Filed under: Trader Dan Norcini
Dear CIGAs,
It is fascinating watching the transition occurring in the gold market from purely a dollar related phenomenon to one in which it is moving as a currency in its own right. Early in the session, the Euro was under strong pressure that brought in a general wave of selling into both gold and silver, even as silver was making a fresh 30 year high. That selling took both metals down on the day, with gold in particular seeing more weakness than silver. About mid-morning however, buyers showed up in size and brought about an abrupt about-face in both markets with silver roaring above $27.50 and gold clearing $1400 with relative ease.
To see these markets shrug off Dollar strength is just one more indication that they are moving on their own merits and that those buying them in such quantity are looking well past any short term blips in the Dollar. What we are seeing is further evidence that the current global monetary system is under extreme stress and many investors world-wide are rapidly losing confidence in both it and its managers. This is the reason that the perma bears in both metals are in serious trouble for they are now coming face to face with a crowd that is not the least bit impressed by their ability to formerly engineer price sell offs. Buyers are in control and the bears damn well know it.
The same holds true for the hedge funds who have now met their Waterloo in that infernal ratio trade of theirs that for far too long kept the mining shares severely undervalued in relation to the bullion price of both metals. As mentioned in the recent radio interview, the gap higher in the HUI is now confirmed as a breakaway gap, and not an exhaustion gap on the technical charts. Depending on the extent of those hedge funds still trapped in that ratio trade and the extent of others in that same crowd who smell blood in the water, the shares could easily outperform on the upside as buyers outnumber sellers at current levels.
What is most remarkable is that this is occurring even in the face of general equity market weakness. I think it is fairly safe to say that the mining shares are separating themselves from the performance of the broader markets with buyers beginning to focus on their earnings and increasing profit margins instead of the fickle sentiment towards risk trades or risk aversion trades. I will attempt to post an updated HUI/Gold ratio chart after the close of trading today to give the readers a view of how that chart is changing.
“Bubble, bubble, toil and trouble; fire burn and cauldron bubble”. I’ve taken a few liberties with Shakespeare’s witches in Macbeth (Double, double) to illustrate that if the Fed has desired to puff up another bubble, they have gotten their wish but for the rest of us who have to live with their mendacity, it will end with toil and trouble. I say, “mendacity”, because it is a lie that inflation can be controlled. Now the Fed may believe their own lies but the truth is that they cannot control the fears and suspicions of the public who have now lost confidence (that ethereal, fleeting substance which cannot easily be defined but once forfeited is nigh impossible to regain) in their attempted management of the economy. We will yet see more woes resulting from this ill-conceived course which is going to contribute to the eventual ruin of the Dollar and with it, our way of life.
That brings me to crude oil – I keep focusing on the energy markets because they have heretofore been somewhat tame and have not participated to any extent in the overall commodity sector ramp in prices. That seems to now be changing with crude dangerously flirting with a close above the technically significant $87 level. That is the last line of defense against a run towards the $90 level. Even natural gas, which has been comatose is clawing above the $4 market, which will extremely cheap by most standards of comparison, is significantly higher than its level a mere two week’s ago. Watch out for the double whammy of both rising food and energy prices.
I think this the reason that the bonds on the long end are refusing to move higher to any degree. Based on what we have seen of that market, buyers were formerly giddy with delight at the idea that the Fed was there to backstop them with more QE. What appears to be happening however is that bonds on the long end are having to now deal with what many are seeing is an unavoidable surge in inflation, which of course is the nemesis to bond holders. They are perched quite tenuously above a strong chart support level just below the 130 mark. Should that give way it will indicate that the ability of the long bond to levitate higher in the face of massive supply concerns has given way to larger fears of the effects of Bernanke’s foolish QE infusion. Is this the end of the decade plus bull market in the long bond? The jury is still out but we will soon learn its verdict.
Technical levels in gold are as follows: Resistance should appear near the $1,420 level. Above that $1,440 comes into play. Downside initial support lies close to $1,380 followed by $1,370 and then $1,355.
Silver is blowing through upside resistance levels so quickly that is almost seems futile to list them. $30 now seems easily attainable given the ease with which it knifed through $27. Indeed, silver is moving in what can now be described as parabolic fashion based on the steep angle of ascent on the technical price charts. Open interest readings do not yet indicate a commercial signal failure is occurring but there are evidentially shorts that are getting their heads handed to them and are bailing out. It might be the swap dealers who based on the last COT report were attempting to move towards being flat but they do not hold the lion’s share of the short positions in the market. The big “commercial” class is the ones I am watching for signs of throwing in the towel. Personally I do not see how they can go much longer given the size of that naked short position and the enormous paper losses that they are incurring in what is left of their dwindling trading accounts. We all know that they are extremely well capitalized but someone as well capitalized as they are continues to buy so it is now a matter of how much more pain they can withstand.
The Dollar is seeing a bit of upside follow through from last Friday’s session but it would have to get above 78.50 to convince me that there is anything more to this than a bounce in a long term bear market.
Oh, and by the way, cotton is yet again locked limit up with no end in sight to its rise. A lot of North Texas cotton growers are going to be extremely prosperous at this rate and will soon become lords and barons. As said many times now since its rise, that market terrifies me as I wonder who will become the last buyer just before it plunges.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2010/11/November0810Gold.pdf
It is fascinating watching the transition occurring in the gold market from purely a dollar related phenomenon to one in which it is moving as a currency in its own right. Early in the session, the Euro was under strong pressure that brought in a general wave of selling into both gold and silver, even as silver was making a fresh 30 year high. That selling took both metals down on the day, with gold in particular seeing more weakness than silver. About mid-morning however, buyers showed up in size and brought about an abrupt about-face in both markets with silver roaring above $27.50 and gold clearing $1400 with relative ease.
To see these markets shrug off Dollar strength is just one more indication that they are moving on their own merits and that those buying them in such quantity are looking well past any short term blips in the Dollar. What we are seeing is further evidence that the current global monetary system is under extreme stress and many investors world-wide are rapidly losing confidence in both it and its managers. This is the reason that the perma bears in both metals are in serious trouble for they are now coming face to face with a crowd that is not the least bit impressed by their ability to formerly engineer price sell offs. Buyers are in control and the bears damn well know it.
The same holds true for the hedge funds who have now met their Waterloo in that infernal ratio trade of theirs that for far too long kept the mining shares severely undervalued in relation to the bullion price of both metals. As mentioned in the recent radio interview, the gap higher in the HUI is now confirmed as a breakaway gap, and not an exhaustion gap on the technical charts. Depending on the extent of those hedge funds still trapped in that ratio trade and the extent of others in that same crowd who smell blood in the water, the shares could easily outperform on the upside as buyers outnumber sellers at current levels.
What is most remarkable is that this is occurring even in the face of general equity market weakness. I think it is fairly safe to say that the mining shares are separating themselves from the performance of the broader markets with buyers beginning to focus on their earnings and increasing profit margins instead of the fickle sentiment towards risk trades or risk aversion trades. I will attempt to post an updated HUI/Gold ratio chart after the close of trading today to give the readers a view of how that chart is changing.
“Bubble, bubble, toil and trouble; fire burn and cauldron bubble”. I’ve taken a few liberties with Shakespeare’s witches in Macbeth (Double, double) to illustrate that if the Fed has desired to puff up another bubble, they have gotten their wish but for the rest of us who have to live with their mendacity, it will end with toil and trouble. I say, “mendacity”, because it is a lie that inflation can be controlled. Now the Fed may believe their own lies but the truth is that they cannot control the fears and suspicions of the public who have now lost confidence (that ethereal, fleeting substance which cannot easily be defined but once forfeited is nigh impossible to regain) in their attempted management of the economy. We will yet see more woes resulting from this ill-conceived course which is going to contribute to the eventual ruin of the Dollar and with it, our way of life.
That brings me to crude oil – I keep focusing on the energy markets because they have heretofore been somewhat tame and have not participated to any extent in the overall commodity sector ramp in prices. That seems to now be changing with crude dangerously flirting with a close above the technically significant $87 level. That is the last line of defense against a run towards the $90 level. Even natural gas, which has been comatose is clawing above the $4 market, which will extremely cheap by most standards of comparison, is significantly higher than its level a mere two week’s ago. Watch out for the double whammy of both rising food and energy prices.
I think this the reason that the bonds on the long end are refusing to move higher to any degree. Based on what we have seen of that market, buyers were formerly giddy with delight at the idea that the Fed was there to backstop them with more QE. What appears to be happening however is that bonds on the long end are having to now deal with what many are seeing is an unavoidable surge in inflation, which of course is the nemesis to bond holders. They are perched quite tenuously above a strong chart support level just below the 130 mark. Should that give way it will indicate that the ability of the long bond to levitate higher in the face of massive supply concerns has given way to larger fears of the effects of Bernanke’s foolish QE infusion. Is this the end of the decade plus bull market in the long bond? The jury is still out but we will soon learn its verdict.
Technical levels in gold are as follows: Resistance should appear near the $1,420 level. Above that $1,440 comes into play. Downside initial support lies close to $1,380 followed by $1,370 and then $1,355.
Silver is blowing through upside resistance levels so quickly that is almost seems futile to list them. $30 now seems easily attainable given the ease with which it knifed through $27. Indeed, silver is moving in what can now be described as parabolic fashion based on the steep angle of ascent on the technical price charts. Open interest readings do not yet indicate a commercial signal failure is occurring but there are evidentially shorts that are getting their heads handed to them and are bailing out. It might be the swap dealers who based on the last COT report were attempting to move towards being flat but they do not hold the lion’s share of the short positions in the market. The big “commercial” class is the ones I am watching for signs of throwing in the towel. Personally I do not see how they can go much longer given the size of that naked short position and the enormous paper losses that they are incurring in what is left of their dwindling trading accounts. We all know that they are extremely well capitalized but someone as well capitalized as they are continues to buy so it is now a matter of how much more pain they can withstand.
The Dollar is seeing a bit of upside follow through from last Friday’s session but it would have to get above 78.50 to convince me that there is anything more to this than a bounce in a long term bear market.
Oh, and by the way, cotton is yet again locked limit up with no end in sight to its rise. A lot of North Texas cotton growers are going to be extremely prosperous at this rate and will soon become lords and barons. As said many times now since its rise, that market terrifies me as I wonder who will become the last buyer just before it plunges.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2010/11/November0810Gold.pdf
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