Filed under: Trader Dan Norcini
Dear CIGAs,
Another day – another round of brutal Dollar selling. If it is unclear in anyone’s mind that the Fed is in the process of killing the Dollar in order to keep the “animal spirits” of investors from falling into a funk, let the price action of the Dollar convince you to put aside any such reservations. It has now crashed through another support level. First it was critical support near 80. That gave way easily. Then it appeared it might hold 79 for at least a little while after it popped yesterday on the approach towards that level. Today, that gave way like a rotten wooden plank taking it down near 78 before it got a bit of relief. Ominously, there does not appear to be much if anything standing in the way for a fall to 75, where if it takes that out as ignominiously as it has previous “floors”, it is heading to 72 and we are heading to a currency crisis.
As said the other day, ‘overbought’ and ‘oversold’ are relative terms and are meaningless when there is a fundamental driver behind a market’s rise or fall. In the case of the Dollar, once governor Dudley signaled his intent to see the Fed engage in another round of QE, the “oversold” status of the Dollar was rendered moot in today’s session. The reason – traders and investors world wide understand that the supply of dollars is going to be increasing at a faster rate than the demand for those dollars. The result is economics 101 – a drop in price.
As long as the market is convinced that the Fed is going to be engaging in another round of QE, the Dollar is going to fall, not only against the other currencies of the globe, but against the metals, which is why gold and silver prices are rising.
At this point, the only thing that I can see which would cause the Dollar to mount a SUSTAINED rally would be a definitive end to any Fed QE whatsoever. Barring that, the trend for the Dollar remains firmly lower.
That brings us to gold which continues to rise as the Dollar continues to fall. It set yet another all time high in today’s session with the bullion bank barrier at $1,315 giving way. Yesterday’s rebound from the session low indicated good levels of buying continue to surface on dips preventing the shorts from getting any downside traction. Their short covering combined with another influx of fresh money resulted in a surge to $1,322. If the previous pattern holds true, we can expect the bullion banks to retreat towards $1,330 and make yet another stand near that level. Downside support remains near $1,300.
Silver put in another fresh 30 year high today (see the chart) as it pushed through $22 and is holding above that level.
The HUI has recaptured the technically significant chart level of 510 but has yet to take out the last major hurdle standing in its path towards an upside acceleration, namely the 520 level. It has come within a whisker of taking that out in today’s session but fell back in its first real serious attempt at capturing that fortress. If the bulls can muster enough ammunition and conviction for another charge or even two, they should be able to dislodge the bears from behind their ramparts there. Once they do, the mining shares should see some impressive gains.
I think we have solved the mystery of the falling open interest in gold over the last few days. As suspected, it has been the October contract which is the culprit. The total number of contracts still open in there dropped a whopping 5,200 in yesterday’s trade meaning we have seen nearly 23,000 closed out of that month in the last three days time. It is now apparent that the shorts are terrified of delivery issues and are getting out. Because they are NOT ROLLING into the December, they have tipped their hand. This is a most welcome development. We have long stated here at the site that the only way to beat back the short sellers in this market is to force them to either come up with the gold to deliver or refuse to be stampeded and call their bluff. The longs look as if they are doing just that. The result, shorts are running to avoid having to “stand and deliver”.
A mere 1300 contracts left open in the October is miniscule for a month heading into the delivery process.
Crude oil continued its upward progress from yesterday and looks as if it wants to make a try at the recent swing high near $83. A sharp rise through that level would signal that the market is poised for a move up to $87. One of the silver linings in this recessionary contraction has been that energy prices have remained relatively tame by comparison to levels seen a couple of years ago. If crude continues its upward trek that is all going to come to a rather abrupt halt.
On the currency front, the Aussie made yet another new high and looks like it wants to make a run towards parity with the US dollar. It is rapidly approaching levels last seen prior to the onset of the credit crisis back in 2008. We did not see the Bank of Japan in the Forex markets last evening but it might have been a case that traders are still hesitant to take them on at current levels. The Yen backed away from the intervention ceiling on its own last evening although it has not moved significantly lower either. It appears stuck in a rut, with Dollar weakness propping it up but intervention fears capping its rise. Interestingly enough, the Yen is FALLING against the Euro which will help with Japanese exports into the euro zone perhaps alleviating somewhat the concerns of the Japanese business community, which were not especially helped after Japan zone data last evening confirms just how fragile the state of the Japanese economy remains.
Bonds are following the woes or welfare of the equity world this morning moving inversely to stocks as is more the norm for that market. QE thoughts are keeping a floor of support under that market for now.
Grains were spanked pretty hard today along cotton and the livestock markets resulting in some weakness in the overall commodity sector indices as reflected by the CCI (Continuous Commodity Index). Funds had built up some very significant long side exposure across the entire grain complex and with the violation of technical support levels on the chart, they are being flushed out. The catalyst was the USDA report from yesterday which turned the technical picture negative on the daily charts. Corn is flirting with limit down trade as I write this report. Quick, rush out and buy a box of corn flakes before the price goes back up!
Long term these grain prices will be supported but there are technical issues related to speculative positioning which are going to result in wide swings in price even as the macro trend points decidedly higher. A growing global population and a new found prosperity among the emerging economies of Asia and Latin America will keep the ag sector challenged to produce enough grains to feed a hungry world. As a long time trader of the grain markets watching the struggles of farmers who had in the past been plagued by low prices for their product amidst rising costs of production, it is encouraging to see that our farmers will do well in the years ahead. I do expect at some point in time however that the dubiousness of burning our corn crop in our gasoline tanks will be shelved in favor of more efficient bio sources. Corn demand will remain more than robust enough to keep our farmers prospering without government subsiding the ethanol industry.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2010/10/October0110Gold.pdf
Another day – another round of brutal Dollar selling. If it is unclear in anyone’s mind that the Fed is in the process of killing the Dollar in order to keep the “animal spirits” of investors from falling into a funk, let the price action of the Dollar convince you to put aside any such reservations. It has now crashed through another support level. First it was critical support near 80. That gave way easily. Then it appeared it might hold 79 for at least a little while after it popped yesterday on the approach towards that level. Today, that gave way like a rotten wooden plank taking it down near 78 before it got a bit of relief. Ominously, there does not appear to be much if anything standing in the way for a fall to 75, where if it takes that out as ignominiously as it has previous “floors”, it is heading to 72 and we are heading to a currency crisis.
As said the other day, ‘overbought’ and ‘oversold’ are relative terms and are meaningless when there is a fundamental driver behind a market’s rise or fall. In the case of the Dollar, once governor Dudley signaled his intent to see the Fed engage in another round of QE, the “oversold” status of the Dollar was rendered moot in today’s session. The reason – traders and investors world wide understand that the supply of dollars is going to be increasing at a faster rate than the demand for those dollars. The result is economics 101 – a drop in price.
As long as the market is convinced that the Fed is going to be engaging in another round of QE, the Dollar is going to fall, not only against the other currencies of the globe, but against the metals, which is why gold and silver prices are rising.
At this point, the only thing that I can see which would cause the Dollar to mount a SUSTAINED rally would be a definitive end to any Fed QE whatsoever. Barring that, the trend for the Dollar remains firmly lower.
That brings us to gold which continues to rise as the Dollar continues to fall. It set yet another all time high in today’s session with the bullion bank barrier at $1,315 giving way. Yesterday’s rebound from the session low indicated good levels of buying continue to surface on dips preventing the shorts from getting any downside traction. Their short covering combined with another influx of fresh money resulted in a surge to $1,322. If the previous pattern holds true, we can expect the bullion banks to retreat towards $1,330 and make yet another stand near that level. Downside support remains near $1,300.
Silver put in another fresh 30 year high today (see the chart) as it pushed through $22 and is holding above that level.
The HUI has recaptured the technically significant chart level of 510 but has yet to take out the last major hurdle standing in its path towards an upside acceleration, namely the 520 level. It has come within a whisker of taking that out in today’s session but fell back in its first real serious attempt at capturing that fortress. If the bulls can muster enough ammunition and conviction for another charge or even two, they should be able to dislodge the bears from behind their ramparts there. Once they do, the mining shares should see some impressive gains.
I think we have solved the mystery of the falling open interest in gold over the last few days. As suspected, it has been the October contract which is the culprit. The total number of contracts still open in there dropped a whopping 5,200 in yesterday’s trade meaning we have seen nearly 23,000 closed out of that month in the last three days time. It is now apparent that the shorts are terrified of delivery issues and are getting out. Because they are NOT ROLLING into the December, they have tipped their hand. This is a most welcome development. We have long stated here at the site that the only way to beat back the short sellers in this market is to force them to either come up with the gold to deliver or refuse to be stampeded and call their bluff. The longs look as if they are doing just that. The result, shorts are running to avoid having to “stand and deliver”.
A mere 1300 contracts left open in the October is miniscule for a month heading into the delivery process.
Crude oil continued its upward progress from yesterday and looks as if it wants to make a try at the recent swing high near $83. A sharp rise through that level would signal that the market is poised for a move up to $87. One of the silver linings in this recessionary contraction has been that energy prices have remained relatively tame by comparison to levels seen a couple of years ago. If crude continues its upward trek that is all going to come to a rather abrupt halt.
On the currency front, the Aussie made yet another new high and looks like it wants to make a run towards parity with the US dollar. It is rapidly approaching levels last seen prior to the onset of the credit crisis back in 2008. We did not see the Bank of Japan in the Forex markets last evening but it might have been a case that traders are still hesitant to take them on at current levels. The Yen backed away from the intervention ceiling on its own last evening although it has not moved significantly lower either. It appears stuck in a rut, with Dollar weakness propping it up but intervention fears capping its rise. Interestingly enough, the Yen is FALLING against the Euro which will help with Japanese exports into the euro zone perhaps alleviating somewhat the concerns of the Japanese business community, which were not especially helped after Japan zone data last evening confirms just how fragile the state of the Japanese economy remains.
Bonds are following the woes or welfare of the equity world this morning moving inversely to stocks as is more the norm for that market. QE thoughts are keeping a floor of support under that market for now.
Grains were spanked pretty hard today along cotton and the livestock markets resulting in some weakness in the overall commodity sector indices as reflected by the CCI (Continuous Commodity Index). Funds had built up some very significant long side exposure across the entire grain complex and with the violation of technical support levels on the chart, they are being flushed out. The catalyst was the USDA report from yesterday which turned the technical picture negative on the daily charts. Corn is flirting with limit down trade as I write this report. Quick, rush out and buy a box of corn flakes before the price goes back up!
Long term these grain prices will be supported but there are technical issues related to speculative positioning which are going to result in wide swings in price even as the macro trend points decidedly higher. A growing global population and a new found prosperity among the emerging economies of Asia and Latin America will keep the ag sector challenged to produce enough grains to feed a hungry world. As a long time trader of the grain markets watching the struggles of farmers who had in the past been plagued by low prices for their product amidst rising costs of production, it is encouraging to see that our farmers will do well in the years ahead. I do expect at some point in time however that the dubiousness of burning our corn crop in our gasoline tanks will be shelved in favor of more efficient bio sources. Corn demand will remain more than robust enough to keep our farmers prospering without government subsiding the ethanol industry.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2010/10/October0110Gold.pdf
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