what continues to occur in the long bond market. It simply cannot seem to get any traction to the upside whatsoever. A market that acts like this is telling us that sellers are eager to unload bonds for whatever reason. More and more the focus of the bond market is the supply of these things versus the waning demand. When you get a day in which the equity markets fade lower and the bonds cannot hold their gains even with that sort of supportive backdrop, it is quite telling. It is saying that bond owners believe that the risk/reward for holding bonds is moving against them.

There can be several reasons for this psyche. First – fears of inflation which erodes the value of bonds. Second – fears of repayment of the principal. That may not be as much of a problem when it comes to US Treasuries in particular (they can always conjure more into existence to pay off existing ones!), but there are more than a few municipals that are looking increasingly dubious. Throw in a good dose of debt woes from sovereign nations over in Euroland and many bond holders are getting nervous about these IOU’s in general, particularly when they see riots tied to austerity measures that might work to bring some of these spendthrift nations back towards some semblance of fiscal health. Some might be thinking to let’s just get out of them completely and look for somewhere else to park our money given the strong potential for monetary and political leaders to take the path of easier resistance of just issuing more debt rather than face down a crowd of angry rioters. Thirdly – growing suspicions that China is unloading Treasuries and looking to use its massive reserves to secure sources of raw materials and precious metals. “Why be the last man holding the bag” if the big buyer is stealthily selling them. Fourthly – the Bernanke-led Fed announced that they continue with their QE program because the unemployment numbers remained too high and inflation was too tame. Any bond holder hearing that would be nuts to hold those paper promises in his or her’s hand.  Lastly – some are looking at the agreement coming out of the lame duck session of Congress and see another bloated spending bill resulting in a further worsening of the US fiscal condition. Whatever the reasons, and there might be others, ( I Have a suspicions that the big banks did not like the profit potential from the narrow yield curve), bonds are a technical train wreck on the charts that looks to have more carnage inflicted upon it judging from the eagerness of sellers.

See yesterday’s bond chart for support levels. Should 119 give way, there does not appear to be much in the way of preventing a fall towards 115.

That brings us to the Dollar – it is going to be moving higher or lower based on the day to day focus of the Forex markets. On days in which Europe’s woes gain ascendancy, the Dollar will move higher. On days in which the focus turns to the US’s own set of economic or monetary woes, the Euro will move higher and the Dollar will sink. Neither of these two currencies are worth the rag paper that they are printed on so it has really become a lesser of two evils situation. “Would you prefer arsenic or strychnine with that sir?” Until yields rise high enough to compensate holders of debt denominated in either currency for the risk associated with holding them, gold and silver, and copper, platinum and palladium for that matter, will stay strong in price. All of these metals are currently serving as stores of value or stores of wealth and until something changes along those lines, it is difficult to see why those looking for such havens would shun them.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2010/12/December1510Gold.pdf

Tuesday, December 14, 2010

DAN NORCINI'S TUESDAY COMMENTS WITH CHARTS

Posted: Dec 14 2010     By: Dan Norcini      Post Edited: December 14, 2010 at 12:25 pm
Filed under: Trader Dan Norcini
Dear Friends,
We have been alerting you to the breakdown in the US long bond over the last several weeks and have noted that its collapse in price has serious implications for all of us.

Judging solely by the price action in both the Ten year and the long bond, the Fed’s QE program, which was designed to hold down long term interest rates and thus spur lending particularly in an attempt to generate activity in the real estate sector, has proven to be an abject failure. Rates have gone up, not down. Combine that with a surfeit of houses due to the wave of foreclosures and it is difficult to see this distressed sector turning around any time soon.

What appears to have taken place is that the focus on the long end of the curve has shifted firmly towards the inflationary aspects of all this Quantitative Easing. In effect, the market has thumbed its nose at the policy boys of the FOMC and completely short-circuited the entire effort.
The long holdout on the FOMC, Governor Hoenig seems to have gotten it right as he has been sounding the alarm about the potential for strong inflationary pressures arising from this foolishness. The Fed has gotten the stock market reinflated and shoved the price of many commodities into the stratosphere, but that has come at a very real cost to all of us. The bond market is saying loud and clear – “you want inflation – fine – we’ll just get rid of our bonds”.
The simple fact is that the soaring CCI (Continuous Commodity Index) now has fully captured the attention of the bond market and unless the easy money policy is withdrawn (fat chance), they are going to begin the long anticipated, but seemingly never arriving, wave of selling which many of us have feared.

There are several dangers in all of this. The first is obvious – rising interest rates will have the opposite effect on consumer spending that the framers of the QE policy intended. The plan was to artificially force down longer term rates through the purchase of Treasuries which would spur bank lending and consumer and business borrowing. How that is supposed to be accomplished with rates going in the opposite direction, escapes me.

The next is every bit as real but perhaps not as obvious to the average consumer who is too busy with life to closely follow the implications of this like some of us screen watchers and that is the cost of borrowing for the US government.

Long term rates are rising even on the 5 year which means that the US is going to have to borrow more and more on a short term basis in order to fund its ballooning budget deficit and its rising entitlement costs if it wants to keep its borrowing costs low. That may work for a while but the fact is that a nation so deeply indebted as ours has become is now at the mercy of market forces that could drastically force up yields meaning the cost of carrying this mountain of debt grows larger with the passing of each month. In other words, our creditors are going to be demanding more money to carry us. I do not see how that benefits us in the long term in any form, fashion or shape whatsoever.

The speed at which the bond market is breaking down is startling. The problem with markets which begin to act like this is that oftentimes that selling begins to feed on itself and a frenzy to unload commences. It may or may not happen to the bonds but the risk is there. Quite frankly, there is only one line of support I can see on the price charts near the 119 level that is standing between the long bond and a drop below 115. If it gets down into that region, things are going to get dicey.

Lastly, note the ratio chart of gold to bonds that we have been sending up from time to time. Note how that ratio has soared in favor of gold. A rising ratio signifies that the market is anticipating a wave of inflationary pressures.
DAN'S CHARTS:
http://jsmineset.com/wp-content/uploads/2010/12/December1410LongBonds.pdf
http://jsmineset.com/wp-content/uploads/2010/12/Gold-Bond-ratio-12-13-2010.pdf

Monday, December 13, 2010

DAN NORCINI'S MONDAY COMMENTS WITH CHARTS

Posted: Dec 13 2010     By: Dan Norcini      Post Edited: December 13, 2010 at 3:19 pm
Filed under: Trader Dan Norcini
Dear Friends,
Please take the time to carefully examine the following charts and when you do, realize that the commodity sector has now completely erased all of the losses it incurred beginning back in the summer of 2008 when Lehman Brothers collapsed and started the domino effect of a derivative chain meltdown.

The Fed has gotten exactly what it has wished for – deflation is dead and buried but in the process, they have now set the stage not only for an outbreak of inflationary pressures which are going to boggle the mind, but one that can very easily end up in runaway hyperinflation.
Note that the CCI (Continuous Commodity Index) has run to its current level WITHOUT the participation of crude oil which at the time it made its all time high back in 2008 was trading close to $150. It is currently below $90. That is what is terrifying. We are in effect looking at the prices of food and metals in this CCI doing all the heavy lifting in the commodity sector. Heaven help us if energy prices, particularly natural gas which has been extremely cheap, take off.
Note also the separate chart of copper which is now within a whisker of taking out the 2008 high in price.

You will also note that the S&P 500 has effectively retraced all of its losses since Lehman collapsed as well.

What the Fed has accomplished is to push the price of paper assets higher and inflate the commodity sector while the employment picture remains bleak and wages remain stagnant. Oh, and don’t forget, long term interest rates are now rising even as the housing market remains mired in foreclosures and delinquencies.

While the hedge fund world is partying today because China did not hike interest rates again, I suspect that their partying is going to be short-lived. The Bernanke-led Fed has unleashed the inflation monster upon China and if China does not move to try to quell it, they are going to be amazed at how rapidly prices are going to rise in their land. Food inflation in China is a serious political issue and the authorities are going to attempt to nip it, if they can. Short term they can knock prices down but unless the world produces some bumper crops in this next crop year, the trend in food prices is higher. We have a storm brewing globally folks.

Please know that the price of certain commodities is not moving higher because of supply/demand factors. If that were the case, copper would be much lower. Prices are moving higher because speculative hot money flows, created by the Fed and the Western Banking world QE programs, is indiscriminately mangling a host of various commodities. Commodities are now officially back in bubble territory but as long as the easy money flows, they will track higher. It is investment demand, rather hot money flow demand, that is pushing copper higher for example, not demand from the construction end of things. Wall Street in its greed has created a whole cornucopia of ETF’s that are commodity related and that is where much of the demand is coming from.

The nature of these flows is that they are extremely fickle and quite vulnerable to any news or action on the part of monetary authorities to go after the speculators. I am not sure that there is much any of them can do as long as we have free money available for leveraged plays so while the party goes on, enjoy it. Just be careful. Too much of this demand is artificial.
DAN'S CHARTS:
http://jsmineset.com/wp-content/uploads/2010/12/December1310CCI.pdf
http://jsmineset.com/wp-content/uploads/2010/12/December1310Copper.pdf
http://jsmineset.com/wp-content/uploads/2010/12/December1310SP500.pdf

Wednesday, December 8, 2010

DAN NORCINI'S WEDNESDAY COMMENTS WITH CHARTS

Posted: Dec 08 2010     By: Jim Sinclair      Post Edited: December 8, 2010 at 4:24 pm
Filed under: Trader Dan Norcini
Dear friends,
We have some short term technical damage done to the gold chart but the primary long term uptrend remains intact. Traders with a short term perspective will act accordingly while longer term oriented investors will also take note and look to establish positions in the direction of the primary trend.

The HUI experienced a bearish engulfing pattern on its daily chart yesterday and that is leading to follow through selling today in the mining shares. Watch the support levels closely and see how the shares act as they move into this region especially if you are acquiring for the long term. The HUI has remained above the 40 and 50 day moving averages since August of this year on an end of trading session basis. Should it move down into this region again and refuse to breakdown, you will know what to do.

There is a band of congestion support in silver coming in near the 26.75 – 26.45 level. From a technical perspective we would not want to see it violate 25 to the downside.
Good technical action in the grey metal would be for it to hold above the recent breakout level near 27.90 and work sideways for a week or so.
The trend is your friend in the metals.

The bond market has gotten beaten with an ugly stick today. I am sure that is not making the Fed officials very happy especially considering the huge sums of money that they have spent in artificially trying to push rates lower on the long end of the curve.
DAN'S CHARTS:
http://jsmineset.com/wp-content/uploads/2010/12/ComexGoldDec8-2010.pdf
http://jsmineset.com/wp-content/uploads/2010/12/HuiDailyChart1.pdf

Monday, December 6, 2010

DAN NORCINI'S MONDAY COMMENTS WITH GOLD CHART

Posted: Dec 06 2010     By: Dan Norcini      Post Edited: December 6, 2010 at 2:50 pm
Filed under: Trader Dan Norcini
Silver was the star of the precious metals complex today as it shot higher in the face of a stronger Dollar and a mixed performance by the overall commodity sector. Its strength helped to pull gold higher particularly when it cleared $30 for the first time since many moons ago.
I have been receiving emails from some detailing the efforts to squeeze Morgan. If you track the daily open interest figures without looking at the larger picture, it can be oftentimes a bit unclear as to what is going on, mainly because the actions of spreaders can cloud the short term picture. It is revealing, however, when you look at the weekly silver chart and compare that to the COT chart over the same timeframe.

The big commercial-end user- producer class peaked its net short position in early September as did the net long position of the managed money (hedge funds). Since that time silver has rallied nearly $9 excluding the last few trading days (Monday included). Yet the net short position of the big commercial class has been steadily dropping while the net long position of the managed money class has been moving lower. Only in the last two weeks has this process been halted with a reversal in the size of both the net short commercial position and the net long managed money position. Ditto for the other class known as the Swap Dealers.

Apparently there has already been some sizeable short covering occurring in the Comex silver market that only recently has come to an end as the three groups mentioned above have gone back to their normal status quo. One group of buyers has been operating somewhat under the radar screen and that is the class known as the other reportables. These are large traders such as private individuals or locals or sometimes CTAs. They have been steadily buying since $22 and as of yet show no sign that they have had enough. While not the largest force to contend with in the market, they are also not to be ignored. Those who trade in reportable size in any market are generally not your typical, uninformed speculator but are those who tend to know their market fairly well. After all, large private traders are not risking client money – they are risking their own and that makes for no tolerance towards ignorance.

Oddly enough, it is not the small speculators who are in there buying. They have been steadily selling out the last few weeks even though overall as a group they remain as net longs.
What appears to have happened is that some of the large shorts apparently did not decide to roll to March on out shortly after they began exiting in front of the delivery process for the now-expired September contract. They seem to also have been hesitant to carry some of their December silver short positions. They might have opted to get out of the December earlier than normal to avoid some delivery pressures and then sat on the sidelines waiting for price to move higher before plying their craft of establishing new shorts once again. It also helps them avoid having to deliver if they avoid the front month.  If that is the case, it explains the air pockets above the market which thus far have allowed Silver to shoot higher so rapidly.

What I am particularly interested in seeing now is whether they will attempt to rebuild the size of that short position or will look for ways to draw it down further. Based on what I can see of the last few days worth of open interest, they are adding to, not drawing down shorts. How this plays out is going to be extremely entertaining especially now that the metal has pushed to the $30 level. For guys who think watching prices change second by second is exciting this is all rather novel. For normal folks, what this simply means is that we have already seen what silver can do when it is experiencing some significant short covering. If it gets another round of this… well you can fill in the blanks based on what has been occurring. One thing is certain – more than a few call option writers have gotten slammed.

I mention all this because it is having an effect on the gold market. There are some guys playing the silver/gold spread and leaning on gold a bit as they load up on silver. Even at that, gold is still moving higher but it cannot yet clear its former all time high in US Dollar terms and move past that. It has however bettered its all time high in terms of both the British Pound and the Euro and continues moving strongly upward in terms of the world’s major currencies including the Yen where it is at another fresh 27 year high lacking only a relatively small gain before it posts a 29 year high. Once again gold is sending signals that there is a great deal of nervousness towards paper currencies globally.

It needs to clear resistance above $1420 to push on up towards $1440. There are a few bearish divergence signs but that is normal after a period of consolidation after which a market shoots rapidly to a new high. Bearish divergence signs mean nothing if they are not accompanied by a breakdown in price below a support level. This gold has not done. That being said, gold needs to continue to push higher in US Dollar terms to keep the technically-driven momentum funds from casting away their fleeting allegiance to the yellow metal. Initial support lies down near $1384-$1380 followed by better support close to $1,365.

The Dollar is higher today – YAWN!  The Euro is lower – YAWN again. Big deal. It has become a game of what is worth less than the competitor. Both of them stink as does the Yen which more and more investors are wising up to and is the reason behind the strong climb higher in gold.

Bonds are higher today because Bernanke is worried about the economy. What a shock! Who would have ever dreamed that? Sure sounds like a great reason to buy more paper IOU’s especially given the fact that Ben said he could always buy even more of them if QE3 were needed.

Crude oil looked like it was going to make a run past $90 at one point in the session today but it faded from its best levels and is down a bit as I write this. It still looks to me like it has intentions on that level, however. We’ll see.

The HUI is outperforming the broader S&P 500 but it needs to get through 590 and leave that in the past for another leg higher. Trapped shorts are praying for a double top but would need a close way down below 530 to have a realistic shot at that.

Wheat keeps moving higher with weakness in corn and the beans pulling it back a tad. Palladium was down today but is trading above $750 which is amazing considering the fact that it was trading at $424 at the end of June this very year.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2010/12/DanComexDec6-2010.jpg

Friday, December 3, 2010

DAN NORCINI'S FRIDAY COMMENTS WITH GOLD CHART

Posted: Dec 03 2010     By: Dan Norcini      Post Edited: December 3, 2010 at 2:15 pm
Filed under: Trader Dan Norcini
The payrolls number that was released this morning served as the initial catalyst that sent the US Dollar sharply lower and generated a wave of fund-related buying into the commodity complex once again.

It would appear that the market focus of today shifted off of the woes in Europe with its sovereign debt crisis and back onto the abysmal state of the US economy. Same story – no jobs. The market is sending a signal to the clueless Administration and current Congressional makeup (which will be changing next month) that its policies are utterly wrongheaded. They are too wedded to ideology however to take the steps necessary to bring about an improvement. Combine that with what seems an almost hopeless paralysis to deal with the worsening US fiscal condition and the Dollar was taken out to the woodshed where it had the stuffing beaten out of it. Please see the price chart I sent up earlier to detail the breakdown from a technical perspective.

The fact that the US Dollar was knocked lower only after just seeing the Euro getting slammed earlier this week, is underscoring just how awful the health of both fiat currencies has become. Traders were running into the Dollar early this week out of fears concerning the Euro and its long term stability. Today they are running back into the Euro mainly because they are running back out of the Dollar. What a terrible, horrific mess. The monetary authorities have disgraced themselves but that assumes that such people have a functioning conscience. Their problem is that they have the interests of the big banks at heart first and foremost and the long term interests of the nation second if at all. It also does not help matters any that the political leadership refuses to stop spending money that they do not have.

The results are predictable – gold is seeing a huge influx of money from those looking to protect themselves from the monetary authorities of the West. Early this week it made a new all time high in both terms of the Euro and the British Pound and today it came within $15 or so of taking out its lifetime high in US Dollar terms.

I should also note here that crude oil is threatening to breakout to the upside on its daily chart as it set a new yearly high in today’s trading session. If its strength continues and it clears the $90 level, gold is going to take out its all time high in US Dollar terms very easily. I have written about this many times here on the site and remarked about it during radio interviews, but it is a sad fact that if the energy markets break out to the upside, the already hard-pressed middle class is going to get slammed with the double whammy of both rising food prices and rising energy prices. The boys who concoct their doctored CPI  numbers will try their magic on convincing us that inflation is tame and that price pressures are subdued but the charts do not lie and they are telling us that disposable income is going to go more and more to securing the essentials of life. Translation – watch for consumer discretionary spending to nosedive as more of the family budget goes to food and energy and wages remain flat or stagnant.

Back to gold – the fact that it was able to push through round number psychological resistance at $1400 on its third try this week is friendly to the bullish cause as it sets up a test above the $1420 level of the all time high. If that gives way, gold then targets $1440.

Silver is in its own world right now and is very strong on the charts but I want to see a good, solid close above $29.50 to set it up for a push towards $30.

The HUI is within striking distance of its recent high near 588. Technically it looks strong on the charts although bulls will need to push it past 590 to negate any bearish divergence signals that are appearing.

Keep an eye on wheat prices as it has been on an upward tear this week and is working on targeting $7.50. It is moving higher on fears concerning the Australian crop now. Wheat is an essential food and its price action dictates to a large extent the price direction in the rest of the grain complex. It has been dragging corn prices higher. Unless we get a huge bumper crop next year of both wheat and corn, I am afraid that the days of relatively cheap grains are behind us and that the world has entered an era in which the grains, and the soybeans for that matter, have now achieved permanently higher near plateau levels. The implications are higher meat and poultry costs for us all.

What a terror these monetary authorities have unleashed upon us all. Keep in mind this all started when they began to bail out their pals at the damn big banks who created the derivative monster to enrich themselves. History will look back at this era and will spare it no amount of harsh criticism for what began the downfall of the global monetary system.
Bonds are experiencing some pre-weekend short covering as bears ring the cash register for what has been a good week for them. Even at that, they are basically flat and not getting much in the way of upside traction. The technical damage to the charts has been extensive with this week’s breakdown so unless bond bulls can take prices back up beyond 129, the path of least resistance looks lower.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2010/12/ComexGoldDec3-10.jpg

Wednesday, December 1, 2010

Long Bond And Crude Charts From Trader Dan

Posted: Dec 01 2010     By: Dan Norcini      Post Edited: December 1, 2010 at 5:39 pm
Filed under: Trader Dan Norcini
Dear CIGAs,
The US long bond market has been rocked back and forth by opposing forces but since breaking down through an important layer of chart support three weeks ago, they have tried, but have been unable to climb back above that level near 129^15. Today’s breach of additional downside chart support opens up the potential for a move towards the 121 region.

This chart action confirms what Monty and Tony have stated in today’s investment letter where they commented that it would not be long because of the focus on the inflationary implications associated with the Fed’s QE and now the same policy being implemented by the ECB.

“Money printing” is going to result in the inevitable currency induced inflationary pressures which are already being seen in the food sector and soon to be seen in the energy sector.

Bonds are reacting to this unprecedented wave of liquidity creation by ignoring the short term benefits that accrue to Treasuries when the Fed purchases them when engaging it one of its round of QE and are instead looking past that to the inflationary aspects of this policy.

Please review the Gold/Bond ratio chart that was posted last evening where you will observe how gold is already anticipating this wave of inflationary pressures and in particular how it is becoming the “go to” asset of choice for many seeking shelter from the depredations of the Western Central Banks as they move in to practice their craft of debauching their respective currencies.

Jim has already remarked about the character of the price action in the gold market as it pauses near a round number ($1400) to collect itself for the next leg higher. It could very well be that a weekly close in crude oil above 90 will be the catalyst that kicks gold above $1400 and keeps it there. Remember, each step higher in a bull market consists of a push to a new high, followed by a period of consolidation and then a push past that previous high that STAYS ABOVE THAT LEVEL as it consolidates once again.

Food has already moved higher; energy is the only thing that has not really taken off to the upside. Keep in mind that those nations who sell crude oil are going to be carefully monitoring the price action of the currencies in which they are getting paid. They will not continue to indefinitely accept deteriorating paper currencies in exchange for a limited resource but will move to push price higher by curtailing production levels if in their judgment that is the best way to keep from getting the short end of the bargain.

Bernanke is more than likely going to get his wish but at what cost for the rest of us?
DAN'S CHARTS:
http://jsmineset.com/wp-content/uploads/2010/12/December0110LongBond.pdf
http://jsmineset.com/wp-content/uploads/2010/12/December0110Crude.pdf

Tuesday, November 30, 2010

DAN NORCINI'S TUESDAY COMMENTS WITH GOLD CHART

Posted: Nov 30 2010     By: Daniel Duval      Post Edited: November 30, 2010 at 1:42 pm
Filed under: Trader Dan Norcini
Dear CIGAs,
Considering the fact that today is the end of the month and that during such times, many markets that have been in uptrends see some price weakness as traders book profits, gold, and silver for that matter, displayed impressive strength as buyers went to work. One can only suspect that December should start off very well for the fans of both metals based on what we saw today as overhead resistance levels were shattered and both markets appear to have broken out of recent consolidation patterns and look poised to move higher.

If that wasn’t enough, Gold priced in terms of the Japanese Yen made a 27 year high at today. When priced in terms of the British Pound and the Euro, it set new lifetime highs respectively. It also is within a few francs of setting a lifetime high in terms of the Swiss Franc.

Clearly unrest regarding the sovereign debt crises of some of the Euro nations is bringing strong demand from the continent into gold and silver for that matter as silver made a new record high when priced in terms of the Euro.

One can easily make the case that a crisis of confidence in the current monetary system is manifesting itself in no uncertain terms. Seeing that the fiat system relies on the confidence of the investing public to support it, where does this now leave the global investment community? Bonds may be moving higher as a safe haven but they are a fool’s charade, a mirage, that will leave those who chase them forlorn and broken. When all the glamour is swept aside, they are nothing more than mere IOU’s from nations who have spent themselves into a black hole.
Bonds look to me like they are at a crossroads here. The long bond has moved back up to retest the former broken support level near 129^15. That level is serving as resistance now. If they fall back away from this level it will bring in additional selling and push them back down towards 125. If they can muster a close back above this level, they will have once again managed to snatch victory from the jaws of defeat. That is the reason it is difficult to be too aggressive towards these things. There are so many undercurrents that are impacting their price movement at this time.

The Dollar continues trekking merrily higher and it is benefiting from continued woes regarding the various nations that are having problems in the EU. It looks like it has a shot at moving towards 83.50 where it should attract some rather strong selling even with the current sad state of the European monetary union. As stated in my recent radio interview, all of these fiat currencies have their own particular set of problems and that is why gold is divorcing itself from its former nearly tic by tic inverse movement with the Dollar. The yellow metal is trading as a currency in its own stead and has pretty much been ignoring the Dollar of late.
I do not see much in the way of overhead resistance to Silver until it nears 28.90. If it closes above that level, it will run to $30 in short order.

The HUI needs a closing print above 557 to encourage additional buying and to give it a decent shot at challenging the 580 level. Many individual companies within the mining sector are going to show some impressive profits come reporting time.

Crude oil looks like it has established a pretty solid floor near the $80 barrel level. It appears to be attempting to “grind higher” on the weekly price chart.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2010/11/November3010Gold.pdf

Friday, November 19, 2010

GT's GRATITUDE EXPRESSED TO DAN NORCINI FOR HIS EFFORTS HE FREELY CONTRIBUTES TO HUMANITY

Dan,
 
I'm sure you get your share of thankful emails, but I want to make sure you know just how EXCEPTIONAL
you have always been in informing the public of how the markets REALLY work and what people  should know and do to save their ignorant asses.
 
I know how much time it takes to trade each day, let alone post cogent comments on the day's events.
 
You are one exceptionally talented writer who knows how to write in terms that the layman can understand.
 
ALWAYS REMEMBER THAT!
 
It is far too easy to lapse into the jargon of the market and thereby lose your audience.
 
Your use of humor, which is quite evidently from your heart and understanding of human nature and how it applies to the everyday interactions of the people on this fragile planet, keeps it all REAL.
 
Your efforts are appreciated, if by no mortals, at least by the gods who run this insane universe in which we all exist.
 
My wishes to you for a joyous holiday season and hope that all your interactions with those you love and are the closest to you are the most intimate and truthful you can create, as this may be one of the last holiday seasons we can all celebrate that isn't clouded by the coming disaster that the most evil and uncaring of modern day psychopaths have precipitated upon us all.
 
You are a magnificent human being my friend.
 
Goldtrader
 

DAN NORCINI'S FRIDAY COMMENTS WITH GOLD CHART

Posted: Nov 19 2010     By: Dan Norcini      Post Edited: November 19, 2010 at 3:59 pm
Filed under: Trader Dan Norcini
Dear CIGAs,
China this; China that; whatever. Yesterday it was hedgies running pell mell into risk trades once they figured that the ECB’s version of QE was on for Ireland. Today there were running back out of risk trades in many of the same markets. Let’s see – Wednesday these same nitwits were selling everything that moved on fears of Chinese interest rate hikes. They were convinced deflation was on the way. Yesterday they were buying everything in sight fearing inflation was on the way. Today they are selling fearing Chinese action regarding reserves will trigger an economic slowdown.

To give you an example of the madness that these fools have unleashed in the markets consider one commodity – cotton. Wednesday it was limit down. Yesterday it was limit up. Today it is limit down once again. I repeat – anyone who trades in this fashion is a total fool. This is the reason that a large number of hedge funds are going to be gone a year from now. They have no idea what they are trading or why. They simply chase motion. Once a price moves a certain amount, their computers all see the movement and unleash a barrage of buy or sell orders depending on the direction. There is no skill, no thought, no analysis, no nothing. There is only reaction.

That brings us to gold – in spite of all this idiocy caused by hedge fund algorithms, it is holding very well. It thus far has uncovered what appears to be reasonably solid buying support near the $1330 level. As the hedgies unload it, stronger-handed buyers are picking it up. The longer it can hold this level and track sideways, the more time it will give the technical oscillators time to bottom in the oversold zone  and begin a slow turn higher. That will bring in some momentum based buying.

I have said it earlier this week and will say so again – China needs commodities, especially food such as grains and beans. They are struggling with rising food prices. One needs to know that the average Chinese family spends a larger percentage of their income on food than does the average American family. That in particular is why the rulers of China are very sensitive to rising food prices. If history has taught them anything, it is that the working classes must be kept relatively placated. Rising food prices are not conducive to a happy peasantry!

In the past, they have maintained massive reserves that they will draw from to add additional supply whenever prices seem to be getting out of control. That tends to damp down the rising price for a period. However, people need to eat whether or not bank reserve requirements are higher and interest rates are higher. Since China has been drawing down their reserves at a rapid rate, the only way that they are going to be able to keep prices from working even higher is to import more. That is a simple fact.

I believe that one of the things that they are doing is attempting to trip the hedge fund algorithms into a sell mode in the commodity sector so that they can secure what they need for feedstuff and metals for that matter, at a reduced price. After all, if we all here understand how the mindless hedge fund algorithms function, is it not reasonable to suspect that so do the Chinese, whom after all, are excellent traders and who never chase prices higher. I repeat – the Chinese NEVER buy when the hedge funds are buying. They buy when the hedge funds are selling. Whom do you think the hedge fund algorithms often end up selling to?

My guess is that during periods of sharp market sell offs across the various commodity markets, a change of ownership is occurring with grains, beans, silver and gold, moving into strong hands who are buying for the longer term and will continue to buy on any bouts of price weakness. The long term trend in the grains and the metals are all pointed upward, and that is why periods when prices are falling are going to continue to attract quality buying. That is where the floor of support under both gold and silver is going to come from.

As mentioned in yesterday’s post, silver has a stronger looking price chart than does gold as it has now managed to run more than $2.00 higher off an important technical support area near the $25 level on the price charts. It still needs to clear $27.80 on the upside to have a shot at another run towards $30. If it dips lower again and moves back down below $26, it will be important that it holds above $25 to cement that level as a strong floor of downside support. That will give buyers, especially from Asia, confidence to step into the market in large size.
For gold, the level on the downside to watch is $1,330. It need to hold there to forge a floor from which it can mount another climb back towards $1,400. A trip above $1,365 will spook out a few weaker shorts.

Bonds are back up today after going back down yesterday.

It seems nearly all of our markets are becoming yo-yos. In my mind this is perhaps the worst legacy of the easy money policies of the Fed and their QE foray. They have provided the huge sums of liquidity that are sloshing around in our markets. Under normal circumstances, we would not see this “free money” being used to speculate in such size. The markets would be tamer, more reliable and more closely matched to real world fundamentals. Instead we have markets which experience severe distortions in price and are wrecking havoc on legitimate hedgers and other commercial interests who have historically employed the futures markets to minimize risk exposure. Now, thanks to the machinations of these mindless wits tossing money in and out without any regard to much if anything, the legitimate hedgers are encountering hedges that are blowing up in their faces and causing them to experience the exact thing that they have been trying to avoid. The exchanges don’t seem to care because they are making lots of money thanks to the fees that they charge for every trade. The problem is that hedging interests are beginning to look more and more for some different venues to offset risk. What will happen down the road is that we will end up with less true commercial hedging leaving more and more of the funds to be trading against each other. That will not be a good thing for the long term welfare of the futures industry. But then again, who cares about the long term these days….
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2010/11/November1910Gold.pdf

Thursday, November 18, 2010

DAN NORCINI'S THURSDAY COMMENTS WITH GOLD CHART Hourly Action In Gold From Trader Dan

Posted: Nov 18 2010     By: Dan Norcini      Post Edited: November 18, 2010 at 2:14 pm
Filed under: Trader Dan Norcini
Dear CIGAs,
What a difference an evening makes – once word began circulating that Ireland was going to be bailed out by the ECB suddenly the hedge funds fell back in love with risk after seeking a divorce from her just the other day. The result – where some markets were limit down yesterday (cotton), today there were limit up. Such is the fickle nature of global capital flows or more appropriately, hot money flows. Do some of you out there find it as amusing as I do watching these hedge funds panicking over Chinese talk about rate hikes to tame inflation only to then run right back into every single market that they threw away the previous few days once they see more QE this time coming from the ECB.

Make no mistake about it, the ECB is engaging in its own version of QE, just as Jim has repeatedly said they would. And if anyone is under any illusions that this was about Ireland, please let me dispel that notion here and now. It is about bailing out the BANKS who are on the hook for the money loaned to Ireland. It is always about the big banks ( I think that there is a special place in hell reserved for that crowd of international thieves). Now that Ireland has apparently received the same treatment as Greece, I suppose Portugal and Spain are next in line.

I wonder what Germany must be thinking about all this.

Regardless, the European Monetary Union is a joke – everyone knows it – there is no one size fits all policy that can ever make this forced union which resembles a patchwork quilt function properly. That did not stop the hedgies from bidding up the Euro once again with the result that down went the Dollar and up went the entirety of the commodity world. Fundamentals be damned; it is off to the races again as inflation is now back in vogue whereas yesterday it was deflation that the hedge fund world was enamored with.

I still have my eyes on the bond market as it could not take out this week’s high and is sharply lower today as I type these comments. That market more than any other is what I am watching to tell me what the investor sentiment is towards inflation or deflation. Based on what I am seeing of the price action, inflation is winning out unless the bonds can pull off a major reversal and climb back above 129 by tomorrow afternoon. That looks remote right now. Failure to do so will have cemented a major top on the weekly charts with the bond market failing to climb much above 135 back in early October thus creating a double top that was confirmed with last week’s breach of the 129 level. The implications for gold are obvious – it is going to move considerably higher once the market becomes totally convinced that the gazillions of dollar and now Euros floating around the planet are going to result in a strong surge in inflation. China is already struggling with inflationary pressures, thanks in part to their refusal to let their currency float higher in combination with the Fed’s QE which is pushing investment capital into China and causing enormous problems for their managers.

The bounce higher in gold is friendly as it is working to confirm technical chart support centered near $1,330. Bulls are not out of the woods yet as they must get the price back at least as high as $1,365 to give themselves some breathing room and unnerve some of the new shorts in the market. As long as the ten day moving average is headed lower, some technicians will look to sell rallies so the first order of business to revive the gold bull will be to get this moving average headed up, or at least no longer moving down. Maybe some more consolidation is the order of the day. I would much prefer to see that sideways trade that holds above support and cements a new and higher price level.

Silver looks better on the charts than does gold as it is back above the 10 day moving average which never turned lower although price did sink down below this level. The 20 day MA however has been thus far serving as downside support. Bulls will need to push it back through and close it above $27.80 or so to snatch back the initiative from the shorts and force some of them to cover.

The Dollar had pushed through all of its major moving averages (10 – 50 day) on its chart and looked as if it was making an upside run towards 80 but it has retreated on news about Ireland. We will have to keep a close watch on its chart to see if we can spot any clues as to what is coming next. As long as market participants are convinced that the ECB will be successful at containing any spread of financial contagion, the Dollar will encounter selling pressure. Any shift of focus back onto China and rate hike talk will spur Dollar buying and commodity selling. Take your pick as to what the funds are going to be looking at on any given day. You might as well attempt to count the grains of sand on a beach as to decipher what this crowd is going to be gazing at in tomorrow’s trade. That is why it is still best to use the longer term charts such as the weekly to get the main trend of these markets and try not to let the day to day gyrations captivate your attention too much. Too short sighted of a focus will end up only giving you a case of severe whiplash. Suffice it to say that any crowd of traders who throw away most of their positions one day only to put them all back on the next are not making informed calm decisions but are trading emotional swings. Using the word, “Schizophrenic” to describe this crowd is an insult to those who truly have to contend with that malady. Learn the fundamentals of the markets you trade and let these bozos set up opportunity for you from which you can profit. Very few of them are going to survive the mess that they have made of our markets.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2010/11/November1810Gold.pdf

Tuesday, November 16, 2010

TUESDAY COMMENTS BY DAN NORCINI ON THE SUBJECT OF GUV'MINT DEFAULT ON ITS DEBT

If the US were to actually default on its debt, it would potentially risk a war with China whose national wealth would be wiped out overnight.

Gold will be brought into the monetary system at some point in the future and will then stay at a permanent higher level. The US does not need to outlaw private ownership of gold. That is idiotic thinking. What it needs to do is to only allow the price of gold to move to much, much higher levels. The reason that Roosevelt passed an executive order forbidding private ownership of gold in the US back during the Great Depression was because at that time, the US was on a direct gold standard domestically and needed the gold to ramp up the money supply. The first thing that then happened was they devalued the dollar or a better way of saying it, they let the price of gold move higher.

The US claims to have 8000+ tons of gold. We have no idea if that is true because we cannot audit our own gold. But assume that they did – they still have the damn stuff valued at an asinine price on their books. They need to simply allow the price to rise to an equilibrium value to balance the amount of liabilities. That would bring the total “Dollar value” of the gold that is held to a significantly higher level.

The World Bank President let the cat out of the bag last week when he said that gold was acting as a sort of defacto reserve currency. That tells us what the international monetary lords are already thinking.

When the Dollar loses its reserve currency status, the new reserve currency will be a unit made up of a basket of major currencies – with the yen, the euro, the yuan, the real and perhaps the ruble or even the rupie part of that basket. I am also confident that gold will be in the mix.
I do not know why we have so many people in the gold community who are constantly looking for a reason for gold to collapse in price. I have lived through and traded many, many bull markets in an assorted variety of commodities and I HAVE NEVER SEEN a market that has so many people who follow it and write about it who are ready to trash that market so quickly. It is almost perverse.

One more time – there is not a shortage of gold for the government to use in bringing a return of the metal to the monetary system. All that is needed is to let it rise to a natural price. That would be so staggeringly high that most will not believe it can happen.

Trader Dan

Monday, November 15, 2010

DAN NORCINI'S MONDAY COMMENTS WITH CHARTS

Posted: Nov 15 2010     By: Dan Norcini      Post Edited: November 15, 2010 at 7:16 pm
Filed under: Trader Dan Norcini
Dear Friends,
After the close of pit session trading in New York, several of the commodity markets began to slip lower in their electronic trading session. The culprit was the following chart action as evidenced by the daily price action of the US long bond.

It smashed through the floor of support that had been established last week as if it was non-existent. The reason – bond traders began having second thoughts about the extent of the Federal Reserve’s Quantitative Easing purchases and the duration of that program on account of the strong wave of criticism that has been unleashed against the Fed for pursuing what more and more people are becoming convinced is wrongheaded and ultimately fraught with serious long term implications towards the health of the US Dollar. It seems as if a growing majority are more concerned with the inflation that this sort of money creation is going to create than with any potential effect it might have on the US employment situation.

That had traders and hedge funds pulling money out of various risk trades and left individual commodity markets exposed to another round of algorithm related selling as the US dollar began gathering late session strength against its fellows.

Even those markets with extremely strong fundamentals such as corn and soybeans saw some late-in-the-session selling which took them off their best levels of the day. Corn, which had been limit down on Friday during the first avalanche of selling tied to talk of Chinese rate hikes, had nicely recovered and totally erased the entirety of those losses by moving more than 30 cents to the upside as the limits had been expanded by CME Group to 45 cents. When the bonds began to break down, corn surrendered some of those strong gains as even in that pit there was evidence of computer-based selling pressure.

Silver was knocked lower into what is a strong support zone on the charts that extends from 25.50 down towards 25. The 25 level is very substantial so if the big Asian buyers do not show up near that level as we expect them to, it has the possibility of moving down to near 24 where formidable buying will emerge.

Please note on the following two charts of the long bond (daily and weekly) the various markings and annotations.

The weekly chart is particularly important as it gives us the longer term trend. You will note that the bonds have not been able to accomplish a single weekly close above the 75% retracement level from the late 2008 high and the mid 2009 low. The market spiked through that level but failed to hold the close over it. It has then moved back down after failing there where it initially found some support at the 61.8% retracement level. That too failed when it broke down last week. If it was going to hold, we would expect to see it then encounter buying near the critical 50% retracement level that comes in near 126^25.

That level failed as well today after holding there earlier in the session. If the bond market does not climb back above this level by the end of trading this Friday, it is likely that they will fall down towards 123.

I find this quite remarkable chart action because of its implications. The Fed is incurring great displeasure from more than a few quarters over its latest announcement for QE2. That process is deliberately designed to affect longer term interest rates by keeping them artificially lower. What is now happening is the action in the bond market is actually witnessing those same long term interest rates moving HIGHER. I am reading this price action as a vote of NO CONFIDENCE by the market in this next round of QE2. It is as if the collective market has said to the Fed:

“You are not going to reduce unemployment and get the US economy moving forward with this policy. The only thing you are going to be doing is to unleash a wave of inflation”.
If that is indeed the case, we have reached an important crossroads for what is the Fed now supposed to do? If they do nothing, the stock market could very well fall out of bed which would work to kill consumer confidence and put consumers into a funk and a potential buyer’s strike. That is the last thing they want because the main reason behind the program in the first place is to restore consumer confidence by having the price of paper assets move higher in a low interest rate environment which will (so the thinking goes) induce consumers to spend. That would then ignite additional borrowing which leads to some hiring and hopefully get the ball rolling on improving the employment front. If the stock market tanks – forgeddabout it!
If they move forward with the plan, bond traders are liable to use any rallies that might result from Fed purchases to unload bonds which will work to short-circuit the intended impact of each round of QE purchases. They are liable to do just that because of growing doubts about the effectiveness of this approach to cure what ails the US economy. If after the QE purchase, rates which initially moved lower then sharply reverse course and move higher, then what? If that occurs, does the Fed then double down on its buys unleashing more potential for inflationary pressures or do they back off. I honestly have no idea but all I do know at this point in time is that the market action in the long bond is very troubling and signals that we are entering a period of incredible volatility and great uncertainty in the markets.

Gold is not going to move much lower or stay down for long in such an environment.
DAN'S CHARTS:
http://jsmineset.com/wp-content/uploads/2010/11/November1510Bonds1.pdf
AND
http://jsmineset.com/wp-content/uploads/2010/11/November1510Bonds2.pdf

PLEASE GO TO JSMINESET.COM EVERY DAY TO FOLLOW TRADER DAN NORCINI'S CHARTS AND COMMENTS AS WELL AS JIM SINCLAIR'S WISE COUNSEL

I WILL STILL BE POSTING ON:
 GOLDTRADERCOMMENTSAUGUST2010 BLOG
AND
TALKBACKTOGOLDTRADER BLOG

JUST CLICK ON THE LINKS AT THE RIGHT OF THIS PAGE
TO GO TO THOSE BLOGS

Sunday, November 14, 2010

DAN NORCINI'S FRIDAY COMMENTS WITH GOLD CHART

Posted: Nov 12 2010     By: Dan Norcini      Post Edited: November 12, 2010 at 2:47 pm
Filed under: Trader Dan Norcini
Dear CIGAs,
Overnight news that China was hiking rates in an effort to remove some of the inflationary pressures that have been building in its economy served as a catalyst for the hedge funds to unload everything that remotely resembled a commodity. There was not a single commodity that was higher today no matter what its current fundamentals may have been. Even the soybean and corn markets, both which have a strong set of bullish fundamentals were sold off as hedgies unloaded some of their longs once their algorithms tripped into the sell mode.
Ditto for gold – it was not spared even though the Dollar was repulsed from its overnight gains. It initially bounced off a support level at this week’s low but then another wave of selling appeared after mid-morning which obliterated that level and dropped it down towards the next support level shown on the price chart near the $1,368 mark. That too did not hold as the longs surrendered their advantage to the shorts by failing to stand their ground. That is the nature of today’s trading crowd however and it is due to the fact that computers are making trading decisions, not human beings. I strongly suspect that quality buying is emerging on this foray lower using the hedge fund liquidation to accumulate the metal however.

Remember the reason gold is moving higher  – it is trading as a currency. The failure of the G20 to produce any meaningful consensus in the way of the foreign exchange market leaves unresolved the tensions involving the current monetary system. The status quo remains the same in other words. The US Fed policy of QE is causing inflationary pressures throughout the rest of the global economy, particularly in the emerging market nations as capital flows to those quarters in search of higher returns. As long as the Fed employs its QE, that will not change. The Chinese don’t like what is happening to the cost of commodities and are attempting to slow down their price rise but investors are going to continue to search for areas into which they may protect their wealth from what the Central Banking class is doing do their currencies. Where else are people supposed to put their money? Even the bond market puked today – it is particularly weird seeing this because all the red on my quote screen today especially with bonds, gold, equities and the Dollar all lower, means that for today at least, THERE IS NO SAFE HAVEN TRADE. That is bizarre to say the least. Then again, with the Euro holding slight gains, maybe investors are buying Irish debt as a safe haven! 

This is the reason I am not putting  much stock in what is occurring today even though damage is being done on the technical price charts for many commodities. It is just money flows being generated by machines without any particular logic behind it. If there was a logic, the bond market would be higher; it is not. Money is coming out of commodities but it is not going into anything. It is just sitting there in trading accounts and investment pools. That tells me no one knows what the hell to do. Look for cooler heads to prevail next week as the sell off in many commodities is overdone and will be corrected as value buyers move back in.

Rest assured, if the stock market gives any indication that it is rolling over, the Fed will not hesitate to ramp up the QE. This could shape up to become a nasty battle between China raising rates and the Fed working to lower longer terms rates with additional QE. What a nightmare that would be! If this cat and mouse game keeps up, it might very well end in a currency war.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2010/11/November1210Gold.pdf