“Woe to the land whose king is a child and whose leaders are already drunk in the morning. Happy the land whose king is a nobleman, and whose leaders work hard before they feast and drink, and then only to strengthen themselves for the tasks ahead”. (Eccl 10: 16-17)


"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat


Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput






Friday, November 21, 2014

My thoughts on today's action

See the link... no other comment offered could say it any better.

https://www.youtube.com/watch?v=VFCM6TZgTMI

Euro plunge below 1.2400 reversed the money flows from the "Buy China" interest rate cut to "Sell out because of the Strong Dollar".

Where the hell this ends today is anyone's guess.

Central Bankers and other foreign government officials have essentially destroyed the integrity of the entire financial system with their constant meddling.

China News, ECB Roil Commodity Markets

I will get more up on this later as I am extremely busy this AM... Overnight news that China was lowering interest rates, (its first in two years) and the ECB is planning on further stimulus measures, has sent massive hot money flows back into the commodity sector.

The grains are seeing big buying, as are silver and copper. Silver loves positive Chinese news as does copper, as does platinum as does palladium, etc.

Gold is also moving as it has recaptured the "12" handle.

When you think of commodities, you think of China, as it is the nation that has the insatiable demand for tangibles. If the lower interest rates spur economic activity, the thinking is more commodities will be consumed. Index funds are now pressing the shorts relentlessly.

The Euro has collapsed sharply lower sending the Dollar soaring. Normally gold has been following the Euro of late but with everyone getting bulled up on account of China, commodities are moving higher nonetheless.

Look at the Aussie - the currency loves anything potentially China positive.

Let's see if this is a flash in the pan, a one day wonder, or the start of something more. Equities will now be unstoppable. I told you silver guys that you had better start rooting for surging stocks and stop trying to find reasons for stocks to go lower. Silver needs inflationary growth, not deflationary collapses if it is to thrive.



Wednesday, November 19, 2014

TIPS Spread Echoes FOMC Minutes

I mentioned in an earlier post today that the FOMC essentially downplayed inflation fears in the minutes released today. That seemed to be one of the big factors involved in the sharp move lower in gold after it had spiked higher and moved back not only to the unchanged level but had tacked on some mediocre gains as well. That was all abruptly reversed after the market had some time to chew over the minutes.

Along that line, here is an updated chart of the TIPS spread comparing the price of gold to the movements in the spread. I want to point out that the most recent spread fell to more than a 3 year low this week! Clearly, the market has no concerns whatsoever about any budding inflationary fears. Such a thing is not good news for gold bulls.


When I look at this chart, I am struck by how closely the gold price has tracked this simple spread since September 2011. There were only two brief intervals when the spread went one way and the gold price went the other and that was Q4 2012 and briefly again in Q4 2013. It will be interesting to see if something changes in this current year as we are in Q4 and the two lines are tracking very closely to one another.


Gold is going to be especially dependent therefore on very strong offtake from India to keep it supported. I just do not see a fundamental driver right now that would entice Western-based investment demand to ramp up in a large way at the moment.

The metal is going to continue taking its cues from the Foreign Exchange markets therefore. Strong support has emerged at and below $1180 in the past week. That needs to continue or else bears are going to pounce once again with the FOMC minutes giving them some more confidence after the recent torrid rallies had dealt a big blow to it.

It seems to me that bulls have been pinning their hopes on the Swiss Gold Referendum Vote and a Dovish Vote. Scratch the latter after today's FOMC minute release. The former is still unclear.


Fed Downplays Inflation Worries

Going over these FOMC statements is akin to the ancient art of divining the future by the examination of animal entrails. I can see the conversation:

Demetrius: "I see what appears to be a twisted piece of gut. That is a sign from the gods that the future is twisted and unclear. Perhaps we should wait before going to war".

Apollos: " I see the same thing but tells me that our enemies will lie twisted and ruined on the ground. We should to war immediately".


Lydia: " I see a big fat worm. That tells me that this animal is so screwed up on the inside that we should not believe a single thing this entrail reading crap tells us".

The takeaway I get however has to do with inflation. We have been saying here for some time now, much to the chagrin of some of the gold perma bulls, that the market is not the least bit worried about inflation at the moment. That sentiment has been reflected in the flat to lower TIPS spread as well as the sinking commodity indices. Also, the concern of both the ECB and the Bank of Japan as been the LACK of INFLATION and what they like to euphemistically term, 'disinflation'.

Today our Fed said essentially the same thing if I am reading the entrails correctly.

Here is a short excerpt from the statement:

"... inflation edging lower in near term partly due to decline in oil prices..."

There are several other interesting things in the statement but that one seems to have caught the attention of investors/traders. Simply put - if the Fed is not worried about inflation than neither are we going to worry about is how the market seems to have reacted to things.

Another thing was the Fed's remarks on the recent "mid-October turbulence in financial markets". The Fed essentially glossed over that by stating that they saw the impact of those recent "world developments as likely quite limited".

Gold, which has been all over the place in today's session, seemed to finally digest the statement by heading lower. If there is no inflationary concerns and the Fed seems undeterred by any of the recent financial issues buffeting the global economy, traders viewed the statement as "hawkish" or perhaps a better way of saying it, "not dovish".

Like I said when I started this set of comments - deciphering these pronouncements from on high sure is an enormous waste of time but the fact is that the markets respond to them so one might as well at least try to get the flavor of the moment.

Gold has fallen to just above that key $1180 level a second time in today's session. Bulls are trying to hold it there but the mining shares falling out of bed have pretty much undercut any attempt to push it up and away from there at the moment. Maybe that will change before the session is out - give it 5 minutes!



Had Enough of Roller Coaster Rides Yet?

My kids love to ride those wickedly wild roller coasters, the kind that leave your stomach suspended in mid-air at the top of the track while the cart is already down at the bottom of the valley. Every now and then, against my better judgment, I will let them twist my arm enough to strap myself into one of those things just so that I can inflict on myself the same punishment that they seem to delight in inflicting on themselves.

There was one coaster we went to where they had a camera set up with a strobe light that snapped your picture as your cart went past it on a particularly treacherous portion of the ride. I recall looking through those when we finished the ride and were lingering around at the customer staging area to see what the expression on my face was out of sheer curiosity. Yep - it looked like I was the victim of one of those infamous native American Indians, the Apaches, torture of their white eye prisoners.

After watching the doings in gold and silver this AM, I could wear my kids somehow strapped me back into one of those infernal roller coasters!

Look at the Gold Volatility Index and tell me how anyone in their right mind can try to trade this stuff at the moment? I have heard of "day-traders". Hey, that is long term - try "15 second interval traders" for the new kids on the block!

As I have said just recently - if this keeps up much longer in the precious metals, look for margin requirement hikes very soon.... Small traders - I STRONGLY URGE you to be very, very careful in here. I do not care whether you are bullish or bearish. Betting the farm on a move either way is akin to hari-kari. Want to end any fledgling trading career you might have? Then go ahead and "Bet the Farm", or "Load the Truck" or whatever. Don't complain when they carry you out.

Let the volatility die down some if you want to trade large. By the way - ignore ALL NEWSLETTER WRITERS RIGHT NOW. Not a single one of them have the least clue as to which way this thing is going to go. Roll the dice and you have as much chance of getting it right.

Option guys - take notice once again!

"NO" Leading in Polls - Swiss Vote Referendum Derails Gold - UPDATED

I will get more on this later as time permits...

The polls seem to have shifted AGAINST the referendum. That has pulled the rug out from under the gold market which has been drawing support from recent polls showing "YES" had a slight lead.

I believe that once the public realizes that the SWB will be at a serious disadvantage in maintaining the Swiss Franc/Euro peg if the referendum passes, the mood will shift against it.

Quick note - gold has lost $1180 once again. That is a big deal. It needs to stay above that level to keep the bullish hopes alive.

UPDATE:

38% YES

47% NO


For those who are still unclear on this referendum - if it passes, the SWB will be required to hold 20% of its assets in Gold.


Japanese Yen Fall Delights Abe Government in Japan

It is no secret that the Japanese leaders have been wanting a weaker yen. All of their policies, both at the fiscal and monetary level, have been designed to weaken the currency as part of their efforts to pull the nation out of its decades long deflationary funk.

We can get into the various reasons for their woes but this is not the place nor the time for that now. What I do want to look at however is the success that they are having in driving their currency lower.



One look at this chart pretty much says it all. KERPLUNK!

I wish to point out something that occurred last December (2013). The yen broke down below the support level that had formed off the spike low made in May. It looked as if it was getting ready to put in another leg lower but that breach of important support turned out to be a head fake for the bears.

I remember trading it at that time. What was taking place was big swings between "RISK ON" and "RISK OFF" trades. During the risk off trades, the Yen would experience sharp rallies as the highly leverage carry trades would get rapidly unwound with traders covering short yen positions in a very large way. That would squeeze the currency higher. As the fears/concerns that led to the rally subsided, the short selling would begin anew and back down the currency would go. A new set of worries would then see a repeat of the rally and back and forth we went.

The takeaway from all that however was the fact that when we got that initial breach of downside support in December, we DID NOT get a secondary lower close to confirm that breach.



However, look at what happened in August and September of this year. In August the yen once again violated that support zone. This time around, the following month, the market confirmed the breakout by posting a sharply lower close ( the second close below the broken support zone). The rest, as they say, is history.

The Yen has essentially imploded lower as it does the bidding of its monetary masters in Japan who have greenlighted speculators to beat it senseless for them.

Having been on the wrong side of the Bank of Japan on more than one occasion in my currency trading career, I can tell you it is definitely not much fun. When one does find favor in their eyes, it is an entirely different matter.

I have noted some areas on the chart where the currency might be able to find some support. Notice there still seems to be a great deal of air below this market. Keep in mind that any sort of scare that surfaces to trouble investors, will see sharp countertrend rallies in the Yen as the carry trade gets temporarily unwound.

One other point to make about this - there are still gold perma bulls who send me one negative story after another ( or so they think) in regards to the US Dollar and its soon to be imminent demise ( in their mind). For some odd reason, they seem to forget that the Dollar derives any value it has on the crosses from trading  against other currencies. With the yen falling as hard as it has been, reading their breathless predictions about the upcoming Dollar crash seems a bit surreal to say the least. Apparently, they are not looking at this chart.

the last point - notice how the downside "head fake" that I noted on the chart was followed by a seven month or so period of price consolation prior to the next strong leg lower. Until we got that second close below the support level, the yen refused to break lower. In watching what has been happening with gold, it strikes me that we are perhaps seeing something similar.

The recent breach of support at $1180 looked pretty ominous as it was a triple bottom. However, the market has thus far refused to CONFIRM that downside breach by posting solid consecutive closes BELOW the level. It has spiked lower but has popped back up the last two weeks.

I wonder if we might be seeing something similar occurring in gold that we saw in the Yen? If we are, we will get the confirmation by a strong close below $1180 followed by more downside weakness on the weekly chart (( note that this is a weekly chart of gold and not a monthly like I used for the Yen)).

If not, gold should move higher and first take out that resistance zone noted the chart near $1240-$1260. We shall see shall we not?



Tuesday, November 18, 2014

Gold Taking Cues from Forex Market Movements

Take a look at the following chart comparing the price of the Euro ( in BLACK ) to the price of Gold ( in YELLOW).

During December of last year, and January of this year, the linkage broke down but beginning in February the two have moved in almost perfect lockstep with one another. The connection has been especially tight since this past summer.


The take away from this is rather simple at this point - Tell me what the Euro is going to do next and I will tell you with relative confidence what gold will do.

This morning there was news out of Germany that their ZEW index, a measure of economic confidence, rose in the month of November, the first time it has done so in a year. That produced a big impact in the Euro which completely erased its losses from yesterday ( do you ever get the feeling we are trading yo-yo's and not real markets?) and then added some for good measure. Back down went the Dollar and what do you think gold did? Yep - it moved higher.

The point in all this is that gold is completely at the mercy of developments occurring in the Foreign exchange markets at the moment. There is still widespread weakness across the commodity sector with crude and the grains move lower today.

I should also note that it looks to me like there is a line of thinking that continues to be seen out there which is regarding the sharp selloff in the crude oil and liquid energy markets as STIMULATIVE IN NATURE for the global economy. It is not the majority view but it is out there nonetheless.

Thus far the sell off in crude has fed into the deflationary/slowing global growth scenario. This scenario is NOT BULLISH FOR GOLD OR SILVER. I cannot say this strongly enough.

I have said it before and will say it again and again - my inbox is filled with articles from gold and silver perma bulls constantly finding fault with the US economic performance as they focus on this negative aspect of a set of economic data or that negative aspect. I have yet to find ONE article sent by any of them noting anything positive about the global economy, anywhere. It is all uniformly negative. Yet, they turn around in the very same breath and announce how bullish this is for gold and silver prices? Excuse me - but what in the world do they think has been has happening to gold and silver prices over the last three years, and in particular, the last two years?

SLOW GLOBAL ECONOMIC GROWTH IS NOT BULLISH FOR PRECIOUS METALS PRICES. It is that simple. They need growth, lots of it. The kind of growth which sends the Velocity of Money rising and kicks up inflation worries. That has not been present and as a result, metals prices have been sinking lower. It has nothing to do with some supposed manipulation of the prices of the metals by bullion banks acting as agents of the Fed and everything to do with deflationary fears and a strong US Dollar.


Today we got a bit of a glimpse what might happen to metals prices if the Central Bank efforts to produce an inflation rate of 2% might actually be successful. Notice the very sharp response in the Euro to that improved economic confidence reading!

I would suggest to gold and silver perma bulls that they stop dissing US economic data and actually start rooting for solid growth prospects, not just here, but globally if they wish to see their metals run higher for more than a short period of time.

Just a head's up - along that line, we are going to get some fundamental type news this week.

Gold managed to briefly change the handle from "11" to "12" but it has not lasted very long. Mining shares are still strong at this hour however, so the bull's prospects are improving. They will however have to face the FOMC minutes and see whether or not they can weather any potential impact from those.

The HUI chart looks quite strong at the moment, exactly what one wants to see if they want gold prices to move higher. Notice that the index has closed another downside gap and is actually trading above that gap at the moment. That is very bullish price action!




The index is essentially attempting to work its way back to the downside breakout point made in early October. I have noted that area as "BIG TEST". If this is something more than a bounce in the ongoing bearish trend, albeit a very strong bounce, the index will have to push past this zone and CLOSE ABOVE IT.

If it were able to do this, gold should easily regain a "12" handle and one can say that a more lasting bottom is in this market. If it fails to do that, and retreats lower back down below that gap, that will signal a period of sideways movement in price or what we refer to as consolidation. Stay tuned.

By the way, those of you who want to do so, might wish a Happy Birthday to GLD. It was exactly TEN YEARS ago that it opened up and began trading. There was a note on the wire services that in its first three days of trading, it took in more than $1 billion!