DAN'S TWO CHARTS:
http://jsmineset.com/wp-content/uploads/2011/01/Monthly-Gold-Jan-2011.pdf
Monday, January 31, 2011
DAN NORCINI'S MONDAY COMMENTS AND GOLD AND CCI CHARTS
Posted: Jan 31 2011 By: Dan Norcini Post Edited: January 31, 2011 at 5:49 pm
Filed under: Trader Dan Norcini
Filed under: Trader Dan Norcini
Dear CIGAs,
Gold was strong upon its opening overnight in Asian trading but could not hold onto its gains as longs used the rally to lighten up further and reduce their exposure. While that is not unexpected considering the technical posture of the market, it is also disappointing that with the CCI index making yet another all time high today as commodities across the board were soaring, the yellow metal simply went nowhere.
It appears that the “growth trades” are now the new norm for the time being with gold being jettisoned in favor of equities. You’ll note that this is the reason that gold is down in unison with the Dollar as I explained in last week’s comments. The “risk trades” were still being implemented but gold was not a part of them, at least for today. There was also the usual, “buy the rumor, sell the fact” trade associated with Egypt in the sense that it did not fall apart completely over the weekend, although that is a matter of perspective. Traders were fearing a region-wide proliferation of the unrest on Friday and by today they were practically bored by it all.
We’ll have to see how the metal handles any potential retest of last week’s lows. I would actually prefer to see it move lower and then bounce away as that would more clearly denote those lows at the end of the recent price retracement but rest assured that the perma bears are attempting a push down through those levels. Whether or not it holds will depend on the willingness of longs to stop liquidating. As has been the case with this market since its decade long bull market began – the key to any upward progress is the willingness of managed money and other speculative interest to buy into it. If the specs continue dropping off of the long side, the market will move lower. Granted, they are selling into strong hands but that is little consolation for those who might be long the futures market or the ETF.
When the exchange released the Open Interest figures from Friday’s sharp price recovery and there was a sizeable reduction, I knew we were in trouble. Still, the metal has not given back all of its gains from Friday and that still gives the bulls the opportunity to hold it here if they will simply stop running.
Demand for the metal is incredibly strong on the physical side of things and if the specs would stop disgorging their longs, the market could base here. We do know however that the bullion banks are buying like crazy as price descends.
With the managed money side of things down to long side levels last seen when gold was trading at $920, there is not sufficient fresh selling to break the market down below $1300. That requires a spec rout and liquidation selling. We will have to see if those left in the market on the long side have the financial wherewithal to stand pat.
The Dollar chart looks beyond awful right now with failure to hold today’s low setting the market up for a move down towards 77.20. Dollar bulls need to at the very least take out today’s high to stick a short term bottom in near 77.80.
Bonds have broken back down once again (no surprise) giving up all of Friday’s Egyptian turmoil-based gains plus some. They continue to tread water with Fed buying under the market preventing a deeper sell off. Watch for them to immediately pop higher on the reopen of electronic trade early this evening.
As mentioned earlier, the CCI went on to set another all time record high in today’s session as Bernanke’s “the only thing we really need to fear about inflation is the unreasonable fear of inflation”, took yet another round house kick upside the head. Crude oil shot up to a fresh yearly high just shy of $93 as that market is attempting to forge a solid close above $92 on the charts. If it does, it is going to move towards $95. Brent crude, which is arguably a better representative of crude prices globally shot up to $101.67 and as I write this is trading above the $100 bbl mark. But I am not the least bit concerned about these rising food and energy prices because Ben Kenobi has told me that the Force is strong with him and he can sweep it all away by merely waving his hand. Gold is probably the Darth Vader of the Federal Reserve universe so this time I am rooting for the dark side. A rising commodity index that is firing on all three cylinders, base metals, energy and food, is not conducive to continued selling pressure on the precious metals side of the sector. I suspect that the Jedi at the Federal Reserve are tremendously disconcerted over getting zapped by some lightning coming out of gold.
The HUI was caught between a rising equities market and falling gold prices today but managed to hang in there fairly well. Obviously, it would have been beneficial to the cause of the precious metals for the thing to have gained on the day but it is still holding above 500 at this point. We need to see it get a close above 517 ( a strong close) to turn things solidly around. I should point out that its reluctance to stay below 500 is resulting in the 10 day moving average beginning to flatten out although it is still moving lower. We will be keeping close tabs on this index.
DAN'S CHARTS:
http://jsmineset.com/wp-content/uploads/2011/01/January3111Gold.pdf
http://jsmineset.com/wp-content/uploads/2011/01/January3111CCI.pdf
Gold was strong upon its opening overnight in Asian trading but could not hold onto its gains as longs used the rally to lighten up further and reduce their exposure. While that is not unexpected considering the technical posture of the market, it is also disappointing that with the CCI index making yet another all time high today as commodities across the board were soaring, the yellow metal simply went nowhere.
It appears that the “growth trades” are now the new norm for the time being with gold being jettisoned in favor of equities. You’ll note that this is the reason that gold is down in unison with the Dollar as I explained in last week’s comments. The “risk trades” were still being implemented but gold was not a part of them, at least for today. There was also the usual, “buy the rumor, sell the fact” trade associated with Egypt in the sense that it did not fall apart completely over the weekend, although that is a matter of perspective. Traders were fearing a region-wide proliferation of the unrest on Friday and by today they were practically bored by it all.
We’ll have to see how the metal handles any potential retest of last week’s lows. I would actually prefer to see it move lower and then bounce away as that would more clearly denote those lows at the end of the recent price retracement but rest assured that the perma bears are attempting a push down through those levels. Whether or not it holds will depend on the willingness of longs to stop liquidating. As has been the case with this market since its decade long bull market began – the key to any upward progress is the willingness of managed money and other speculative interest to buy into it. If the specs continue dropping off of the long side, the market will move lower. Granted, they are selling into strong hands but that is little consolation for those who might be long the futures market or the ETF.
When the exchange released the Open Interest figures from Friday’s sharp price recovery and there was a sizeable reduction, I knew we were in trouble. Still, the metal has not given back all of its gains from Friday and that still gives the bulls the opportunity to hold it here if they will simply stop running.
Demand for the metal is incredibly strong on the physical side of things and if the specs would stop disgorging their longs, the market could base here. We do know however that the bullion banks are buying like crazy as price descends.
With the managed money side of things down to long side levels last seen when gold was trading at $920, there is not sufficient fresh selling to break the market down below $1300. That requires a spec rout and liquidation selling. We will have to see if those left in the market on the long side have the financial wherewithal to stand pat.
The Dollar chart looks beyond awful right now with failure to hold today’s low setting the market up for a move down towards 77.20. Dollar bulls need to at the very least take out today’s high to stick a short term bottom in near 77.80.
Bonds have broken back down once again (no surprise) giving up all of Friday’s Egyptian turmoil-based gains plus some. They continue to tread water with Fed buying under the market preventing a deeper sell off. Watch for them to immediately pop higher on the reopen of electronic trade early this evening.
As mentioned earlier, the CCI went on to set another all time record high in today’s session as Bernanke’s “the only thing we really need to fear about inflation is the unreasonable fear of inflation”, took yet another round house kick upside the head. Crude oil shot up to a fresh yearly high just shy of $93 as that market is attempting to forge a solid close above $92 on the charts. If it does, it is going to move towards $95. Brent crude, which is arguably a better representative of crude prices globally shot up to $101.67 and as I write this is trading above the $100 bbl mark. But I am not the least bit concerned about these rising food and energy prices because Ben Kenobi has told me that the Force is strong with him and he can sweep it all away by merely waving his hand. Gold is probably the Darth Vader of the Federal Reserve universe so this time I am rooting for the dark side. A rising commodity index that is firing on all three cylinders, base metals, energy and food, is not conducive to continued selling pressure on the precious metals side of the sector. I suspect that the Jedi at the Federal Reserve are tremendously disconcerted over getting zapped by some lightning coming out of gold.
The HUI was caught between a rising equities market and falling gold prices today but managed to hang in there fairly well. Obviously, it would have been beneficial to the cause of the precious metals for the thing to have gained on the day but it is still holding above 500 at this point. We need to see it get a close above 517 ( a strong close) to turn things solidly around. I should point out that its reluctance to stay below 500 is resulting in the 10 day moving average beginning to flatten out although it is still moving lower. We will be keeping close tabs on this index.
DAN'S CHARTS:
http://jsmineset.com/wp-content/uploads/2011/01/January3111Gold.pdf
http://jsmineset.com/wp-content/uploads/2011/01/January3111CCI.pdf
Friday, January 28, 2011
Trader Dan Comments On This Week’s COT Report
Posted: Jan 28 2011 By: Dan Norcini Post Edited: January 28, 2011 at 6:43 pm
Filed under: Trader Dan Norcini
Filed under: Trader Dan Norcini
Dear CIGAs,
Some comments on the Commitments of Traders report of this week.
Today’s report, detailing the activity of traders through Tuesday, shows a continuation of the recent pattern of speculative long side liquidation in the gold market and a continued drawdown in the net short position of the bullion banks and the swap dealers (sometimes the same entity).
Hedge funds are now down to the lowest net long position since May 5, 2009 when gold was trading near $920. There is a continued come down also in both the “Other reportables” camp and the small speculator or general public (Nonreportables) in terms of their net long exposure. Clearly speculator interest in gold has waned and quite rapidly at that I might add.
That process will need to come to a halt to put an end to the move lower in gold and allow prices to stabilize. We might have seen this occur today but cannot be sure until we get the open interest readings from the exchange Monday morning of next week. A great deal will now depend on developments in Egypt and in the mid-East in general over the weekend.
When a market is trading below its major moving averages, as gold is currently, there is a strong tendency for longs to use rallies to reduce their long side exposure.
To prevent this from occurring, price must at least recapture the downtrending 10 day moving average which comes in very close to today’s session high near $1350. That the bulls were able to get price to close above that critical support level of $1320 at the week’s end is no mean feat.
About that sharp drop off in the open interest as was reported this week and which drew considerable attention. It did come out of the managed money camp ( I had thought some of it might also show up in the “Other Reportables” camp) and in particular in the spreads put on by that group of traders. The number of their spreads fell a huge 65,755 contracts. I am still wondering how in the world a money manager could put on a spread trade and lose the amount of money that was reported to have been lost in the story that came out about this overnight. As a large spread trader myself in various markets, I can tell you that takes some real doing to accomplish a loss of that magnitude. You have to completely disregard sound money management techniques and become totally undisciplined. These markets take no prisoners today – something all would-be and active traders would do well to remember.
Overall, the COT report is pretty much what we have come to expect in this market during times of lower prices in gold. While I would have preferred to see the general public net long position come in lower than the actual numbers, it is the hedge funds (Managed Money) that still hold the key to this market and they are still ditching longs. Once that process halts, the market bottoms. It is that simple.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2011/01/Gold-COT-1-28-2011.pdf
Some comments on the Commitments of Traders report of this week.
Today’s report, detailing the activity of traders through Tuesday, shows a continuation of the recent pattern of speculative long side liquidation in the gold market and a continued drawdown in the net short position of the bullion banks and the swap dealers (sometimes the same entity).
Hedge funds are now down to the lowest net long position since May 5, 2009 when gold was trading near $920. There is a continued come down also in both the “Other reportables” camp and the small speculator or general public (Nonreportables) in terms of their net long exposure. Clearly speculator interest in gold has waned and quite rapidly at that I might add.
That process will need to come to a halt to put an end to the move lower in gold and allow prices to stabilize. We might have seen this occur today but cannot be sure until we get the open interest readings from the exchange Monday morning of next week. A great deal will now depend on developments in Egypt and in the mid-East in general over the weekend.
When a market is trading below its major moving averages, as gold is currently, there is a strong tendency for longs to use rallies to reduce their long side exposure.
To prevent this from occurring, price must at least recapture the downtrending 10 day moving average which comes in very close to today’s session high near $1350. That the bulls were able to get price to close above that critical support level of $1320 at the week’s end is no mean feat.
About that sharp drop off in the open interest as was reported this week and which drew considerable attention. It did come out of the managed money camp ( I had thought some of it might also show up in the “Other Reportables” camp) and in particular in the spreads put on by that group of traders. The number of their spreads fell a huge 65,755 contracts. I am still wondering how in the world a money manager could put on a spread trade and lose the amount of money that was reported to have been lost in the story that came out about this overnight. As a large spread trader myself in various markets, I can tell you that takes some real doing to accomplish a loss of that magnitude. You have to completely disregard sound money management techniques and become totally undisciplined. These markets take no prisoners today – something all would-be and active traders would do well to remember.
Overall, the COT report is pretty much what we have come to expect in this market during times of lower prices in gold. While I would have preferred to see the general public net long position come in lower than the actual numbers, it is the hedge funds (Managed Money) that still hold the key to this market and they are still ditching longs. Once that process halts, the market bottoms. It is that simple.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2011/01/Gold-COT-1-28-2011.pdf
DAN NORCINI'S FRIDAY COMMENTS AND CHART
Posted: Jan 28 2011 By: Dan Norcini Post Edited: January 28, 2011 at 2:38 pm
Filed under: Trader Dan Norcini
Filed under: Trader Dan Norcini
Dear CIGAs,
Last evening during the Asian trading session, front month gold dipped into the $1310 region where it uncovered considerable buying interest. The buying was large enough to absorb the selling pressure that carried over from the poor performance of yesterday’s trading session. Once gold was able to punch through the $1317 level, there was additional buying that came in which looked like a combination of shorts booking profits as well as some bottom picking. That buying took it up through $1320 which then began sparking short covering. Their forced exit provided further upward progress which then enticed additional buying as locals began looking gunning for the stops above $1330. Around 10:00am Central time, they reached $1330 but were unable to get to the stops. Apparently however some additional recruits came in and on the second approach they took it out. That forced another wave of short covering taking prices to $1340 with more short covering taking the metal up towards $1350.
There is no doubt that some of the buying in gold is tied to events in Egypt and across some of the other nations in the Middle East. There are many nervous investors who are eying that tinderbox of never ending troubles and are concerned about these demonstrations spreading and moving into the OPEC nations. That is the reason crude oil was up nearly $4.00 a barrel at one point.
It seems to me that the catalyst for the huge amount of unrest in the region of the world was the surge in food prices. One of the things that the wheat market has been watching and anticipating has been Egyptian wheat purchases. They are one of our largest buyers of wheat and there was talk that began last week and continued earlier this week that Egypt was going to be forced into buying a good deal more US wheat in an attempt to make sure that there was sufficient supply for one thing and that they could snag it before its price moved even higher. Their leaders no doubt saw what happened to the government of Tunisia and wanted to nip any potential problem in the bud. Apparently things moved too quickly for them. Regardless, we have been warning that this outbreak of the inflation virus, a virus I might add which has been fed, nourished, propagated and even lovingly caressed by the US Federal Reserve, was going to result in global instability as its effects were primarily being seen in the cost of food. Rising food prices in the undeveloped world are NOT INGREDIENTS for peaceful society.
Truthfully, it has happened even more quickly than I had considered it would. I was looking more towards the spring of this year as the price rises work through the global distribution channels. A question for Ben and the boyz at the Fed, (Governor Hoenig exempted), “How do you like your handiwork now?” Is it any wonder that the Chinese are so rightfully disdainful of what the Fed is doing.
I will repeat – the Federal Reserve of the US is exporting runaway inflation across the entire globe with its reckless policy of QE. Bernanke has hubristically asserted in his interview on “60 minutes” late last year that “this fear of inflation is overstated”. We need to record this for history to make certain that it is not forgotten or dismissed. Try telling that to the leaders of the nations across the globe who are now dealing with riots and anarchy in their streets. I am sure that they will take comfort from Ben’s words.
Some may think I am leveling a bit of an exorbitant charge but one has only to look at price charts of the grains in particular to see that they all bottomed exactly during the month when QE was first announced back in 2009 with many of them accelerating sharply higher when QE2 was then successively announced last year. It did not help matters any that the weather caused sharp falloffs in the supply equation at the exact same time that speculative hot money was entering these markets in a quest for tangibles to protect against the deleterious impact of the inevitable currency devaluation resulting from QE. The deadly cocktail has led to an explosion in price for the basics of life.
When the price of wheat effectively doubles in 7 months, corn increases over 90% and soybeans surge more than 55% over the same time span, the quaint notion that the fear of inflation is overstated is stupendous for its sheer brazen audacity in the face of glaring truth.
When you tie this surge in food prices to the potential spike higher in crude oil prices if this unrest in the Middle East takes on additional life, it is not difficult to see why the shorts in gold are getting out.
In the past, moves higher in the gold price that were associated with political turmoil have tended to be rather short lived but this unrest is occurring against a backdrop of huge amounts of excess liquidity that continues being pumped into the system in an effort to keep it moving ahead; not to mention food prices are not going to drop sharply anytime soon. Talk continues to surface that the Fed will soon begin to withdraw this liquidity as the economy “improves” but the facts are that without these continued injections, there is too much debt in the system which will act as an anchor on any so-called “growth”. In my mind it is akin to injecting a nitrogen and trace mineral enriched solution directly into the root zone of a plant that is potted in a mere one inch of soil. What you create is a monstrosity that cannot be supported and will tip over without getting some support from elsewhere.
Changing the subject a bit…
I am very impressed with the action of the HUI. As noted yesterday it refused to follow gold much lower even as the metal took out support near $1320. Even though it was down on the day, it remained well above Wednesday’s low. Today’s good showing gives further credence to the idea that it has been sold out and has put in a bottom near the 500 level. The trading session is net yet over as I write these comments but its ability to push past 517 has just about all of the short term technical indicators generating buy signals from deeply oversold levels. I want to see it close above that level (517) as it would shore up the weekly chart seeing that it spiked down towards the 50 week moving average and held. To really cement the bullish cause, it would need to get a weekly close above 530. We’ll see what happens on the close today.
Some of you have written to ask me about the current correlation between Gold and the Dollar. As you know, gold has been almost tracking the Dollar in the same direction of late. The greenback moves lower; so does Gold. The Dollar moves higher; so does Gold. This is obviously a change from its historic pattern and one that has to a large extent marked a large portion of this decade long bull market.
What I believe is currently at work is a temporary phase during which as fears regarding the overall state of the US economy subside and talk increases of an improvement, the Dollar comes into focus as a result of the massive structural problems overhanging the US economy. That leads to selling in the Dollar as there is no need of it as any sort of safe haven. You will note that as the equities charge higher, the dollar continues moving lower breaking major downside chart support level in the process. That same sentiment that the economy is improving and growth is returning have been leading to selling gold as investors move out of the metal in favor of equities and the “growth trade”. So essentially we have the “risk trade” being moderated somewhat towards the “growth trade”. That is the reason why we can see copper higher while gold moves lower.
Such thinking is more short term oriented in nature and is hoping to catch some profits playing the liquidity game using the Fed as a backstop. Those who macroeconomic view looks past the short term stimulative effects of the liquidity injections will understand that the root causes of our economic woes have not been dealt with and will come back to bite us all down the road. Once one understands that the goal of the Fed is an attempted slow devaluation of the Dollar, they will gravitate towards gold once again and the inverse link between it and the greenback will become more the norm. Even at that, gold can move higher on its own merits as the integrity of many of the world’s fiat currencies continue to be called into question.
Today you will note that the Dollar is higher as it gains as a safe haven play. Bonds too are higher (the Fed loves to see this). You will also note that a mere day after S&P downgraded Japanese sovereign debt to “AA-‘, the Yen is sharply higher as it too reverts back to its “safe haven” status. For the life of me I do not understand how any rational human being can see the Yen as a safe haven with their Debt to GDP ration approaching the 200% level but there is nothing rational about our modern markets.
Equities have actually moved lower today. I have taken a photograph of their price chart to record it for history since one begins to wonder if this “anomaly” will ever duplicate itself ever again. After all, we live during an era in which the official monetary policy is to create a perpetually rising stock market as a way to generate rising consumer confidence to fuel the giant spending machine. How can it be that the stock market does not know this and dares to move lower in the face of unrest in the middle East? Maybe Goldman and Morgan had their electricity fail them as they moved to windwills for their power source to curry favor with the administration and the snowstorm knocked out the turbines. Their traders probably are unable to slam their usual buy orders into the S&P futures pit. Perhaps after the snowstorms subside….. Hey guys – get a generator if you want to get this thing right.
A last note – Eric King and I did our regular weekly metals wrap yesterday instead of today so when you do tune in, we will not be commenting on today’s price action in gold. I hope that this summary will make up for that. Also, if I see anything significant in the COT report today, I will post it up later. Like many of you I am anxious to see how the internals changed with these big drawdowns in the total OI. I am thinking that it is going to show up particularly in the “Other reportables” category.
Enjoy your weekend – who knows what we will wake up to Monday morning. A weekend of turmoil in the Mid East can lead to just about anything.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2011/01/January2811Gold.pdf
Last evening during the Asian trading session, front month gold dipped into the $1310 region where it uncovered considerable buying interest. The buying was large enough to absorb the selling pressure that carried over from the poor performance of yesterday’s trading session. Once gold was able to punch through the $1317 level, there was additional buying that came in which looked like a combination of shorts booking profits as well as some bottom picking. That buying took it up through $1320 which then began sparking short covering. Their forced exit provided further upward progress which then enticed additional buying as locals began looking gunning for the stops above $1330. Around 10:00am Central time, they reached $1330 but were unable to get to the stops. Apparently however some additional recruits came in and on the second approach they took it out. That forced another wave of short covering taking prices to $1340 with more short covering taking the metal up towards $1350.
There is no doubt that some of the buying in gold is tied to events in Egypt and across some of the other nations in the Middle East. There are many nervous investors who are eying that tinderbox of never ending troubles and are concerned about these demonstrations spreading and moving into the OPEC nations. That is the reason crude oil was up nearly $4.00 a barrel at one point.
It seems to me that the catalyst for the huge amount of unrest in the region of the world was the surge in food prices. One of the things that the wheat market has been watching and anticipating has been Egyptian wheat purchases. They are one of our largest buyers of wheat and there was talk that began last week and continued earlier this week that Egypt was going to be forced into buying a good deal more US wheat in an attempt to make sure that there was sufficient supply for one thing and that they could snag it before its price moved even higher. Their leaders no doubt saw what happened to the government of Tunisia and wanted to nip any potential problem in the bud. Apparently things moved too quickly for them. Regardless, we have been warning that this outbreak of the inflation virus, a virus I might add which has been fed, nourished, propagated and even lovingly caressed by the US Federal Reserve, was going to result in global instability as its effects were primarily being seen in the cost of food. Rising food prices in the undeveloped world are NOT INGREDIENTS for peaceful society.
Truthfully, it has happened even more quickly than I had considered it would. I was looking more towards the spring of this year as the price rises work through the global distribution channels. A question for Ben and the boyz at the Fed, (Governor Hoenig exempted), “How do you like your handiwork now?” Is it any wonder that the Chinese are so rightfully disdainful of what the Fed is doing.
I will repeat – the Federal Reserve of the US is exporting runaway inflation across the entire globe with its reckless policy of QE. Bernanke has hubristically asserted in his interview on “60 minutes” late last year that “this fear of inflation is overstated”. We need to record this for history to make certain that it is not forgotten or dismissed. Try telling that to the leaders of the nations across the globe who are now dealing with riots and anarchy in their streets. I am sure that they will take comfort from Ben’s words.
Some may think I am leveling a bit of an exorbitant charge but one has only to look at price charts of the grains in particular to see that they all bottomed exactly during the month when QE was first announced back in 2009 with many of them accelerating sharply higher when QE2 was then successively announced last year. It did not help matters any that the weather caused sharp falloffs in the supply equation at the exact same time that speculative hot money was entering these markets in a quest for tangibles to protect against the deleterious impact of the inevitable currency devaluation resulting from QE. The deadly cocktail has led to an explosion in price for the basics of life.
When the price of wheat effectively doubles in 7 months, corn increases over 90% and soybeans surge more than 55% over the same time span, the quaint notion that the fear of inflation is overstated is stupendous for its sheer brazen audacity in the face of glaring truth.
When you tie this surge in food prices to the potential spike higher in crude oil prices if this unrest in the Middle East takes on additional life, it is not difficult to see why the shorts in gold are getting out.
In the past, moves higher in the gold price that were associated with political turmoil have tended to be rather short lived but this unrest is occurring against a backdrop of huge amounts of excess liquidity that continues being pumped into the system in an effort to keep it moving ahead; not to mention food prices are not going to drop sharply anytime soon. Talk continues to surface that the Fed will soon begin to withdraw this liquidity as the economy “improves” but the facts are that without these continued injections, there is too much debt in the system which will act as an anchor on any so-called “growth”. In my mind it is akin to injecting a nitrogen and trace mineral enriched solution directly into the root zone of a plant that is potted in a mere one inch of soil. What you create is a monstrosity that cannot be supported and will tip over without getting some support from elsewhere.
Changing the subject a bit…
I am very impressed with the action of the HUI. As noted yesterday it refused to follow gold much lower even as the metal took out support near $1320. Even though it was down on the day, it remained well above Wednesday’s low. Today’s good showing gives further credence to the idea that it has been sold out and has put in a bottom near the 500 level. The trading session is net yet over as I write these comments but its ability to push past 517 has just about all of the short term technical indicators generating buy signals from deeply oversold levels. I want to see it close above that level (517) as it would shore up the weekly chart seeing that it spiked down towards the 50 week moving average and held. To really cement the bullish cause, it would need to get a weekly close above 530. We’ll see what happens on the close today.
Some of you have written to ask me about the current correlation between Gold and the Dollar. As you know, gold has been almost tracking the Dollar in the same direction of late. The greenback moves lower; so does Gold. The Dollar moves higher; so does Gold. This is obviously a change from its historic pattern and one that has to a large extent marked a large portion of this decade long bull market.
What I believe is currently at work is a temporary phase during which as fears regarding the overall state of the US economy subside and talk increases of an improvement, the Dollar comes into focus as a result of the massive structural problems overhanging the US economy. That leads to selling in the Dollar as there is no need of it as any sort of safe haven. You will note that as the equities charge higher, the dollar continues moving lower breaking major downside chart support level in the process. That same sentiment that the economy is improving and growth is returning have been leading to selling gold as investors move out of the metal in favor of equities and the “growth trade”. So essentially we have the “risk trade” being moderated somewhat towards the “growth trade”. That is the reason why we can see copper higher while gold moves lower.
Such thinking is more short term oriented in nature and is hoping to catch some profits playing the liquidity game using the Fed as a backstop. Those who macroeconomic view looks past the short term stimulative effects of the liquidity injections will understand that the root causes of our economic woes have not been dealt with and will come back to bite us all down the road. Once one understands that the goal of the Fed is an attempted slow devaluation of the Dollar, they will gravitate towards gold once again and the inverse link between it and the greenback will become more the norm. Even at that, gold can move higher on its own merits as the integrity of many of the world’s fiat currencies continue to be called into question.
Today you will note that the Dollar is higher as it gains as a safe haven play. Bonds too are higher (the Fed loves to see this). You will also note that a mere day after S&P downgraded Japanese sovereign debt to “AA-‘, the Yen is sharply higher as it too reverts back to its “safe haven” status. For the life of me I do not understand how any rational human being can see the Yen as a safe haven with their Debt to GDP ration approaching the 200% level but there is nothing rational about our modern markets.
Equities have actually moved lower today. I have taken a photograph of their price chart to record it for history since one begins to wonder if this “anomaly” will ever duplicate itself ever again. After all, we live during an era in which the official monetary policy is to create a perpetually rising stock market as a way to generate rising consumer confidence to fuel the giant spending machine. How can it be that the stock market does not know this and dares to move lower in the face of unrest in the middle East? Maybe Goldman and Morgan had their electricity fail them as they moved to windwills for their power source to curry favor with the administration and the snowstorm knocked out the turbines. Their traders probably are unable to slam their usual buy orders into the S&P futures pit. Perhaps after the snowstorms subside….. Hey guys – get a generator if you want to get this thing right.
A last note – Eric King and I did our regular weekly metals wrap yesterday instead of today so when you do tune in, we will not be commenting on today’s price action in gold. I hope that this summary will make up for that. Also, if I see anything significant in the COT report today, I will post it up later. Like many of you I am anxious to see how the internals changed with these big drawdowns in the total OI. I am thinking that it is going to show up particularly in the “Other reportables” category.
Enjoy your weekend – who knows what we will wake up to Monday morning. A weekend of turmoil in the Mid East can lead to just about anything.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2011/01/January2811Gold.pdf
Thursday, January 27, 2011
S&P Downgrades Japan’s Sovereign Debt by Dan Norcini
Posted: Jan 27 2011 By: Dan Norcini Post Edited: January 27, 2011 at 1:10 pm
Filed under: Trader Dan Norcini
Filed under: Trader Dan Norcini
Dear Friends,
This morning news came down the wires that the rating agency S&P had downgraded Japan’s sovereign debt from ‘AA’ to ‘AA-‘. This is no small development. The reality is that Japan’s finances are in even worse shape than those of the US when its overall indebtedness is compared as a percentage of GDP. Japan is approaching a debt to GDP ratio of nearly 200%! Yes, you read that correctly. The only nation in the entire world that is higher is Zimbabwe. In effect, it would take the sum total of all economic activity generated in Japan over a two year period to eliminate the nation’s debt. Think about that!
What this means is that the rating agencies, who are watching these sovereign debt woes which have struck various countries in the EU, are concerned about the same problem beginning to surface in other quarters around the globe. Quite simply they are looking at the huge deficits being run by many nations in the West (and Japan). In other words – TOO MUCH DEBT!
That led to selling in the long end of the US yield curve this morning as bond traders are starting to be more than a bit fearful that the same thing is going to happen to the US’s ‘AAA’ rating at some point in the future if the US does not get its financial house in order. They are watching massive amounts of QE2 and another ballooning of the federal budget deficit and are selling even as the Fed attempts to jam the market higher with its purchases. AT this point, the only thing holding the long end of the curve is the Fed. How long can that last especially without affecting the Dollar?
More and more we see the integrity of sovereign debt being brought into doubt which leads to the question among many investors; “what is a safe haven that is actually safe?” Who wants to take the chance of holding a nation’s bonds if overnight they face the real risk of being downgraded?
The real world impact of this is that nations whose debt gets downgraded will have to offer potential investors a higher rate of return to compensate them for the increased risk of holding their debt. For nations already hopelessly in debt, that means borrowing costs begin to rise forcing them to borrow even more money just to keep their heads above water. The whole thing becomes a vicious cycle with rising interest rates compounding the problem.
The US has been able to sneak by and thus far avoid a rating agency’s downgrade partly because its borrowing costs are so low. Should these agencies begin to train their sights on the US and give closer scrutiny to its miserable financial condition, there is a chance that a downgrade could follow. Such a development, were it to indeed occur, would force the US to offer higher rates of return on its debt. That of course would raise its borrowing costs at a time when it can least afford it not to mention short circuiting the QE policy which is deliberately designed to lower borrowing costs.
This is why the take down in gold, after yesterday’s nice performance, is so remarkable for its perverseness and why long term oriented holders of the metal should not be the least bit concerned as to the antics taking place in the paper market. Sovereign debt woes are not behind us – the problem lies squarely ahead of us and no amount of wishful thinking is going to change that hard reality.
This being said, one of the things we now want to monitor will be the performance of gold when priced in terms of the Yen.
This morning news came down the wires that the rating agency S&P had downgraded Japan’s sovereign debt from ‘AA’ to ‘AA-‘. This is no small development. The reality is that Japan’s finances are in even worse shape than those of the US when its overall indebtedness is compared as a percentage of GDP. Japan is approaching a debt to GDP ratio of nearly 200%! Yes, you read that correctly. The only nation in the entire world that is higher is Zimbabwe. In effect, it would take the sum total of all economic activity generated in Japan over a two year period to eliminate the nation’s debt. Think about that!
What this means is that the rating agencies, who are watching these sovereign debt woes which have struck various countries in the EU, are concerned about the same problem beginning to surface in other quarters around the globe. Quite simply they are looking at the huge deficits being run by many nations in the West (and Japan). In other words – TOO MUCH DEBT!
That led to selling in the long end of the US yield curve this morning as bond traders are starting to be more than a bit fearful that the same thing is going to happen to the US’s ‘AAA’ rating at some point in the future if the US does not get its financial house in order. They are watching massive amounts of QE2 and another ballooning of the federal budget deficit and are selling even as the Fed attempts to jam the market higher with its purchases. AT this point, the only thing holding the long end of the curve is the Fed. How long can that last especially without affecting the Dollar?
More and more we see the integrity of sovereign debt being brought into doubt which leads to the question among many investors; “what is a safe haven that is actually safe?” Who wants to take the chance of holding a nation’s bonds if overnight they face the real risk of being downgraded?
The real world impact of this is that nations whose debt gets downgraded will have to offer potential investors a higher rate of return to compensate them for the increased risk of holding their debt. For nations already hopelessly in debt, that means borrowing costs begin to rise forcing them to borrow even more money just to keep their heads above water. The whole thing becomes a vicious cycle with rising interest rates compounding the problem.
The US has been able to sneak by and thus far avoid a rating agency’s downgrade partly because its borrowing costs are so low. Should these agencies begin to train their sights on the US and give closer scrutiny to its miserable financial condition, there is a chance that a downgrade could follow. Such a development, were it to indeed occur, would force the US to offer higher rates of return on its debt. That of course would raise its borrowing costs at a time when it can least afford it not to mention short circuiting the QE policy which is deliberately designed to lower borrowing costs.
This is why the take down in gold, after yesterday’s nice performance, is so remarkable for its perverseness and why long term oriented holders of the metal should not be the least bit concerned as to the antics taking place in the paper market. Sovereign debt woes are not behind us – the problem lies squarely ahead of us and no amount of wishful thinking is going to change that hard reality.
This being said, one of the things we now want to monitor will be the performance of gold when priced in terms of the Yen.
Wednesday, January 26, 2011
CCI Chart From Trader Dan with comments
CLICK THIS LINK FOR THE CHART:
http://jsmineset.com/wp-content/uploads/2011/01/January2611CCI.pdf
http://jsmineset.com/wp-content/uploads/2011/01/January2611CCI.pdf
DAN NORCINI'S WEDNESDAY COMMENTS AND CHART
Posted: Jan 26 2011 By: Dan Norcini Post Edited: January 26, 2011 at 2:38 pm
Filed under: Trader Dan Norcini
Filed under: Trader Dan Norcini
Dear CIGAs,
Widespread buying across the entire commodity complex was the order of the day today with the foods leading the charge higher once again. The grains were very strong with wheat charging above $8.60 as it reached its highest level since August 2008. Cotton prices continue to trade just off a 140 year high. Sugar and coffee were both sharply higher today as were the meats. Platinum, palladium and copper were all higher today as well and even crude was able to move north.
That buying lifted gold from off its worst levels as it once again moved down towards support near $1320 and held. Instead of the move lower attracting strong selling, it instead attracted a decent amount of buying. The buying was not enough to push it up significantly on the day but it was enough to reject the lower support level which is a friendly development on the price chart. Momentum to the downside is drying up for now in gold.
It also did not hurt matters any that the HUI was finally higher as that index looks to be sold out for now. They are a decent amount of buyers who are willing to buy the shares down near these levels as from a money management perspective, they have a rather small and well defined downside risk should the trade go south.
One day does not generally flip a market that quickly so how the market acts the rest of this week will be very telling. Still bulls have to be encouraged by the day’s action as the technical indicators are so deeply oversold on the HUI that any signs of stability will turn them to issuing buy signals rather quickly. If nothing else, it will force the bears who have made some pretty good profits on the way down to snatch them before they disappear.
The HUI will need to get above 516 – 517 or so to give us some signs that the low of yesterday is the bottom in this latest reaction. That, or another move lower which can hold above 490 before rebounding will be a good sign.
We will need to watch two things from this point today – first is how the Fed statement on policy is received by the markets at large. Second, whether some of the very big buyers of the physical metal are now going to decide that this is a level to commit to purchases in size. Those guys are trying to read the charts to a certain extent as well in an attempt to determine whether the spec long side liquidation has run its course and whether they should commit in larger size to planned purchases of the metal. It is only natural for buyers waiting in the wings to see if they can get something cheaper. If they feel that the reaction low is in, they will step in. As long as they believe that there is some further threat of fund long side liquidation, they will be hesitant to come into the market in force.
Monday’s open interest plunge apparently has caught the attention of a large number of these potential and actual buyers as well. The data released by the exchange this morning showed an increase in open interest indicating that we had a decent number of fresh shorts move in yesterday who were hoping for a downside break of $1320 and were salivating at the number of sell stops that were lurking there. The fact that price has not been able to reach those has likely caused some of these fresh shorts to cover.
Gold needs to get back above $1340 in short order to give the bulls a bit more breathing room however as it is not out of woods just yet. Bears are hoping for something in the way of news releases or economic data that will allow them to take out $1320.
Remember that huge rally in the bonds yesterday on the long end? It all disappeared today as this YO-YO continues. It is no longer a market but a gigantic, expensive yo-yo. Bond bears are watching the CCI and thinking in terms of inflation while the Fed comes in and monkeys with long term rates as part of their QE2 program. Up and down, up and down, with rallies being sold and dips being bought. It will continue until we get a convincing breakout one way or the other.
The S&P keeps heading higher as inflation is now fully entrenched in paper assets. Compared to real money – gold – the equity markets are going nowhere as one studies the Dow/Gold ratio or the S&P/Gold ratio. As far as I am concerned there is no difference between what is happening to the US stock markets as there was with Zimbabwe. The path of least resistance continues to be higher as there is so much funny money available courtesy of the Fed, that it is almost impossible for anyone to be short. That is exactly what they want anyhow. The Fed does not want even the slightest whiff of deflation and no doubt their henchmen are ecstatic at the huge rally that they have engineered in the US equity markets. Jam the equity markets higher and consumers see their 401K’s moving up in value and off to the retail outlets and malls they shall run, is the game plan by these scheming financial flim-flam artists.
The Dollar continues its recent bout of weakness as it took out support near 78 on the USDX but like yesterday it has managed to pop back above that critical level. It is trading nearly in identical fashion with gold although today did seem to me to show a bit more of the old link between an inverse move in the Dollar compared to gold. The Dollar chart really concerns me because as of now, there are no signs of bullish divergence in the indicators or anything else that might signal that the move lower is coming to an end. I am watching it carefully to see when it will uncover a definite, defined support level. It looks as it is trying to hold here near 78 but we shall see.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2011/01/January2611Gold.pdf
Widespread buying across the entire commodity complex was the order of the day today with the foods leading the charge higher once again. The grains were very strong with wheat charging above $8.60 as it reached its highest level since August 2008. Cotton prices continue to trade just off a 140 year high. Sugar and coffee were both sharply higher today as were the meats. Platinum, palladium and copper were all higher today as well and even crude was able to move north.
That buying lifted gold from off its worst levels as it once again moved down towards support near $1320 and held. Instead of the move lower attracting strong selling, it instead attracted a decent amount of buying. The buying was not enough to push it up significantly on the day but it was enough to reject the lower support level which is a friendly development on the price chart. Momentum to the downside is drying up for now in gold.
It also did not hurt matters any that the HUI was finally higher as that index looks to be sold out for now. They are a decent amount of buyers who are willing to buy the shares down near these levels as from a money management perspective, they have a rather small and well defined downside risk should the trade go south.
One day does not generally flip a market that quickly so how the market acts the rest of this week will be very telling. Still bulls have to be encouraged by the day’s action as the technical indicators are so deeply oversold on the HUI that any signs of stability will turn them to issuing buy signals rather quickly. If nothing else, it will force the bears who have made some pretty good profits on the way down to snatch them before they disappear.
The HUI will need to get above 516 – 517 or so to give us some signs that the low of yesterday is the bottom in this latest reaction. That, or another move lower which can hold above 490 before rebounding will be a good sign.
We will need to watch two things from this point today – first is how the Fed statement on policy is received by the markets at large. Second, whether some of the very big buyers of the physical metal are now going to decide that this is a level to commit to purchases in size. Those guys are trying to read the charts to a certain extent as well in an attempt to determine whether the spec long side liquidation has run its course and whether they should commit in larger size to planned purchases of the metal. It is only natural for buyers waiting in the wings to see if they can get something cheaper. If they feel that the reaction low is in, they will step in. As long as they believe that there is some further threat of fund long side liquidation, they will be hesitant to come into the market in force.
Monday’s open interest plunge apparently has caught the attention of a large number of these potential and actual buyers as well. The data released by the exchange this morning showed an increase in open interest indicating that we had a decent number of fresh shorts move in yesterday who were hoping for a downside break of $1320 and were salivating at the number of sell stops that were lurking there. The fact that price has not been able to reach those has likely caused some of these fresh shorts to cover.
Gold needs to get back above $1340 in short order to give the bulls a bit more breathing room however as it is not out of woods just yet. Bears are hoping for something in the way of news releases or economic data that will allow them to take out $1320.
Remember that huge rally in the bonds yesterday on the long end? It all disappeared today as this YO-YO continues. It is no longer a market but a gigantic, expensive yo-yo. Bond bears are watching the CCI and thinking in terms of inflation while the Fed comes in and monkeys with long term rates as part of their QE2 program. Up and down, up and down, with rallies being sold and dips being bought. It will continue until we get a convincing breakout one way or the other.
The S&P keeps heading higher as inflation is now fully entrenched in paper assets. Compared to real money – gold – the equity markets are going nowhere as one studies the Dow/Gold ratio or the S&P/Gold ratio. As far as I am concerned there is no difference between what is happening to the US stock markets as there was with Zimbabwe. The path of least resistance continues to be higher as there is so much funny money available courtesy of the Fed, that it is almost impossible for anyone to be short. That is exactly what they want anyhow. The Fed does not want even the slightest whiff of deflation and no doubt their henchmen are ecstatic at the huge rally that they have engineered in the US equity markets. Jam the equity markets higher and consumers see their 401K’s moving up in value and off to the retail outlets and malls they shall run, is the game plan by these scheming financial flim-flam artists.
The Dollar continues its recent bout of weakness as it took out support near 78 on the USDX but like yesterday it has managed to pop back above that critical level. It is trading nearly in identical fashion with gold although today did seem to me to show a bit more of the old link between an inverse move in the Dollar compared to gold. The Dollar chart really concerns me because as of now, there are no signs of bullish divergence in the indicators or anything else that might signal that the move lower is coming to an end. I am watching it carefully to see when it will uncover a definite, defined support level. It looks as it is trying to hold here near 78 but we shall see.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2011/01/January2611Gold.pdf
Tuesday, January 25, 2011
DAN NORCINI'S TUESDAY COMMENTS AND GOLD CHART
Posted: Jan 25 2011 By: Dan Norcini Post Edited: January 25, 2011 at 1:43 pm
Filed under: Trader Dan Norcini
Filed under: Trader Dan Norcini
Dear CIGAs,
Selling pressure on gold began immediately after the close of pit session trading yesterday and that selling continued into the overnight hours and then into today’s New York session. In the process, support near the critical $1320 level was tested and held. However, bulls are by no means yet out of the woods as the market still looks heavy right now. It is going to have to climb back above $1345 for starters to give the bulls some relief.
If $1320 were to give way on good volume, get ready for a bit longer protraction in this latest price retracement as that would turn the daily chart quite negative and even dent the bullish aspect of the heretofore armored weekly chart. The weekly is very close to forming a rounded top pattern which would imply a move as low as $1285 before we might see some concerted buying.
We will have to see when the overall spec long side liquidation winds down before we can stabilize. The faster they get out the better. Yesterday we had a massive drop in Open Interest of nearly 82,000 contracts spread across the entirety of the futures board as far out as December 2015. That is simply phenomenal for its sheer size. One has to wonder at this point how much more downside the market is going to be able to generate if those specs who are going to run have now already done so. At first glance I thought the numbers were erroneous!
What I am interested in watching is the extent to which these specs can ditch their longs and whether gold can hold its chart support levels. Rallies are going to be sold as long as price is below the important moving average levels but apparently there is a massive amount of short covering occurring into this long side liquidation as well. Remember a lot of these shorts have been underwater since August of last year. Some who might have been able to hold on in spite of the paper losses are viewing the massive spec selling as a gift into which they can buy and get flat or at the very least reduce some of their exposure to the short side.
Also, Gold is moving from weak hands into strong hands in this leg down. None of the issues that have given rise to the economic turmoil that has led the metals higher have been substantially dealt with. Instead they have been plastered over with money printing, the problems being essentially kicked down the road to be handled later. The hope is that “growth” will take care of the larger issues at hand. That is wishful thinking but for the time being, the Central Banks appear to be winning the battle based on the all the cork popping and toasting that is no doubt going on over in Davos. As said many times in my comments, if lasting prosperity could be built upon a foundation of spiraling debt, other generations far wiser and more frugal than this would have been long ago implemented it. Need more prosperity – just print more money. A massive federal debt of over $14 trillion, the highest in percentage terms of GDP since WWII; states, counties and municipalities in danger of bankruptcy or in serious budget deficits; hundreds of thousands of underwater mortgages, etc, is a problem that is not going to go away merely because electronic digits were transferred to the balance sheets of some entities by the charlatans at the Federal Reserve.
There is also a further inclination to sell commodities in general which is hurting silver in particular as copper and crude oil are both weak, a development which tends to bring the overall sector into disfavor for the time being. That is a complete 180 degree flip from recent weeks when the “improving economy” theme led to ideas that commodity prices were going to move higher as demand globally soared and “risk” trades were jammed on. My how fickle these lovers have become!
When one sees the grains, all of which have a very bullish set of fundamentals also experiencing selling, you can rest assured that it is hedge fund algorithm selling which is occurring. Wheat, which at the immediate moment has the most bullish set of fundamentals going for it was even dragged lower early in the session. Even cotton, which went on overnight to make yet another 140 year high in price, did not escape the selling as it moved over 500 points off its best level after posting that astonishing figure. About the only commodity that I can see that did not move lower today were the hogs, which keep moving steadily higher as the cost for a nice pork chop or some slices of bacon keep heading up and up and up.
The HUI, while weaker today is not utterly collapsing as it moves closer towards a critical support level near the 481 region. Considering the extent of the weakness in the bullion and the overall weakness in stocks today, it is no surprise that it is lower. Gold stocks however continue to get cheaper and cheaper with longer term oriented investors checking their powder to make sure it is dry. Watch for a move down into a new low for this leg followed by a higher close the same day for signs that the selling has been exhausted.
Now that consumer confidence is moving higher and the economy is improving bonds are moving higher. Yes, you read that correctly – higher. Nothing like official sector manipulation of interest rates in the name of sound economic management by the Central Bank to keep the markets running smoothly. One would think that with all the fears of QE being withdrawn by the Fed, (which is what is leading to selling in the commodity complex), that the bond market would be anticipating the same and would be moving lower since that is the sole factor that has been propping the market up. What do we get instead – more of the same QE as the Fed continues its purchases. Either the bond market has gotten it all wrong and the QE is going to continue indefinitely or the commodity sector has gotten it all wrong with that side of things expecting the QE to disappear. And one wonders why there is such stupidly insane volatility in all of our markets these days. If you want to find the chief culprit behind that, look no further than the boy wonders at the Fed, the source of all market mischief and mayhem.
Let’s see what kind of action we get in the Asian markets for gold overnight. I would not be surprised to learn that some of the bigger Asian Central Banks are also closely eying the gold chart in anticipation of a foray into the buy side. During times like these, try to remember the recent talk from some highly placed officials concerning gold’s re-entry into the monetary system. Such comments are not idle chatter but reflect the thinking taking place behind the scenes from many quarters. The nation with the most gold will end up making the rules – none of that is going to be lost on Asia, whose gold holdings as a percentage of their official reserves are pathetically low. Russia is well aware of this and that is why we got the news yesterday that they are going to continue to shore up their official gold holdings. Others nations from that side of the globe will do likewise.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2011/01/January2511Gold.pdf
Selling pressure on gold began immediately after the close of pit session trading yesterday and that selling continued into the overnight hours and then into today’s New York session. In the process, support near the critical $1320 level was tested and held. However, bulls are by no means yet out of the woods as the market still looks heavy right now. It is going to have to climb back above $1345 for starters to give the bulls some relief.
If $1320 were to give way on good volume, get ready for a bit longer protraction in this latest price retracement as that would turn the daily chart quite negative and even dent the bullish aspect of the heretofore armored weekly chart. The weekly is very close to forming a rounded top pattern which would imply a move as low as $1285 before we might see some concerted buying.
We will have to see when the overall spec long side liquidation winds down before we can stabilize. The faster they get out the better. Yesterday we had a massive drop in Open Interest of nearly 82,000 contracts spread across the entirety of the futures board as far out as December 2015. That is simply phenomenal for its sheer size. One has to wonder at this point how much more downside the market is going to be able to generate if those specs who are going to run have now already done so. At first glance I thought the numbers were erroneous!
What I am interested in watching is the extent to which these specs can ditch their longs and whether gold can hold its chart support levels. Rallies are going to be sold as long as price is below the important moving average levels but apparently there is a massive amount of short covering occurring into this long side liquidation as well. Remember a lot of these shorts have been underwater since August of last year. Some who might have been able to hold on in spite of the paper losses are viewing the massive spec selling as a gift into which they can buy and get flat or at the very least reduce some of their exposure to the short side.
Also, Gold is moving from weak hands into strong hands in this leg down. None of the issues that have given rise to the economic turmoil that has led the metals higher have been substantially dealt with. Instead they have been plastered over with money printing, the problems being essentially kicked down the road to be handled later. The hope is that “growth” will take care of the larger issues at hand. That is wishful thinking but for the time being, the Central Banks appear to be winning the battle based on the all the cork popping and toasting that is no doubt going on over in Davos. As said many times in my comments, if lasting prosperity could be built upon a foundation of spiraling debt, other generations far wiser and more frugal than this would have been long ago implemented it. Need more prosperity – just print more money. A massive federal debt of over $14 trillion, the highest in percentage terms of GDP since WWII; states, counties and municipalities in danger of bankruptcy or in serious budget deficits; hundreds of thousands of underwater mortgages, etc, is a problem that is not going to go away merely because electronic digits were transferred to the balance sheets of some entities by the charlatans at the Federal Reserve.
There is also a further inclination to sell commodities in general which is hurting silver in particular as copper and crude oil are both weak, a development which tends to bring the overall sector into disfavor for the time being. That is a complete 180 degree flip from recent weeks when the “improving economy” theme led to ideas that commodity prices were going to move higher as demand globally soared and “risk” trades were jammed on. My how fickle these lovers have become!
When one sees the grains, all of which have a very bullish set of fundamentals also experiencing selling, you can rest assured that it is hedge fund algorithm selling which is occurring. Wheat, which at the immediate moment has the most bullish set of fundamentals going for it was even dragged lower early in the session. Even cotton, which went on overnight to make yet another 140 year high in price, did not escape the selling as it moved over 500 points off its best level after posting that astonishing figure. About the only commodity that I can see that did not move lower today were the hogs, which keep moving steadily higher as the cost for a nice pork chop or some slices of bacon keep heading up and up and up.
The HUI, while weaker today is not utterly collapsing as it moves closer towards a critical support level near the 481 region. Considering the extent of the weakness in the bullion and the overall weakness in stocks today, it is no surprise that it is lower. Gold stocks however continue to get cheaper and cheaper with longer term oriented investors checking their powder to make sure it is dry. Watch for a move down into a new low for this leg followed by a higher close the same day for signs that the selling has been exhausted.
Now that consumer confidence is moving higher and the economy is improving bonds are moving higher. Yes, you read that correctly – higher. Nothing like official sector manipulation of interest rates in the name of sound economic management by the Central Bank to keep the markets running smoothly. One would think that with all the fears of QE being withdrawn by the Fed, (which is what is leading to selling in the commodity complex), that the bond market would be anticipating the same and would be moving lower since that is the sole factor that has been propping the market up. What do we get instead – more of the same QE as the Fed continues its purchases. Either the bond market has gotten it all wrong and the QE is going to continue indefinitely or the commodity sector has gotten it all wrong with that side of things expecting the QE to disappear. And one wonders why there is such stupidly insane volatility in all of our markets these days. If you want to find the chief culprit behind that, look no further than the boy wonders at the Fed, the source of all market mischief and mayhem.
Let’s see what kind of action we get in the Asian markets for gold overnight. I would not be surprised to learn that some of the bigger Asian Central Banks are also closely eying the gold chart in anticipation of a foray into the buy side. During times like these, try to remember the recent talk from some highly placed officials concerning gold’s re-entry into the monetary system. Such comments are not idle chatter but reflect the thinking taking place behind the scenes from many quarters. The nation with the most gold will end up making the rules – none of that is going to be lost on Asia, whose gold holdings as a percentage of their official reserves are pathetically low. Russia is well aware of this and that is why we got the news yesterday that they are going to continue to shore up their official gold holdings. Others nations from that side of the globe will do likewise.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2011/01/January2511Gold.pdf
Saturday, January 22, 2011
Trader Dan Comments On This Week’s COT Report
Posted: Jan 21 2011 By: Dan Norcini Post Edited: January 21, 2011 at 10:54 pm
Filed under: Trader Dan Norcini
Filed under: Trader Dan Norcini
Dear Friends,
This week’s analysis of the Commitments of Traders reports is a continuation of the recent pattern we have seen with Managed Money continuing its exodus from the long side of the gold market as well as some fresh selling from that category with new short positions being established. This category does not have a good track record of making much money while attempting to play the downside in gold. They have a habit of selling bottoms.
They are now at levels last seen in May 2009, 20 months ago when it comes to long side exposure. For comparative purposes, gold was trading at $920 when they were last at this level.
The commercial class continues to cover shorts into long side liquidation further reducing their overall exposure to the short side. Ditto for the swap dealers which for gold are basically the commercials under a different guise.
The general public, having bought the top, continues to exit and is coming down to more reasonable levels as suggested would need to occur in last week’s report at this site. We might need to bleed out another 10,000 of those longs in this camp before we set a bottom. A lot of them were probably caught today and Thursday after the battering gold took so their numbers are lower than today’s report suggests seeing it only covered the action through Tuesday of this week.
The “Other Reportables” camp still seems to me to be a bit heavy on gold exposure but their number of longs is slowly moving lower as some in their camp take out some fresh short positions. Maybe another 10,000 – 15,000 shift needs to occur here.
All in all, the report confirms the same old familiar pattern that we have seen in this market for nearly ten years now during each episode of price weakness.
Managed Money is still the big force in our markets today so until they cease liquidating longs we can head lower but once this camp levels off and returns to the long side, the next leg higher will commence. I like the fact that their numbers are so low on the long side yet gold is holding at a relatively high level, down only some 6% or so from off its recent peak even as their overall net long exposure has been cut nearly 100,000 contracts from September of last year.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2011/01/January2111COT.pdf
This week’s analysis of the Commitments of Traders reports is a continuation of the recent pattern we have seen with Managed Money continuing its exodus from the long side of the gold market as well as some fresh selling from that category with new short positions being established. This category does not have a good track record of making much money while attempting to play the downside in gold. They have a habit of selling bottoms.
They are now at levels last seen in May 2009, 20 months ago when it comes to long side exposure. For comparative purposes, gold was trading at $920 when they were last at this level.
The commercial class continues to cover shorts into long side liquidation further reducing their overall exposure to the short side. Ditto for the swap dealers which for gold are basically the commercials under a different guise.
The general public, having bought the top, continues to exit and is coming down to more reasonable levels as suggested would need to occur in last week’s report at this site. We might need to bleed out another 10,000 of those longs in this camp before we set a bottom. A lot of them were probably caught today and Thursday after the battering gold took so their numbers are lower than today’s report suggests seeing it only covered the action through Tuesday of this week.
The “Other Reportables” camp still seems to me to be a bit heavy on gold exposure but their number of longs is slowly moving lower as some in their camp take out some fresh short positions. Maybe another 10,000 – 15,000 shift needs to occur here.
All in all, the report confirms the same old familiar pattern that we have seen in this market for nearly ten years now during each episode of price weakness.
Managed Money is still the big force in our markets today so until they cease liquidating longs we can head lower but once this camp levels off and returns to the long side, the next leg higher will commence. I like the fact that their numbers are so low on the long side yet gold is holding at a relatively high level, down only some 6% or so from off its recent peak even as their overall net long exposure has been cut nearly 100,000 contracts from September of last year.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2011/01/January2111COT.pdf
Trader Dan Comment’s On Greenspan’s Gold Standard
Posted: Jan 22 2011 By: Dan Norcini Post Edited: January 22, 2011 at 12:16 am
Filed under: Trader Dan Norcini
Filed under: Trader Dan Norcini
Friends,
I want to go on record with comments about Alan Greenspan’s remarks about a gold standard that hit the news today. That this man, who has rightly been criticized for speaking in riddles so that his hearers could take from his comments that which they wanted to hear him say, has now apparently changed his tune once again and yet can do so without the least bit of remorse is infuriating to me. He basked in the accolades of his peers in the financial community being acclaimed, “The Maestro”, because of his supposed ability to deal with financial crises and keep the US economy humming along in spite of it all come hell or high water. Yet we all know that his manner of so doing was to ramp up the printing presses and have them running at warp speed, flooding the system with liquidity at the first sign of any potential danger signs. Whether it was Mexico, or Russia, or Y2K, or the breaking of the tech stock bubble , his solution was always the same, lower interest rates and increase liquidity.
It was under his watch that the stock market bubble burst at the beginning of the last decade which up until it did, he praised as the outcome of increases in productivity. It was he that praised the gigantic derivatives market as another arrow in the quiver of productivity until we all watched it disintegrate into a heap of goo as Lehman Brothers went under, setting off a cascade of defaults and credit deleveraging, the effects of which are still being felt today.
It was his policy of keeping interest rates artificially low that blew one bubble after another which moved from one sector to another, first in stocks, then in housing and then finally in commodities until they all burst in succession.
Yet, now that he is out of his office and no longer has to be the politician and the Central Banker, he can call for a return to some mechanism to hinder his successor from the creation of unlimited amounts of fiat currency in order to prevent the “deleterious” effects of inflation, as he terms it. Why did he not use his pulpit during his tenure to advocate such a thing as a return to some sort of gold standard or currency board? He shares as much blame as any for the condition of the US Dollar and the horrific mess that has been created by Federal Reserve policies over the last decade. While Chairman Bernanke is engaging in Quantitative Easing, he is only following the policies of his predecessor to their logical conclusion.
Here are the former Chairman’s own words in Congressional Testimony taken in July, 2005 in response to a question and some comments posed by Congressman Ron Paul. Note his remarks about returning to a gold standard a mere 6 years ago and contrast those with his recent comments of today. Note also the absurd comment in the last sentence that Central Bankers had been acting responsibly:
And the answer is: I don’t think so, because we’re acting as though we were there.
"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. … This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property
rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard."
I want to go on record with comments about Alan Greenspan’s remarks about a gold standard that hit the news today. That this man, who has rightly been criticized for speaking in riddles so that his hearers could take from his comments that which they wanted to hear him say, has now apparently changed his tune once again and yet can do so without the least bit of remorse is infuriating to me. He basked in the accolades of his peers in the financial community being acclaimed, “The Maestro”, because of his supposed ability to deal with financial crises and keep the US economy humming along in spite of it all come hell or high water. Yet we all know that his manner of so doing was to ramp up the printing presses and have them running at warp speed, flooding the system with liquidity at the first sign of any potential danger signs. Whether it was Mexico, or Russia, or Y2K, or the breaking of the tech stock bubble , his solution was always the same, lower interest rates and increase liquidity.
It was under his watch that the stock market bubble burst at the beginning of the last decade which up until it did, he praised as the outcome of increases in productivity. It was he that praised the gigantic derivatives market as another arrow in the quiver of productivity until we all watched it disintegrate into a heap of goo as Lehman Brothers went under, setting off a cascade of defaults and credit deleveraging, the effects of which are still being felt today.
It was his policy of keeping interest rates artificially low that blew one bubble after another which moved from one sector to another, first in stocks, then in housing and then finally in commodities until they all burst in succession.
Yet, now that he is out of his office and no longer has to be the politician and the Central Banker, he can call for a return to some mechanism to hinder his successor from the creation of unlimited amounts of fiat currency in order to prevent the “deleterious” effects of inflation, as he terms it. Why did he not use his pulpit during his tenure to advocate such a thing as a return to some sort of gold standard or currency board? He shares as much blame as any for the condition of the US Dollar and the horrific mess that has been created by Federal Reserve policies over the last decade. While Chairman Bernanke is engaging in Quantitative Easing, he is only following the policies of his predecessor to their logical conclusion.
Here are the former Chairman’s own words in Congressional Testimony taken in July, 2005 in response to a question and some comments posed by Congressman Ron Paul. Note his remarks about returning to a gold standard a mere 6 years ago and contrast those with his recent comments of today. Note also the absurd comment in the last sentence that Central Bankers had been acting responsibly:
“But as I’ve testified here before to a similar question, central bankers began to realize in the late 1970s how deleterious a factor the inflation was.So that the question is: Would there be any advantage, at this particular stage, in going back to the gold standard?
And, indeed, since the late ’70s, central bankers generally have behaved as though we were on the gold standard.
And, indeed, the extent of liquidity contraction that has occurred as a consequence of the various different efforts on the part of monetary authorities is a clear indication that we recognize that excessive creation of liquidity creates inflation which, in turn, undermines economic growth.”
And the answer is: I don’t think so, because we’re acting as though we were there.
“Would it have been a question at least open in 1981, as you put it? And the answer is yes.Alan Greenspan today:
Remember, the gold price was $800 an ounce. We were dealing with extraordinary imbalances, interest rates were up sharply, the system looked to be highly unstable and we needed to do something.
Now, we did something. The United States Paul Volcker, as you may recall, in 1979 came into office and put a very severe clamp on the expansion of credit, and that led to a long sequence of events here, which we are benefiting from up to this date.
So I think central banking, I believe, has learned the dangers of fiat money, and I think, as a consequence of that, we’ve behaved as though there are, indeed, real reserves underneath the system.”
"We have at this particular stage a fiat money which is essentially money printed by a government and it’s usually a central bank which is authorized to do so. Some mechanism has got to be in place that restricts the amount of money which is produced, either a gold standard or a currency board, because unless you do that all of history suggest that inflation will take hold with very deleterious effects on economic activity… There are numbers of us, myself included, who strongly believe that we did very well in the 1870 to 1914 period with an international gold standard."Alan Greenspan 40 years ago:
"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. … This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property
rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard."
Friday, January 21, 2011
DAN NORCINI'S FRIDAY COMMENTS AND CHARTS
Posted: Jan 21 2011 By: Dan Norcini Post Edited: January 21, 2011 at 2:09 pm
Filed under: Trader Dan Norcini
Filed under: Trader Dan Norcini
Dear Friends;
Please note the CCI chart and the US Dollar chart as the CCI has plowed into new all time record highs today once again and looks to be setting a new all time record high weekly close as well. The grains and softs are leading the way with wheat now firmly above $8.00 and pushing towards $8.50 with corn shrugging over a bearish technical sign from Wednesday and going on to set a fresh 30 month high in price. Coffee, sugar and cocoa are all strong and lumber is at limit up. One thing is certain – there is yet no letup in the inexorable rise in food prices.
Platinum and palladium are higher today and copper thus far has held support near $4.20 and moved back up once again.
The strength in the base metals suggests that silver should stabilize soon with gold in a following role to it for the time being.
Crude, while weak today, is holding near $89 and natural gas is higher. Unleaded gasoline is up 4 cents a gallon here near midday.
Also note that it is no coincidence that the Dollar has succumbed to further selling pressure today as fears regarding European sovereign debt woes have taken a back seat to the long term, deeply entrenched structural problems in the US concerning its enormous indebtedness and further QE.
One last thing – note the game being played with the bond market by the Fed as I commented on yesterday. There was ZERO downside price action in the reopen of trading for bonds early in the evening yesterday after they were crushed during the session. Upon the reopen they immediately popped higher, saw NO FOLLOW THROUGH selling of any kind (not normal), and are up more than half a point today even as the commodity sector is showing fresh signs of strength and the equity markets are also strong. In short, the officially sanctioned rigging of the US bond market continues.
No doubt China is taking notice while the US calls it out for currency manipulation.
DAN'S THREE CHARTS:
http://jsmineset.com/wp-content/uploads/2011/01/January2111Gold.pdf
http://jsmineset.com/wp-content/uploads/2011/01/January2111CCI.pdf
http://jsmineset.com/wp-content/uploads/2011/01/January2111USD.pdf
Please note the CCI chart and the US Dollar chart as the CCI has plowed into new all time record highs today once again and looks to be setting a new all time record high weekly close as well. The grains and softs are leading the way with wheat now firmly above $8.00 and pushing towards $8.50 with corn shrugging over a bearish technical sign from Wednesday and going on to set a fresh 30 month high in price. Coffee, sugar and cocoa are all strong and lumber is at limit up. One thing is certain – there is yet no letup in the inexorable rise in food prices.
Platinum and palladium are higher today and copper thus far has held support near $4.20 and moved back up once again.
The strength in the base metals suggests that silver should stabilize soon with gold in a following role to it for the time being.
Crude, while weak today, is holding near $89 and natural gas is higher. Unleaded gasoline is up 4 cents a gallon here near midday.
Also note that it is no coincidence that the Dollar has succumbed to further selling pressure today as fears regarding European sovereign debt woes have taken a back seat to the long term, deeply entrenched structural problems in the US concerning its enormous indebtedness and further QE.
One last thing – note the game being played with the bond market by the Fed as I commented on yesterday. There was ZERO downside price action in the reopen of trading for bonds early in the evening yesterday after they were crushed during the session. Upon the reopen they immediately popped higher, saw NO FOLLOW THROUGH selling of any kind (not normal), and are up more than half a point today even as the commodity sector is showing fresh signs of strength and the equity markets are also strong. In short, the officially sanctioned rigging of the US bond market continues.
No doubt China is taking notice while the US calls it out for currency manipulation.
DAN'S THREE CHARTS:
http://jsmineset.com/wp-content/uploads/2011/01/January2111Gold.pdf
http://jsmineset.com/wp-content/uploads/2011/01/January2111CCI.pdf
http://jsmineset.com/wp-content/uploads/2011/01/January2111USD.pdf
Thursday, January 20, 2011
DAN NORCINI'S THURSDAY COMMENTS AND GOLD CHART
Posted: Jan 20 2011 By: Dan Norcini Post Edited: January 20, 2011 at 2:53 pm
Filed under: Trader Dan Norcini
Filed under: Trader Dan Norcini
Dear CIGAs,
Weakness in gold and silver were blamed on several factors as trade moved into New York this morning.
Overnight Brazil hiked its core interest rate by 50 basis points and there was additional chatter of further interest rate hikes in China to combat surging inflation pressures on the heels of some data out of that quarter suggesting previous hikes in both interest rates and reserve ratio requirements are not having much effect on taming price rises. That led to a general reduction of the “risk trades” and selling in commodities as a whole. Witness the case of the two markets I like to track in the sector, copper and crude, which were both sharply lower, crude oil failing to hold support at $90 and copper getting spanked for more than 10 cents. Even corn, which has a strongly bullish set of fundamentals did not escape the selling barrage when it opened for trading in the pit this morning although it did finally absorb the algorithm selling before moving higher again. At least fundamentals are still ruling in a few of our markets. Ditto for wheat which is now trading above the $8.00 level as I prepare these comments. Food prices continue to rise – period.
There was also an unemployment number which came in lower than some were expecting leading some to talk up the prospects of the US economy which brought some strength into the US Dollar. The Dollar also was the recipient of a sharp selloff in the Yen and the commodity based currencies which moved lower as the risk trades were dumped. (Bonds were also sold down).
There was also the rather strange report out of the CME Group that the mini gold contract was to be delisted. This is the 33 ounce contract not the micro gold contract. This abrupt announcement, without any explanation, (there was a blurb on their website) had many traders wondering what was going on and why. Some sold first and waited for an explanation later. I am still going to try to see if I can find out what the reason behind that sudden announcement was.
All of the above combined with a rather big onslaught of selling in gold and especially in silver which took out a critical support level on its daily chart.
Gold dropped as low as $1342 on its chart, a level which it must now hold to prevent a deeper correction down towards the $1320 level. The daily chart pattern has taken on a decidedly negative aspect with today’s sharp move lower. Perhaps a bit of saving grace for the metal is that the funds have been liquidating longs for some time now and have greatly reduced long side exposure back to levels last seen when gold was trading closer to $920 or so. That will help some but if for some reason the price level were to break down through $1320, a very substantial long side selling rout would take place that would damage investor sentiment towards gold in the immediate term. We’ll have to see where and when this selling barrage finds a respite. Bears were attempting to force it down through $1340 throughout the session but after the initial drop down towards that level, were unable to do so. Volume was very heavy today suggesting a great deal of emotional based selling. It is going to take some time to therefore repair the damage to the bullish psyche. Even with today’s sell off in gold, it is only down about 6% off its recent peak. Considering the fact that it has moved up 24% since July of last year, that is really insignificant.
Euro gold dipped under the 1,000 Euro mark for the first time since November of last year at today’s PM Fix. It would need to hold above €950 to prevent a wave of deeper selling on that side of the globe as that would do some damage to the gold chart when viewed in terms of the Euro.
On the weekly chart, gold is forming what can be viewed as a potential rounded top formation with support evident near the $1320 level. That is why this level is important for the metal to hold to prevent a deeper setback towards $1285 – $1280. It will take a closing push past $1370 to now turn the tide in favor of the bulls with $1380 to uncover buy stops from fresh shorts.
Silver’s breach of $28, a critical chart support level, casts a negative pall over that market. It had been uncovering some decent buying support near the 50 day moving average but that simply evaporated in the general rout among the metals today. Tightness in the physical market is apparently no match for the paper market. Used to be that in the childhood game of rock, paper, scissors, that paper covered rock so I suppose the same applies with the Comex paper market. It now needs to hold $27 or it will drop to $26.40 or so with the potential for $25 in the cards should it fail to stabilize near that level.
The HUI gapped lower today and now looks like it might want to head down towards the 490 level. It is extremely oversold on the daily technical charts and looks to be approaching levels that should put a halt to the severe selling. The region near 480, the 50 week moving average, should stabilize the sector, as it has proved to be a good level since July 2009 at containing all downward thrusts in price. Bottom pickers will probably begin nibbling soon.
Bonds were absolutely crushed today falling nearly two full points again in yet again a repeat of the pattern that we have now been spectator to for the last month. They are unloaded whenever it appears that the global economy is entering a period of rising interest rates only to be artificially manipulated higher by the Fed’s QE purchases which then cause an almost immediate rebound from off the lows as bond traders anticipate the next entry by the Fed into the bond market. As said many times over the last month, the market is a joke with everyone on the planet being able to see the game being played by the Fed. Specs came in and sell them lower only to then have a certain crowd jump in and bid them right back up in front of the Fed with more specs then waiting to unload their freshly purchased bonds into the hands of the Fed and then repeat. Lather, rinse, repeat. I am going to watch and see if the bonds immediately move higher on the reopen of trading early this evening. That has been the pattern and will reveal that the crowd is once again expecting them to come in and put another floor under the market.
It will continue to work until it doesn’t. Heaven help us all if 118^20 gives way on big volume. Then again, with a total commitment of $600 billion in freshly created “money” to be thrown at the market, it is difficult to imagine that. For now we play the game with the rest of the crowd and do the bidding of our monetary masters. This is what particularly galls me whenever I read comments from public US officials who have the temerity to lecture the Chinese on the level of the yuan.
The Dollar was resuscitated right on schedule today as it is attempting to recapture important chart support near the 79 level on its daily price chart. Technicals are pointing lower however. What is amazing is that one can lay a chart of gold over the chart of the Dollar and the two markets have had nearly identical chart patterns since November of last year. I am not sure what to make of this just yet. One would expect a breach of support in the Dollar to garner buying interest in gold but that has not been the case for the last two months.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2011/01/January2011Gold.pdf
Weakness in gold and silver were blamed on several factors as trade moved into New York this morning.
Overnight Brazil hiked its core interest rate by 50 basis points and there was additional chatter of further interest rate hikes in China to combat surging inflation pressures on the heels of some data out of that quarter suggesting previous hikes in both interest rates and reserve ratio requirements are not having much effect on taming price rises. That led to a general reduction of the “risk trades” and selling in commodities as a whole. Witness the case of the two markets I like to track in the sector, copper and crude, which were both sharply lower, crude oil failing to hold support at $90 and copper getting spanked for more than 10 cents. Even corn, which has a strongly bullish set of fundamentals did not escape the selling barrage when it opened for trading in the pit this morning although it did finally absorb the algorithm selling before moving higher again. At least fundamentals are still ruling in a few of our markets. Ditto for wheat which is now trading above the $8.00 level as I prepare these comments. Food prices continue to rise – period.
There was also an unemployment number which came in lower than some were expecting leading some to talk up the prospects of the US economy which brought some strength into the US Dollar. The Dollar also was the recipient of a sharp selloff in the Yen and the commodity based currencies which moved lower as the risk trades were dumped. (Bonds were also sold down).
There was also the rather strange report out of the CME Group that the mini gold contract was to be delisted. This is the 33 ounce contract not the micro gold contract. This abrupt announcement, without any explanation, (there was a blurb on their website) had many traders wondering what was going on and why. Some sold first and waited for an explanation later. I am still going to try to see if I can find out what the reason behind that sudden announcement was.
All of the above combined with a rather big onslaught of selling in gold and especially in silver which took out a critical support level on its daily chart.
Gold dropped as low as $1342 on its chart, a level which it must now hold to prevent a deeper correction down towards the $1320 level. The daily chart pattern has taken on a decidedly negative aspect with today’s sharp move lower. Perhaps a bit of saving grace for the metal is that the funds have been liquidating longs for some time now and have greatly reduced long side exposure back to levels last seen when gold was trading closer to $920 or so. That will help some but if for some reason the price level were to break down through $1320, a very substantial long side selling rout would take place that would damage investor sentiment towards gold in the immediate term. We’ll have to see where and when this selling barrage finds a respite. Bears were attempting to force it down through $1340 throughout the session but after the initial drop down towards that level, were unable to do so. Volume was very heavy today suggesting a great deal of emotional based selling. It is going to take some time to therefore repair the damage to the bullish psyche. Even with today’s sell off in gold, it is only down about 6% off its recent peak. Considering the fact that it has moved up 24% since July of last year, that is really insignificant.
Euro gold dipped under the 1,000 Euro mark for the first time since November of last year at today’s PM Fix. It would need to hold above €950 to prevent a wave of deeper selling on that side of the globe as that would do some damage to the gold chart when viewed in terms of the Euro.
On the weekly chart, gold is forming what can be viewed as a potential rounded top formation with support evident near the $1320 level. That is why this level is important for the metal to hold to prevent a deeper setback towards $1285 – $1280. It will take a closing push past $1370 to now turn the tide in favor of the bulls with $1380 to uncover buy stops from fresh shorts.
Silver’s breach of $28, a critical chart support level, casts a negative pall over that market. It had been uncovering some decent buying support near the 50 day moving average but that simply evaporated in the general rout among the metals today. Tightness in the physical market is apparently no match for the paper market. Used to be that in the childhood game of rock, paper, scissors, that paper covered rock so I suppose the same applies with the Comex paper market. It now needs to hold $27 or it will drop to $26.40 or so with the potential for $25 in the cards should it fail to stabilize near that level.
The HUI gapped lower today and now looks like it might want to head down towards the 490 level. It is extremely oversold on the daily technical charts and looks to be approaching levels that should put a halt to the severe selling. The region near 480, the 50 week moving average, should stabilize the sector, as it has proved to be a good level since July 2009 at containing all downward thrusts in price. Bottom pickers will probably begin nibbling soon.
Bonds were absolutely crushed today falling nearly two full points again in yet again a repeat of the pattern that we have now been spectator to for the last month. They are unloaded whenever it appears that the global economy is entering a period of rising interest rates only to be artificially manipulated higher by the Fed’s QE purchases which then cause an almost immediate rebound from off the lows as bond traders anticipate the next entry by the Fed into the bond market. As said many times over the last month, the market is a joke with everyone on the planet being able to see the game being played by the Fed. Specs came in and sell them lower only to then have a certain crowd jump in and bid them right back up in front of the Fed with more specs then waiting to unload their freshly purchased bonds into the hands of the Fed and then repeat. Lather, rinse, repeat. I am going to watch and see if the bonds immediately move higher on the reopen of trading early this evening. That has been the pattern and will reveal that the crowd is once again expecting them to come in and put another floor under the market.
It will continue to work until it doesn’t. Heaven help us all if 118^20 gives way on big volume. Then again, with a total commitment of $600 billion in freshly created “money” to be thrown at the market, it is difficult to imagine that. For now we play the game with the rest of the crowd and do the bidding of our monetary masters. This is what particularly galls me whenever I read comments from public US officials who have the temerity to lecture the Chinese on the level of the yuan.
The Dollar was resuscitated right on schedule today as it is attempting to recapture important chart support near the 79 level on its daily price chart. Technicals are pointing lower however. What is amazing is that one can lay a chart of gold over the chart of the Dollar and the two markets have had nearly identical chart patterns since November of last year. I am not sure what to make of this just yet. One would expect a breach of support in the Dollar to garner buying interest in gold but that has not been the case for the last two months.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2011/01/January2011Gold.pdf
Wednesday, January 19, 2011
Trader Dan Comments On Today’s Sobering Dollar Action
Posted: Jan 19 2011 By: Dan Norcini Post Edited: January 19, 2011 at 5:26 pm
Filed under: Trader Dan Norcini
Filed under: Trader Dan Norcini
Dear Friends,
I am posting two charts today of the US Dollar – one in the form of the USDX which is what I typically detail; the other is the Broad Dollar Index which I continue to track but have not posted in some time now as I have been waiting for a larger pattern to unfold.
The Broad Dollar Index is as its name aptly describes it, a broad measure of the Dollar against a much larger basket of currencies that the USDX and in my opinion provides a bit better measurement of the Dollar’s standing on the global stage than the narrower USDX.
Both charts are showing a breakdown of support levels which while significant still need some additional confirmation on a weekly basis.
The Broad Dollar Index chart is of great concern as it has failed to recapture a broken support level and looks to be set for a downside test of the next important level of chart support. That particular level near 97.50 is the last line between it and a potential move towards the 2008 low made just prior to the eruption of the credit crisis and which was also a 13 year low. I do not even want to contemplate what will happen should that level give way.
What appears to be happening in the Forex markets at the present time is that as fears or concerns regarding the condition of European sovereign debt issues fade, the Dollar is encountering selling pressure as its perceived “safe haven” status becomes less desirable with traders focusing on structural problems in the US. Those problems were brought to the forefront of traders’ minds with the release of today’s pitiful housing starts number which came in lower than many analysts were expecting.
It also did not help matters that our “friends” at Goldman did not impress the markets with their earnings numbers.
It seems to me that at least for today, traders were looking at housing numbers, poor bank earnings, poor employment numbers and of course the ever present mind boggling amounts of QE and just decided that they wanted no part of the Dollar. If this psyche continues to take deeper hold, the greenback could find itself being jilted by its recent lovers and back on the skids once again.
Such an occurrence would engender further algorithm related buying of commodities, which, while corn and beans were noticeably weak today ( wheat pushed through the $8.00 level before closing just below it) as was copper and even crude, would continue to feed into the inflation psychology which is gaining traction. I noticed that in spite of weakness across a decent number of commodity markets today, the CCI, Continuous Commodity Index, pushed up to yet another all time high before moving a tad lower off of that level.
I should also note that while lumber prices were a tad lower today off the poor housing number, they are still well off their lows made last year. Even this market is apparently not immune from the “buy commodites” strategy being employed by the hedge funds.
Gold and silver are both still range bound. I will continue to monitor both markets for evidence that is changing.
The HUI is lower once again, this time from spillover weakness in the broader S&P and lack of strong upside in the metals. The charts are showing it in a oversold position but thus far it cannot seem to muster the strength necessary to flip some of those indicators into generating buy signals. It would not take much to do so however as some of the indicators I track are at the lowest level since February of 2010.
DAN'S CHARTS:
http://jsmineset.com/wp-content/uploads/2011/01/Dollar-charts-1-18-2011.pdf
I am posting two charts today of the US Dollar – one in the form of the USDX which is what I typically detail; the other is the Broad Dollar Index which I continue to track but have not posted in some time now as I have been waiting for a larger pattern to unfold.
The Broad Dollar Index is as its name aptly describes it, a broad measure of the Dollar against a much larger basket of currencies that the USDX and in my opinion provides a bit better measurement of the Dollar’s standing on the global stage than the narrower USDX.
Both charts are showing a breakdown of support levels which while significant still need some additional confirmation on a weekly basis.
The Broad Dollar Index chart is of great concern as it has failed to recapture a broken support level and looks to be set for a downside test of the next important level of chart support. That particular level near 97.50 is the last line between it and a potential move towards the 2008 low made just prior to the eruption of the credit crisis and which was also a 13 year low. I do not even want to contemplate what will happen should that level give way.
What appears to be happening in the Forex markets at the present time is that as fears or concerns regarding the condition of European sovereign debt issues fade, the Dollar is encountering selling pressure as its perceived “safe haven” status becomes less desirable with traders focusing on structural problems in the US. Those problems were brought to the forefront of traders’ minds with the release of today’s pitiful housing starts number which came in lower than many analysts were expecting.
It also did not help matters that our “friends” at Goldman did not impress the markets with their earnings numbers.
It seems to me that at least for today, traders were looking at housing numbers, poor bank earnings, poor employment numbers and of course the ever present mind boggling amounts of QE and just decided that they wanted no part of the Dollar. If this psyche continues to take deeper hold, the greenback could find itself being jilted by its recent lovers and back on the skids once again.
Such an occurrence would engender further algorithm related buying of commodities, which, while corn and beans were noticeably weak today ( wheat pushed through the $8.00 level before closing just below it) as was copper and even crude, would continue to feed into the inflation psychology which is gaining traction. I noticed that in spite of weakness across a decent number of commodity markets today, the CCI, Continuous Commodity Index, pushed up to yet another all time high before moving a tad lower off of that level.
I should also note that while lumber prices were a tad lower today off the poor housing number, they are still well off their lows made last year. Even this market is apparently not immune from the “buy commodites” strategy being employed by the hedge funds.
Gold and silver are both still range bound. I will continue to monitor both markets for evidence that is changing.
The HUI is lower once again, this time from spillover weakness in the broader S&P and lack of strong upside in the metals. The charts are showing it in a oversold position but thus far it cannot seem to muster the strength necessary to flip some of those indicators into generating buy signals. It would not take much to do so however as some of the indicators I track are at the lowest level since February of 2010.
DAN'S CHARTS:
http://jsmineset.com/wp-content/uploads/2011/01/Dollar-charts-1-18-2011.pdf
Saturday, January 15, 2011
Trader Dan Comments On This Week’s COT Report
Posted: Jan 15 2011 By: Dan Norcini Post Edited: January 15, 2011 at 8:14 pm
Filed under: Trader Dan Norcini
Filed under: Trader Dan Norcini
Dear Friends,
The weekly Commitment of Traders Report released yesterday (Friday) has a detail that I believe merits bringing to your attention.
Managed Money, which is basically the hedge funds, is now down to the lowest level of net long positions held since July 2009. They are now down nearly 86,000 net longs from the point at which gold made its recent record high. It should be noted that the COT report only covers through the Tuesday of the current week and therefore does not catch any developments in the markets that occur Wednesday through the close of trading on Friday. On Tuesday, gold closed at $1384. By Friday it has dropped over $30 from that level as additional fund long liquidation was underway. The point is that the net long position of these hedge funds has undoubtedly dropped to an even lower level.
In spite of the relatively low level of fund long side exposure, gold is sitting a mere $70 off its all time high. That bodes well for gold moving forward as any “froth” that might have been in the gold market from the hedge fund community has been to a great extent wrung out.
The general public, the small specs, who generally tend to buy at tops and sell at bottoms, is still relatively high on long side exposure but I suspect a larger number of them have been flushed out in Friday’s steep drop. They do not generally have pockets deep enough to sustain drops of large magnitude and are most often the recipients of “courtesy calls” from the margin clerks.
The other reportables, which includes the CTA’s and large local and private traders are a bit extended to the long side yet so we will have to see whether or not the shorts can try to further flush this camp. They have generally been averaging a net long side exposure of near 40,000 contracts. As of Tuesday they were near 57,000 which was also probably further reduced in the subsequent price action of Thursday and Friday. We might need to see this camp bleed down a bit more before feeling confident enough that the liquidation from their quarter has been exhausted.
All in all, while the COT report is not bullish, it certainly cannot be considered bearish and might even be called a tad friendly particularly based on the now greatly reduced long side exposure of managed money accounts, which are the real drivers of today’s commodity markets. When this camp begins to return to the gold market in size is when we will see the next leg higher commence.
By the way, the last time that the Managed Money was at this level of net long side exposure, the price of gold was trading at $922.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2011/01/Gold-COT-1-14-2011.pdf
The weekly Commitment of Traders Report released yesterday (Friday) has a detail that I believe merits bringing to your attention.
Managed Money, which is basically the hedge funds, is now down to the lowest level of net long positions held since July 2009. They are now down nearly 86,000 net longs from the point at which gold made its recent record high. It should be noted that the COT report only covers through the Tuesday of the current week and therefore does not catch any developments in the markets that occur Wednesday through the close of trading on Friday. On Tuesday, gold closed at $1384. By Friday it has dropped over $30 from that level as additional fund long liquidation was underway. The point is that the net long position of these hedge funds has undoubtedly dropped to an even lower level.
In spite of the relatively low level of fund long side exposure, gold is sitting a mere $70 off its all time high. That bodes well for gold moving forward as any “froth” that might have been in the gold market from the hedge fund community has been to a great extent wrung out.
The general public, the small specs, who generally tend to buy at tops and sell at bottoms, is still relatively high on long side exposure but I suspect a larger number of them have been flushed out in Friday’s steep drop. They do not generally have pockets deep enough to sustain drops of large magnitude and are most often the recipients of “courtesy calls” from the margin clerks.
The other reportables, which includes the CTA’s and large local and private traders are a bit extended to the long side yet so we will have to see whether or not the shorts can try to further flush this camp. They have generally been averaging a net long side exposure of near 40,000 contracts. As of Tuesday they were near 57,000 which was also probably further reduced in the subsequent price action of Thursday and Friday. We might need to see this camp bleed down a bit more before feeling confident enough that the liquidation from their quarter has been exhausted.
All in all, while the COT report is not bullish, it certainly cannot be considered bearish and might even be called a tad friendly particularly based on the now greatly reduced long side exposure of managed money accounts, which are the real drivers of today’s commodity markets. When this camp begins to return to the gold market in size is when we will see the next leg higher commence.
By the way, the last time that the Managed Money was at this level of net long side exposure, the price of gold was trading at $922.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2011/01/Gold-COT-1-14-2011.pdf
Friday, January 14, 2011
DAN NORCINI'S FRIDAY COMMENTS AND GOLD CHART
Posted: Jan 14 2011 By: Dan Norcini Post Edited: January 14, 2011 at 2:09 pm
Filed under: Trader Dan Norcini
Filed under: Trader Dan Norcini
Dear CIGAs,
Once again we have a front row seat in the battle between China and the US when it comes to the Federal Reserve’s global inflationary policy, aka, Quantitative Easing 2.
With the Fed persisting on conjuring “wealth” into existence and working to manipulate and deliberately distort the long end of the yield curve, China is fighting to contain the effects of excess liquidity coming its way. It is almost as if Bernanke has uttered the command to: “Release the Kraken”, in this case the terrible Titan being the inflation monster.
The Chinese authorities have good reason to fear the rise of this beast as it, perhaps above all things at the current moment, has the single greatest potential to create unrest and social disorder in their nation. The Fed has been exporting inflation around the globe and nowhere is that showing up more forcefully than in the rising cost of food. Yes, basic material costs are soaring in China but the authorities can live with that – it is food that worries them seeing that the average Chinese worker spends a much larger percentage of their overall income on food than do their counterparts here in the US.
In yet another attempt to try to rein in price rises, the Chinese raised bank reserve ratios to try to slow down growth somewhat and perhaps pull back some of the fuel that might be contributing to the problems that they are dealing with. Of course, once the news hit the wires, out came the hedge fund algorithms, terrified to death that the world economy was now going to collapse, with the result that commodity sector was hit with massive selling all across the board. Down went gold and down went silver and down went the CCI.
Personally, while I understand what the Chinese authorities are attempting to do, I do not think that they are going to be a match for Ben who can manufacture more Dollars faster than Agent Smith could replicate himself in the Matrix. The Chinese are going to need their own version of Neo to combat Ben’s printing press; either that or they are going to have to upwardly revalue the yuan at a faster pace – something that the US schemers have no doubt long intended as part of their QE plan. I am sure Chuckie Schumer will be happy as he has been a one note Johnnie when it comes to blaming China for the US economic woes. “it’s all that currency manipulation by China”. Yeah sure – the US monetary authorities are pristinely pure having never even considered manipulating the US markets.
The move lower in gold takes it back down to the lower portion of the trading range that has contained it for most of this month now with important chart support near $1350 serving to hold it for now. There are plenty of bottom pickers active near this level but the key is whether the funds will sit tight or decide to liquidate some of their longs. Should they do so, price will fall to $1345 which is near the 100 day moving average and has been a level which tends to attract buying from those with a longer term investment view. A breach of that level would be much to the bears’ delight as that would set it up for a drop down towards $1325 – $1320. Asia of course would also be delighted as it would become picnic time for them, with the table being set by hedge fund algorithm selling.
First order of business for the bulls will be get price back above $1365 if they can hold it above $1350. Next they would need to regain $1380 to reaffirm a trading range market.
Along this line I am watching the Euro gold price to see if it can hold its ground above the €1000 level. If so, (the PM Fix today was €1021), that should also shore up the Dollar price of gold. Europe has been the epicenter of a great deal of economic fears so how the price of gold reacts in terms of the Euro will give us a clue as to how the investment world is thinking about the overall health or lack thereof of the wider global economy. Keep in mind what I have written so many times over the past years – the problem with most gold analysts here in the US is that they are too US Dollar gold price focused. All such Elliot Wave claptrap projections based only on the US Dollar price are worthless because gold is an international commodity, or perhaps even more appropriately, international currency.
Silver lost chart support at $28.50 but so far is holding more important support near the $28 level. Silver bulls would not want to see the metal close below that level as it would drop it back down towards $27 where I would suspect we will see very substantial buying emerge. Long term oriented investors would welcome such an occurrence should it indeed take place. The tightness in the physical market suggests that this is once again more of a paper trade thing related to the Comex that we are seeing and not a true reflection of the underlying physical market.
The HUI – what else can be said about the price chart except it stinks but then again, what is new about that during times of gold and silver weakness. It looks like it might want to drift down towards 500 if it violates this week’s low early next week. The 200 day moving average comes in close to that level and should prove to be a solid level of chart support as it has tended to hold dips in price over the last year and a half or so. Also, 500 was tough resistance on the way up back in late spring of 2010. It held on a dip September and October of last year so unless we have some sort of change in the fundamentals for gold and silver that I am currently unawares of, I would expect it to hold. The weekly chart shows an uptrend that is still intact but I would feel more comfortable if it would at least recapture 530. It will need to climb back above 550 to get me excited again.
I should note here that the two other commodity markets that I like to monitor as a gauge of investor sentiment toward the overall complex are acting quite resilient today in spite of the near sector wide selling barrage. Copper is actually higher and once again challenging that tough $4.40 level, a push through which will let it challenge its recent highs, and crude oil is hanging tough moving more than $1.00 off its worst level of the session and still maintaining a foothold above $90. That bodes well for the overall complex and should help both the gold and silver markets, particularly silver should they continue to hold relatively firm. There is some weakness in the grains but I do not expect that to last long as the fundamentals are too strongly bullish there and the market must insure adequate acreage for the upcoming planting season not to mention ration demand for corn and beans, both of which are running quite low in terms of supply of old crop.
In short, we are back to watching the sentiment shift from “all clear ahead on the economy”, to “there are still a lot of trouble areas and rough patches on the seas”. As one side or the other rises or falls, the effects on the commodity sector and thus gold and silver will vary accordingly. The long term trends remain intact – it is still the short term stuff that gives us all something to yak about. Besides, there really is nothing else important to do in life than to sit around for hours each day and watch prices change now is there?
Bonds? Back to being a yo-yo market again and look to stay that way unless we get some sort of economic news that would tip sentiment one way or the other.
The S&P (by the way, this is the one market where one never hears the term “overbought” applied to it) is yet again making another new yearly high as they have set the stage for the public to go running pell mell into stocks so that all the big banks can find someone to sell all those shares to they have been buying for the last year.
Monday is a holiday here in the US or the way I prefer to call it, a much needed respite from having to endure watching the idiocy of hedge fund algorithms careening through our markets.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2011/01/January1411Gold.pdf
Once again we have a front row seat in the battle between China and the US when it comes to the Federal Reserve’s global inflationary policy, aka, Quantitative Easing 2.
With the Fed persisting on conjuring “wealth” into existence and working to manipulate and deliberately distort the long end of the yield curve, China is fighting to contain the effects of excess liquidity coming its way. It is almost as if Bernanke has uttered the command to: “Release the Kraken”, in this case the terrible Titan being the inflation monster.
The Chinese authorities have good reason to fear the rise of this beast as it, perhaps above all things at the current moment, has the single greatest potential to create unrest and social disorder in their nation. The Fed has been exporting inflation around the globe and nowhere is that showing up more forcefully than in the rising cost of food. Yes, basic material costs are soaring in China but the authorities can live with that – it is food that worries them seeing that the average Chinese worker spends a much larger percentage of their overall income on food than do their counterparts here in the US.
In yet another attempt to try to rein in price rises, the Chinese raised bank reserve ratios to try to slow down growth somewhat and perhaps pull back some of the fuel that might be contributing to the problems that they are dealing with. Of course, once the news hit the wires, out came the hedge fund algorithms, terrified to death that the world economy was now going to collapse, with the result that commodity sector was hit with massive selling all across the board. Down went gold and down went silver and down went the CCI.
Personally, while I understand what the Chinese authorities are attempting to do, I do not think that they are going to be a match for Ben who can manufacture more Dollars faster than Agent Smith could replicate himself in the Matrix. The Chinese are going to need their own version of Neo to combat Ben’s printing press; either that or they are going to have to upwardly revalue the yuan at a faster pace – something that the US schemers have no doubt long intended as part of their QE plan. I am sure Chuckie Schumer will be happy as he has been a one note Johnnie when it comes to blaming China for the US economic woes. “it’s all that currency manipulation by China”. Yeah sure – the US monetary authorities are pristinely pure having never even considered manipulating the US markets.
The move lower in gold takes it back down to the lower portion of the trading range that has contained it for most of this month now with important chart support near $1350 serving to hold it for now. There are plenty of bottom pickers active near this level but the key is whether the funds will sit tight or decide to liquidate some of their longs. Should they do so, price will fall to $1345 which is near the 100 day moving average and has been a level which tends to attract buying from those with a longer term investment view. A breach of that level would be much to the bears’ delight as that would set it up for a drop down towards $1325 – $1320. Asia of course would also be delighted as it would become picnic time for them, with the table being set by hedge fund algorithm selling.
First order of business for the bulls will be get price back above $1365 if they can hold it above $1350. Next they would need to regain $1380 to reaffirm a trading range market.
Along this line I am watching the Euro gold price to see if it can hold its ground above the €1000 level. If so, (the PM Fix today was €1021), that should also shore up the Dollar price of gold. Europe has been the epicenter of a great deal of economic fears so how the price of gold reacts in terms of the Euro will give us a clue as to how the investment world is thinking about the overall health or lack thereof of the wider global economy. Keep in mind what I have written so many times over the past years – the problem with most gold analysts here in the US is that they are too US Dollar gold price focused. All such Elliot Wave claptrap projections based only on the US Dollar price are worthless because gold is an international commodity, or perhaps even more appropriately, international currency.
Silver lost chart support at $28.50 but so far is holding more important support near the $28 level. Silver bulls would not want to see the metal close below that level as it would drop it back down towards $27 where I would suspect we will see very substantial buying emerge. Long term oriented investors would welcome such an occurrence should it indeed take place. The tightness in the physical market suggests that this is once again more of a paper trade thing related to the Comex that we are seeing and not a true reflection of the underlying physical market.
The HUI – what else can be said about the price chart except it stinks but then again, what is new about that during times of gold and silver weakness. It looks like it might want to drift down towards 500 if it violates this week’s low early next week. The 200 day moving average comes in close to that level and should prove to be a solid level of chart support as it has tended to hold dips in price over the last year and a half or so. Also, 500 was tough resistance on the way up back in late spring of 2010. It held on a dip September and October of last year so unless we have some sort of change in the fundamentals for gold and silver that I am currently unawares of, I would expect it to hold. The weekly chart shows an uptrend that is still intact but I would feel more comfortable if it would at least recapture 530. It will need to climb back above 550 to get me excited again.
I should note here that the two other commodity markets that I like to monitor as a gauge of investor sentiment toward the overall complex are acting quite resilient today in spite of the near sector wide selling barrage. Copper is actually higher and once again challenging that tough $4.40 level, a push through which will let it challenge its recent highs, and crude oil is hanging tough moving more than $1.00 off its worst level of the session and still maintaining a foothold above $90. That bodes well for the overall complex and should help both the gold and silver markets, particularly silver should they continue to hold relatively firm. There is some weakness in the grains but I do not expect that to last long as the fundamentals are too strongly bullish there and the market must insure adequate acreage for the upcoming planting season not to mention ration demand for corn and beans, both of which are running quite low in terms of supply of old crop.
In short, we are back to watching the sentiment shift from “all clear ahead on the economy”, to “there are still a lot of trouble areas and rough patches on the seas”. As one side or the other rises or falls, the effects on the commodity sector and thus gold and silver will vary accordingly. The long term trends remain intact – it is still the short term stuff that gives us all something to yak about. Besides, there really is nothing else important to do in life than to sit around for hours each day and watch prices change now is there?
Bonds? Back to being a yo-yo market again and look to stay that way unless we get some sort of economic news that would tip sentiment one way or the other.
The S&P (by the way, this is the one market where one never hears the term “overbought” applied to it) is yet again making another new yearly high as they have set the stage for the public to go running pell mell into stocks so that all the big banks can find someone to sell all those shares to they have been buying for the last year.
Monday is a holiday here in the US or the way I prefer to call it, a much needed respite from having to endure watching the idiocy of hedge fund algorithms careening through our markets.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2011/01/January1411Gold.pdf
Thursday, January 13, 2011
DAN NORCINI'S THURSDAY COMMENTS AND GOLD CHART
Posted: Jan 13 2011 By: Dan Norcini Post Edited: January 13, 2011 at 5:12 pm
Filed under: Trader Dan Norcini
Filed under: Trader Dan Norcini
Dear Friends,
Gold came under selling pressure in the face of a much weaker Dollar and a surging Euro, occurrences which would normally be expected to lend buying support to the metal but which for today worked against it based on the flavor du jour of trader taste.
Euro gold was the culprit as it took a very big hit dropping off some 23 euros from yesterday’s closing mark which followed on the heels of the initial weakness it experienced once word got out that Portugal’s bond sale went off okay. That had traders buying Europe and reversing trades put on that were attempting to take advantage of the worries associated with the at that time future bond sales. Europeans were in effect selling gold due to friendly feelings towards risk on that continent. Weakness in Euro gold spilled over to US Dollar priced gold which had been mounting an impressive move off its worst levels and had actually climbed into positive territory shortly before the close of pit session trading.
In response to an earlier email, I advised the writer that it is almost an exercise in futility in attempting to grasp what the mindset of the hedge fund community is going to be on any given day. Today they were back in love with the Euro – tomorrow the world could be coming to an end and they will rudely dump it and whisper sweet croonings into the ears of the US Dollar swearing their undying fealty to it. Stick with the long term trends and ignore the short term noise.
The real picture is that official sector related selling is evident on the charts just below the $1400 level in gold and with the uncertainty and confusion among traders as to the ever-changing sentiment towards Europe and towards the US in terms of economic improvement or lack thereof, there is not yet enough conviction-oriented buying in gold to take it through the upside ceiling which is being imposed.
Bulls will have to take it up and through $1400 to kick out a significant number of shorts. They had done some great work in getting it back above $1380 but that fell apart within 30 minutes of today’s pit session close.
I mentioned in an email a short time ago, that the days of gold trading nearly tick for tick in the inverse with the US Dollar are behind us. It is still going to be strongly influenced by the Dollar, do not mistake what I am saying, but it has been moving independently of the Dollar for some time now as Europe has come to the forefront of investors’ minds. We can see that when fears associated with European sovereign debt issues recede, gold is tending to experience selling pressure. When those same fears revive, gold moves higher.
It is all quite confusing attempting to decipher this volatile mess but this same uncertainty is being reflected in the price charts which show gold finding support on forays below $1360 but selling as it moves towards $1400. In effect, the confusion and lack of conviction or loss of confidence is leading to a range trade in the metal.
You see something similar to this being reflected in the long bond market where the FED and its tomfoolery have created a yo-yo market which keeps popping up whenever they come in and monkey with the long end of the curve only to experience selling pressure tied to the same thing that is pushing the Euro higher – namely, better feelings towards risk and a lack of desire to engage in safe haven trades. The interest rate market is a joke and foreign holders of US Treasuries are not going to be drawing much comfort from the fact that it is being propped up by more and more by freshly minted “binary digits”. When I see the Dollar dropping lower as longer term interest move lower, thanks to the boyz at the Fed, that tells me that not only are foreign holders of that debt watching it lose value as the dollar declines but if they desire to buy more of the same, they are going to get a LOWER RATE OF RETURN for their troubles. I don’t know about you, but that sure fires me up and makes me want to immediately rush out and load up on a couple $billion in long dated bonds from Uncle Sam.
I will submit that the actions of the Western Central Banks and their constant interference in the markets and their adventures in money printing are solely and completely responsible for the maddening volatility that we are now experiencing in our markets. They are the ones who create the conditions that lead to conflicts between fundamental factors which shift nearly day by day as they move in or sit by planning their next move. Traders position themselves on one side of a market only to be caught completely off guard as an ECB or a Fed steps in and does its thing. That leads to a panic out of one side of a market and a rush onto the other side in an attempt to recapture losses or maximize gains. Such actions trigger price signals on the computer algorithms of the hedge funds and in they come full speed ahead or out they go heading for the hills. The next day the fundamentals shift back and the entire process is then reversed.
The truth is what we are witnessing is just another battle in the long war between the Central Banks of the West and the Speculators. The former are attempting to create a world in their own image and form (Central bankers all have god complexes) while the latter are attempting to cipher through the factors that lead to movements in price through which they can hopefully profit. Speculators do not distort markets – true specs respond to changes in fundamental supply and demand factors. Central Bankers are the ones who distort and wrest markets into contorted, horrid creatures that honest viewers can sometimes barely recognize.
Silver could not recapture $30 and thus is now moving back down towards the bottom of its trading range. Support still lies near $28.50 with better buying expected near $28.
The HUI is once again not providing the least bit of help to the metals as it continues its anchor-like effect on the rest of the complex. Hedgies can make money by shorting the hell out of those shares and buying the metals with their ratio spread trades and do it over and over again until they are forced out by another surge in the bullion markets.
We will have to see how physical demand for both metals continues on dips in price. Thus far Asia has been active.
The CCI took a breather today after yesterday’s stellar performance. It still looks strong on the price chart and at this point is giving no evidence of topping. There are some negative divergence signals on some of the oscillators but strength in the grains in particular is helping to maintain the overall bullish pattern. Copper is running into a bit of difficulty at the $4.40 level and crude is thus far unable to best $92 on a closing basis. I am watching oil to see if it can indeed push past $92 and close there to set it up for a run towards $95.
Any further strength in the energy markets will be favorable for gold.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2011/01/January1311Gold.pdf
Gold came under selling pressure in the face of a much weaker Dollar and a surging Euro, occurrences which would normally be expected to lend buying support to the metal but which for today worked against it based on the flavor du jour of trader taste.
Euro gold was the culprit as it took a very big hit dropping off some 23 euros from yesterday’s closing mark which followed on the heels of the initial weakness it experienced once word got out that Portugal’s bond sale went off okay. That had traders buying Europe and reversing trades put on that were attempting to take advantage of the worries associated with the at that time future bond sales. Europeans were in effect selling gold due to friendly feelings towards risk on that continent. Weakness in Euro gold spilled over to US Dollar priced gold which had been mounting an impressive move off its worst levels and had actually climbed into positive territory shortly before the close of pit session trading.
In response to an earlier email, I advised the writer that it is almost an exercise in futility in attempting to grasp what the mindset of the hedge fund community is going to be on any given day. Today they were back in love with the Euro – tomorrow the world could be coming to an end and they will rudely dump it and whisper sweet croonings into the ears of the US Dollar swearing their undying fealty to it. Stick with the long term trends and ignore the short term noise.
The real picture is that official sector related selling is evident on the charts just below the $1400 level in gold and with the uncertainty and confusion among traders as to the ever-changing sentiment towards Europe and towards the US in terms of economic improvement or lack thereof, there is not yet enough conviction-oriented buying in gold to take it through the upside ceiling which is being imposed.
Bulls will have to take it up and through $1400 to kick out a significant number of shorts. They had done some great work in getting it back above $1380 but that fell apart within 30 minutes of today’s pit session close.
I mentioned in an email a short time ago, that the days of gold trading nearly tick for tick in the inverse with the US Dollar are behind us. It is still going to be strongly influenced by the Dollar, do not mistake what I am saying, but it has been moving independently of the Dollar for some time now as Europe has come to the forefront of investors’ minds. We can see that when fears associated with European sovereign debt issues recede, gold is tending to experience selling pressure. When those same fears revive, gold moves higher.
It is all quite confusing attempting to decipher this volatile mess but this same uncertainty is being reflected in the price charts which show gold finding support on forays below $1360 but selling as it moves towards $1400. In effect, the confusion and lack of conviction or loss of confidence is leading to a range trade in the metal.
You see something similar to this being reflected in the long bond market where the FED and its tomfoolery have created a yo-yo market which keeps popping up whenever they come in and monkey with the long end of the curve only to experience selling pressure tied to the same thing that is pushing the Euro higher – namely, better feelings towards risk and a lack of desire to engage in safe haven trades. The interest rate market is a joke and foreign holders of US Treasuries are not going to be drawing much comfort from the fact that it is being propped up by more and more by freshly minted “binary digits”. When I see the Dollar dropping lower as longer term interest move lower, thanks to the boyz at the Fed, that tells me that not only are foreign holders of that debt watching it lose value as the dollar declines but if they desire to buy more of the same, they are going to get a LOWER RATE OF RETURN for their troubles. I don’t know about you, but that sure fires me up and makes me want to immediately rush out and load up on a couple $billion in long dated bonds from Uncle Sam.
I will submit that the actions of the Western Central Banks and their constant interference in the markets and their adventures in money printing are solely and completely responsible for the maddening volatility that we are now experiencing in our markets. They are the ones who create the conditions that lead to conflicts between fundamental factors which shift nearly day by day as they move in or sit by planning their next move. Traders position themselves on one side of a market only to be caught completely off guard as an ECB or a Fed steps in and does its thing. That leads to a panic out of one side of a market and a rush onto the other side in an attempt to recapture losses or maximize gains. Such actions trigger price signals on the computer algorithms of the hedge funds and in they come full speed ahead or out they go heading for the hills. The next day the fundamentals shift back and the entire process is then reversed.
The truth is what we are witnessing is just another battle in the long war between the Central Banks of the West and the Speculators. The former are attempting to create a world in their own image and form (Central bankers all have god complexes) while the latter are attempting to cipher through the factors that lead to movements in price through which they can hopefully profit. Speculators do not distort markets – true specs respond to changes in fundamental supply and demand factors. Central Bankers are the ones who distort and wrest markets into contorted, horrid creatures that honest viewers can sometimes barely recognize.
Silver could not recapture $30 and thus is now moving back down towards the bottom of its trading range. Support still lies near $28.50 with better buying expected near $28.
The HUI is once again not providing the least bit of help to the metals as it continues its anchor-like effect on the rest of the complex. Hedgies can make money by shorting the hell out of those shares and buying the metals with their ratio spread trades and do it over and over again until they are forced out by another surge in the bullion markets.
We will have to see how physical demand for both metals continues on dips in price. Thus far Asia has been active.
The CCI took a breather today after yesterday’s stellar performance. It still looks strong on the price chart and at this point is giving no evidence of topping. There are some negative divergence signals on some of the oscillators but strength in the grains in particular is helping to maintain the overall bullish pattern. Copper is running into a bit of difficulty at the $4.40 level and crude is thus far unable to best $92 on a closing basis. I am watching oil to see if it can indeed push past $92 and close there to set it up for a run towards $95.
Any further strength in the energy markets will be favorable for gold.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2011/01/January1311Gold.pdf
Wednesday, January 12, 2011
Continuous Commodity Index Reaches Another All Time High
Posted: Jan 12 2011 By: Dan Norcini Post Edited: January 12, 2011 at 2:12 pm
Dear Friends,
The CCI, Continuous Commodity Index, which I use to track the commodity complex as a whole, today scored yet another all time record high. It should be noted that it moved to this new and higher level without any meaningful assistance from gold and silver which were fighting off selling for most of the session.
The big movers were the grains on the heels of a bullish USDA report, crude oil as it pushed past $92 and the livestock sector, with cattle futures moving to yet another all time record high.
With the commodity complex ratcheting upward, it is going to pose a real challenge for the perma bears at the Comex to keep the precious metals from moving higher.
Selling pressure in gold was tied somewhat to relief over the Portuguese bond sale which was not a total fiasco. That led to bond selling as the need for “safe havens” was somewhat diminished for the time being and brought relief buying back into the Euro. Normally one would expect the Dollar weakness to give gold a bit of a boost but this time around it was selling supposedly tied to the reduced need for gold as a safe haven.
Given the tenuous condition of Portugal and Spain, and others in the Euro zone, those that are dismissing a need for gold as a safe haven are very premature.
Incidentally, those of you who track the bond market will no doubt have noticed the intervention by the Fed as it continues to screw with the long end of the curve. Bonds recovered nearly a full point off their worst level even with the S&P making yet another yearly high and the CCI sharply higher as well. History is going to point its finger directly at the Bernanke-led Fed and their brazen efforts at distorting the interest rate markets as the prime culprits in making an already unstable debt situation even worse. The notion that bonds should be moving higher with inflationary pressures about to hit like a tsunami is laughable at best. What is Bernanke going to do when crude oil moves to $100 barrel – buy more bonds on the long end to further push it to $110 and higher? Consumers paying $4.50 for gasoline should send their credit card bills to his FOMC for payment as they are responsible for this orgy of commodity buying. I keep warning on what is happening in the food sector – it is now too late to prevent that from hitting us all – what is coming next is energy.
The sum of $600 billion to throw at the bond market is no small matter but at some point down the road, that market is going to react with a vengeance. When it does, it will be much like a rubber band that was stretched further and further only to snap back with stinging sharpness. I continue to watch this tragedy unfolding in stunned disbelief. Are these damned fools oblivious to what they are doing to the middle class in this nation?
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2011/01/January1211CCI.pdf
The CCI, Continuous Commodity Index, which I use to track the commodity complex as a whole, today scored yet another all time record high. It should be noted that it moved to this new and higher level without any meaningful assistance from gold and silver which were fighting off selling for most of the session.
The big movers were the grains on the heels of a bullish USDA report, crude oil as it pushed past $92 and the livestock sector, with cattle futures moving to yet another all time record high.
With the commodity complex ratcheting upward, it is going to pose a real challenge for the perma bears at the Comex to keep the precious metals from moving higher.
Selling pressure in gold was tied somewhat to relief over the Portuguese bond sale which was not a total fiasco. That led to bond selling as the need for “safe havens” was somewhat diminished for the time being and brought relief buying back into the Euro. Normally one would expect the Dollar weakness to give gold a bit of a boost but this time around it was selling supposedly tied to the reduced need for gold as a safe haven.
Given the tenuous condition of Portugal and Spain, and others in the Euro zone, those that are dismissing a need for gold as a safe haven are very premature.
Incidentally, those of you who track the bond market will no doubt have noticed the intervention by the Fed as it continues to screw with the long end of the curve. Bonds recovered nearly a full point off their worst level even with the S&P making yet another yearly high and the CCI sharply higher as well. History is going to point its finger directly at the Bernanke-led Fed and their brazen efforts at distorting the interest rate markets as the prime culprits in making an already unstable debt situation even worse. The notion that bonds should be moving higher with inflationary pressures about to hit like a tsunami is laughable at best. What is Bernanke going to do when crude oil moves to $100 barrel – buy more bonds on the long end to further push it to $110 and higher? Consumers paying $4.50 for gasoline should send their credit card bills to his FOMC for payment as they are responsible for this orgy of commodity buying. I keep warning on what is happening in the food sector – it is now too late to prevent that from hitting us all – what is coming next is energy.
The sum of $600 billion to throw at the bond market is no small matter but at some point down the road, that market is going to react with a vengeance. When it does, it will be much like a rubber band that was stretched further and further only to snap back with stinging sharpness. I continue to watch this tragedy unfolding in stunned disbelief. Are these damned fools oblivious to what they are doing to the middle class in this nation?
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2011/01/January1211CCI.pdf
Tuesday, January 11, 2011
Physical Market Continues To Show True Value Of Gold
Posted: Jan 11 2011 By: Dan Norcini Post Edited: January 11, 2011 at 9:27 am
Filed under: Trader Dan Norcini
Filed under: Trader Dan Norcini
Dear Friends,
Throughout the entirety of the now decade-long bull market in gold, it has been the physical market where the real deal is bought and sold, that has been the arena in which the true level of “value” has been found and not the phony paper market in New York known as the Comex.
Time after time we have seen the speculative trading funds get loaded on the long side of the gold market taking it up another leg higher but then their buying has met up with selling resistance which they have been unable to breach. The result has been a temporary stalling in price which has then moved lower as these same funds liquidated longs and began reducing their long side exposure.
The big buyers from the East have awaited these bouts of speculative selling as an opportunity to secure the metal at a lower price which has then served to put in a floor of chart support allowing a period of base building to commence which has then preceded the next leg higher.
With that in mind, please see the following story that came down the wire feed last evening from Dow Jones concerning the demand for gold hitting the Perth Mint of Australia. It is this kind of demand which is going to make life extremely difficult for the gold bears should it continue.
As said previously, the pause in the gold market does not look like that associated with a trend change but rather a lull in speculative buying as some indecision and uncertainty enters the psyche of traders. That lack of buying has allowed prices to drift lower which is being met with very strong demand as reported by both this story and JBGJ. If bears begin to get stymied in their efforts to take price below $1365 and hold it there for an attempt at $1340, they are going to be forced to cover.
Once again it appears the battle for middle Earth has been joined.
Throughout the entirety of the now decade-long bull market in gold, it has been the physical market where the real deal is bought and sold, that has been the arena in which the true level of “value” has been found and not the phony paper market in New York known as the Comex.
Time after time we have seen the speculative trading funds get loaded on the long side of the gold market taking it up another leg higher but then their buying has met up with selling resistance which they have been unable to breach. The result has been a temporary stalling in price which has then moved lower as these same funds liquidated longs and began reducing their long side exposure.
The big buyers from the East have awaited these bouts of speculative selling as an opportunity to secure the metal at a lower price which has then served to put in a floor of chart support allowing a period of base building to commence which has then preceded the next leg higher.
With that in mind, please see the following story that came down the wire feed last evening from Dow Jones concerning the demand for gold hitting the Perth Mint of Australia. It is this kind of demand which is going to make life extremely difficult for the gold bears should it continue.
As said previously, the pause in the gold market does not look like that associated with a trend change but rather a lull in speculative buying as some indecision and uncertainty enters the psyche of traders. That lack of buying has allowed prices to drift lower which is being met with very strong demand as reported by both this story and JBGJ. If bears begin to get stymied in their efforts to take price below $1365 and hold it there for an attempt at $1340, they are going to be forced to cover.
Once again it appears the battle for middle Earth has been joined.
DAN NORCINI'S TUESDAY COMMENTS WITH GOLD CHART
Posted: Jan 11 2011 By: Dan Norcini Post Edited: January 11, 2011 at 2:34 pm
Filed under: Trader Dan Norcini
Filed under: Trader Dan Norcini
Dear CIGAs,
Sovereign debt woes out of Europe, particularly Portugal, continue to bring a strong bid into gold. During the early part of the European trading session gold had pushed within a mere 4 euros of its all time high before it was taken down as the clock moved into New York trading (gee – what a surprise). These problems are not going to go away any time soon and as they come to the forefront of the headlines will serve to remind traders of the problems with the Euro and facilitate a drive to gold as a safe haven. They will also be there to serve as a supportive feature for the metal during bouts of price weakness should further fund long side liquidation take place.
If Portugal, or any other of these financially troubled Euro nations, cannot sell their bonds, the ECB is going to have to come in and become the buyer of last resort or else risk a spreading of a debt contagion on their watch. Chatter was that they were already doing just that today. We’ll see how many of their bonds the Japanese and Chinese will actually buy after stating that they would be purchasers of some of the debt. Savvy investors in the Euro zone have figured out that what the ECB is doing is a sort of back door QE and that is why they are buying gold and thus why the price of gold in euros is so firm.
In US dollar terms, gold climbed back above the significant chart level of $1380 during those European trading hours but fell back coming into New York and surrendered the level. We still have a “sell the rally” psyche since the price is trading below the short term moving averages so bulls will need to get the price firmly above $1400 to change that but first they have to better this $1380 mark. As the session wore on in New York, bulls made a late comeback and recaptured the hill at $1380 heading into the close, achieving a nice technical victory. Several of the technical indicators that I follow are down in the oversold zone and beginning to flatten out so it will not take too much in the way of further price gains to push those indicators into generating buy signals. Bears would still dearly love to take price below $1365 and hold it there to enable a push towards $1345 – $1340 but thus far have been frustrated in their attempts to do by the emergence of solid buying of physical coming out of Asia and Europe. These shorts will be forced out if price closes above $1400.
Silver is showing good strength at a time when it needed to on the technical charts. The further it moves up and away from $28.50, the better for the bulls as it will bring some buyers back in from the sidelines who were hesitating for fear of getting trapped by fund selling that would ensue if those support levels were taken out. The chatter about tightness in the physical silver market certainly appears to be validated by the price action of the metal at the Comex. I still want to see it climb back above the $30 level and hold there before getting confident enough to expect another leg higher. It ran into selling exactly at the 10 day moving average which is currently trending lower so we will want to see it first push past this level near $29.80 and close above it to begin spooking the bears and inducing some short covering.
The metals are finally getting some help from the HUI but that index needs to climb above 560 to get anyone terribly excited. There are so many shorts in the mining shares that if the metals can break their overhead resistance levels, a frenzy of buying is going to appear.
Bonds were lower again (Here we go back to the yo-yo once again) as risk was back in vogue today. The Yen was sold off as it always is during times of risk trades and the CCI was up sharply with crude oil rising back above $90 and moving towards $91. Copper was also quite strong today taking on more than 10 cents at one point. At least for today the markets seemed to be in sync with what the bond market was doing. Perhaps that is because the Fed was not quite as active today doing their QE thing that they love to do with the freshly created binary digits that we all get to pay for (correction – our kids get to pay for). Anyone who thinks we still have free markets in the US needs to wake up and smell the coffee. The bond market is very heavily managed by the monetary authorities; without their manipulations of long term interest rates, the bond market would have already broken down and begun another leg lower. Prospective bond buyers should be forced to wear a wrist band with a red warning light that glows whenever the CCI (Continuous Commodity Index) is moving strongly higher particularly if crude oil is going along for the uphill ride.
I see my pals at GATA have won a small but perhaps significant victory in their efforts to pry open the books of the masters of the dark (that would be the Fed). Congrats to Bill and Chris!
Corn is leading the grains complex this morning as traders anticipate a bullish release from the USDA tomorrow morning. Corn tends to draw strength from gains in crude oil as that tends to support ethanol prices. If corn closes above $6.30 and wheat closes above $8.10, watch out! Beef and now pork prices are climbing sharply at the wholesale level pushing the price of cattle into record territory for some contracts. Look for a resurgence in cattle rustling ( I am serious about this). Many of the commodity charts are showing prices just below recent highs. A push past those levels and the rising price of food is going to see the afterburners kick in. Retail prices have already begun their climb higher as any of you who monitor prices at the local grocery stores are aware. When it takes as much money to pound a pound of bacon as it does a fine quality Choice beef filet, we are all in trouble. Unfortunately for all of us, there does not appear to be any relief in sight. Keep in mind that much of this is man induced – it is the direct result of Federal Reserve policy. As mentioned yesterday, the fundamentals in many of the foods are already strongly bullish – the extra kick higher than comes from a plethora of funny money chasing tangibles, just exacerbates the situation. I sincerely believe we are going to be seeing food riots around many parts of the globe this year. The Eastern authorities know full well whom to blame for that. Unrest in any nation is a serious political issue and the West is fomenting it by foolish monetary policies and reckless money printing.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2011/01/January1111Gold.pdf
Sovereign debt woes out of Europe, particularly Portugal, continue to bring a strong bid into gold. During the early part of the European trading session gold had pushed within a mere 4 euros of its all time high before it was taken down as the clock moved into New York trading (gee – what a surprise). These problems are not going to go away any time soon and as they come to the forefront of the headlines will serve to remind traders of the problems with the Euro and facilitate a drive to gold as a safe haven. They will also be there to serve as a supportive feature for the metal during bouts of price weakness should further fund long side liquidation take place.
If Portugal, or any other of these financially troubled Euro nations, cannot sell their bonds, the ECB is going to have to come in and become the buyer of last resort or else risk a spreading of a debt contagion on their watch. Chatter was that they were already doing just that today. We’ll see how many of their bonds the Japanese and Chinese will actually buy after stating that they would be purchasers of some of the debt. Savvy investors in the Euro zone have figured out that what the ECB is doing is a sort of back door QE and that is why they are buying gold and thus why the price of gold in euros is so firm.
In US dollar terms, gold climbed back above the significant chart level of $1380 during those European trading hours but fell back coming into New York and surrendered the level. We still have a “sell the rally” psyche since the price is trading below the short term moving averages so bulls will need to get the price firmly above $1400 to change that but first they have to better this $1380 mark. As the session wore on in New York, bulls made a late comeback and recaptured the hill at $1380 heading into the close, achieving a nice technical victory. Several of the technical indicators that I follow are down in the oversold zone and beginning to flatten out so it will not take too much in the way of further price gains to push those indicators into generating buy signals. Bears would still dearly love to take price below $1365 and hold it there to enable a push towards $1345 – $1340 but thus far have been frustrated in their attempts to do by the emergence of solid buying of physical coming out of Asia and Europe. These shorts will be forced out if price closes above $1400.
Silver is showing good strength at a time when it needed to on the technical charts. The further it moves up and away from $28.50, the better for the bulls as it will bring some buyers back in from the sidelines who were hesitating for fear of getting trapped by fund selling that would ensue if those support levels were taken out. The chatter about tightness in the physical silver market certainly appears to be validated by the price action of the metal at the Comex. I still want to see it climb back above the $30 level and hold there before getting confident enough to expect another leg higher. It ran into selling exactly at the 10 day moving average which is currently trending lower so we will want to see it first push past this level near $29.80 and close above it to begin spooking the bears and inducing some short covering.
The metals are finally getting some help from the HUI but that index needs to climb above 560 to get anyone terribly excited. There are so many shorts in the mining shares that if the metals can break their overhead resistance levels, a frenzy of buying is going to appear.
Bonds were lower again (Here we go back to the yo-yo once again) as risk was back in vogue today. The Yen was sold off as it always is during times of risk trades and the CCI was up sharply with crude oil rising back above $90 and moving towards $91. Copper was also quite strong today taking on more than 10 cents at one point. At least for today the markets seemed to be in sync with what the bond market was doing. Perhaps that is because the Fed was not quite as active today doing their QE thing that they love to do with the freshly created binary digits that we all get to pay for (correction – our kids get to pay for). Anyone who thinks we still have free markets in the US needs to wake up and smell the coffee. The bond market is very heavily managed by the monetary authorities; without their manipulations of long term interest rates, the bond market would have already broken down and begun another leg lower. Prospective bond buyers should be forced to wear a wrist band with a red warning light that glows whenever the CCI (Continuous Commodity Index) is moving strongly higher particularly if crude oil is going along for the uphill ride.
I see my pals at GATA have won a small but perhaps significant victory in their efforts to pry open the books of the masters of the dark (that would be the Fed). Congrats to Bill and Chris!
Corn is leading the grains complex this morning as traders anticipate a bullish release from the USDA tomorrow morning. Corn tends to draw strength from gains in crude oil as that tends to support ethanol prices. If corn closes above $6.30 and wheat closes above $8.10, watch out! Beef and now pork prices are climbing sharply at the wholesale level pushing the price of cattle into record territory for some contracts. Look for a resurgence in cattle rustling ( I am serious about this). Many of the commodity charts are showing prices just below recent highs. A push past those levels and the rising price of food is going to see the afterburners kick in. Retail prices have already begun their climb higher as any of you who monitor prices at the local grocery stores are aware. When it takes as much money to pound a pound of bacon as it does a fine quality Choice beef filet, we are all in trouble. Unfortunately for all of us, there does not appear to be any relief in sight. Keep in mind that much of this is man induced – it is the direct result of Federal Reserve policy. As mentioned yesterday, the fundamentals in many of the foods are already strongly bullish – the extra kick higher than comes from a plethora of funny money chasing tangibles, just exacerbates the situation. I sincerely believe we are going to be seeing food riots around many parts of the globe this year. The Eastern authorities know full well whom to blame for that. Unrest in any nation is a serious political issue and the West is fomenting it by foolish monetary policies and reckless money printing.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2011/01/January1111Gold.pdf
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