“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, September 19, 2014

Speculators Remain Net Long as Gold Drops Lower

I picked the headline because I wanted to add the following: "And are losing money".

I am attaching two charts to this short post. The first is the overall COT positions from today's report.

Take a look at the lines reflecting the positions of the various groups of speculators. Note that all three groups, the Hedge Funds, the Other Large Reportables and the Small Specs or general public, all remain NET LONG in gold. And guess what - they are all losing money.

Also, what concerns me is that based on this Friday's report, there are still more than a considerable amount of these losing positions left to unwind. As of the close of trading business on Tuesday ( the day through which the weekly report covers ) the price of gold was $1236.70. As of the close today, it was $1216.60 or another $20 lower. There is no doubt that the breach of downside chart support levels has taken out more of these spec longs, but the question is how much pain can they endure, especially when margin calls begin mounting?

The next one is a close up of only the Hedge Fund positioning in relation to the gold price.

What stands out to me is the fact that most of the hedge fund longs are now underwater in a bad way. This is the category in particular that can really move markets due to their sheer size and the amount of firepower at this disposal. They are running, of that there is no question. What IS the question is what is their threshold for tolerance of pain.

Some will hold on until or unless $1180 is broken. Some will exit if psychological support near $1200 collapses and gold then changes handles once more from "12" to "11".

Also, I am not taking into consideration that many hedge funds are now moving more to the short side of the market.

Look at how quickly they moved over to the short side of silver and look at what they have inflicted on that metal. They broke it down below $18.60, then $18.00 in no time flat.

Switching gears just a bit... here is the US Dollar index chart. King Dollar is definitely back once again! The greenback put in the BEST WEEKLY CLOSE in more than 4 years, 51 months to be exact!

In looking over the chart, I do not see much in the way of overhead resistance until near the 86.50 region. If the Dollar does not receive some sort of negative news from some quarter, further strength bodes ill for the precious metals.

On a closing note for now, today's Cattle on Feed report was a tad on the negative side with placements coming in a bit higher than the market was looking for. It should be pointed out however that the placements number in and of itself, is the smallest number since 1996. So even though the number was larger than what the market was expecting, we are still not exactly being swamped by an excess of feeders.

Cash trade did break loose this afternoon at $1.59, which was down from last week. That is still higher than October cattle are trading which remain at a discount to the cash markets; however, the lower cash and slightly less friendly COF report might bring a bit of selling into the market early Monday morning. We shall see as trading those reports can be notoriously vexing at times.

One last thing - the weather forecasts out through the end of the upcoming week, show nice, warm, dry weather - excellent for harvest in those areas where the combines are rolling and for finishing the crop up in the more northern latitudes.

New crop corn and beans are already flowing into the pipelines and that is being reflected in the basis in those areas where harvest is ongoing.

Grain Markets coming to Grips with Reality

There are two factors that are now finally becoming begin to seriously take hold among those who kept insisting that grains would experience a bounce higher. The first of these is the sheer size of the upcoming harvest. The latter is the strength in the US Dollar.

Early harvest results are rolling in and they are impressive! With forecasts calling for warm and mostly dry weather, harvest progress will continue as the combines move north. As the actual results are known, traders are realizing the old adage that, " a big crop gets bigger".

All three grains/beans are lower this morning with beans looking like they are accelerating down. I am most interested in seeing this afternoon's COT reports on the corn because I want to see if any of the large specs ( hedge funds and other large reportables) are still net long corn or if they have whittled down those positions any.

My concern for corn is very simple - IF, and this is a big "IF", that just-mentioned group remains as sizeable net longs, corn is in danger of having more downside than many are currently thinking. The reason? Those guys are going to have to get out of those losing longs.

Now, even if they are spread against wheat, and so far that spread has been performing admirably with wheat fundamentals even more poor than those of corn, lifting those spreads entails a lot of corn selling that will be hitting this market at some point.

Here is a picture of the spread:

As you can see, it has been a most profitable strategy. If the spread moves too much in favor of corn however, livestock feeders will switch over to wheat. The spread has not moved much over -$1.20 with some resistance near -$1.40 so one wonders how much more upside this spread has.

Here is the wheat chart: Talk about ugly! It hit a 51 month low this week. Even at that, the thinking is that US wheat prices are still not low enough to attract solid export business due to the global glut and the stronger Dollar.

And now for corn - again, one ugly chart; however, beauty is in the eye of the beholder and for livestock and poultry producers, this chart is a thing of wondrous beauty!

That brings me back to the commodity complex as a whole. This week's FOMC statement and its hawkishly construed message, has sent the Dollar higher and the commodity complex as a whole, lower.

With the index moving lower one can expect to see both copper and silver heading down and that is exactly what both are doing. Copper is clinging to support near and just above the $3.06 level while silver crashed and burned through the $18 level. If silver cannot recapture that level quickly, a test of $17.50 - $17.35 is its next stop. Below that and things get very ugly as it could easily fall below $16.00.

As for gold, as you can see on the chart, it is clinging for dear life to the bottom of the support band noted. Based on what I can see from this chart, there is little in the way of further support until one gets back down to the former double bottom low near $1180. There is only what I view as "psychological" support near round number $1200 but I suspect that will not hold if the Dollar index runs past 85.50. If gold does manage to get down to near $1200, Asian buying will no doubt be active but it will be insufficient to sustain the metal if Western interests become aggressive sellers. Along that line I am closing watching reported GLD holdings and to some extent, the action in the gold mining shares, which incidentally, look very heavy at the moment.

We have a cattle on feed report due out this afternoon which will give us some further insight into the state of the US cattle herd. One wonders how long cattle are going to be able to buck the general selling trend being seen across the rest of the commodity complex, especially with high-priced US beef rapidly pricing itself out of the export markets. Feeder cattle also continue to defy gravity as cheap corn and abundant pasture spurs buyers to pay these outrageously expensive price for available animals. That being said, these kinds of prices, given what the board is showing for spring and summer cattle prices, are essentially guaranteeing losses to feeder buyers. One wonders how long that can continue. For now cattle bulls, especially in the feeders, are vigorously defending their positions. They seem intent on not surrendering and have the money to back up their stance it appears.

A week from today we get the quarterly Snout count or the Hogs and Pigs Report. That is always a lot of fun.

By the way, with the Scottish vote coming in a resounding "NO" in favor of independence, it was interesting watching the action in the British Pound last evening. As the first results started rolling in favoring remaining in the Union, the Pound began to rally. However, after the final vote was tallied the currency began to slowly relinquish its gains and is now firmly lower. This is a matter of "buy the rumor, sell the fact". The forex markets have an uncanny ability to predict election results as the Pound began rallying earlier this week AHEAD of the vote. Currency traders were clearly voting with their pocketbooks that the vote was going to be one of staying in the Union. Once the vote was cast and the results tabulated, there was no other reason to buy the Pound so down it went against King Dollar.  We are firmly back to trading interest rate differentials it would seem.

Thursday, September 18, 2014

Gold Losing Ground in Other Assorted Currencies

Some of the long time readers will know that I like to check the charts for gold, when priced in terms of the other major currencies, to get a sense of how the metal is doing when viewed from outside of this country. Since it is an internationally traded commodity, it makes sense to compare its performance to see whether there is a general global trend in the metal or whether it is diverging from such a trend depending on which currency it might be priced in. This helps us assess overall global sentiment.

With the big Scotland vote in the headlines, I thought it might behoove us to see how the metal was faring in terms of the British Pound. I understand that more than a few Scots fear for their life's savings and were pulling money out of banks just in case. One would think that gold would be a likely recipient for some of that cash.

However, in looking at the price chart, it is rather lackluster ( and that is trying to be kind) as the metal has actually BEEN FALLING ahead of the vote. Not exactly a VOTE of confidence ( sorry, I could not resist the pun) in the metal from what I can see on the chart at this point.

There is chart support near 740 and on down in increments of 10 pounds. If the metal were to lose 720, it would constitute a breach of a major support level.

Here's Euro Gold - a bit better looking chart but is mainly because the Euro has been so weak. That being said, it is range bound and moving lower towards the bottom of the range near 920. For Euro gold to have any chance of a sharply higher move, it will have to clear 990 with the 1000 mark more preferable to get any serious excitement underway.

Here is Yen Gold:

Again, the chart is much better than that of Dollar priced gold but this is a function of how poorly the Yen has been performing on the Forex markets against the Dollar. Remember, the weaker a currency is against the Dollar, the more expensive gold is in terms of that currency. The stronger a currency is against the Dollar, the less expensive gold is in terms of that currency.

That is the reason that gold remains ABOVE the 2013 ending price for all three currencies. All have been weak against the Dollar this year. The British Pound had actually been holding its own against the Dollar until just recently.

Gold bulls can gain some bit of comfort from the above. At least the metal has not been falling apart across the global currency front.

I would keep an eye on the gold shares to see if they sense anything as far as a possible bottom. I do wish to remind the reader however, a market may bottom without beginning a sharp reversal to the upside. All it may do is meander sideways within a lower range.

Gold in US Dollar priced terms is in a short term downtrend but remains mired within that broad trading range I have been noting for some time now. In other words, on the Daily Chart it is TRENDING LOWER but on the intermediate time frame, it is still trading sideways above $1180. If $1180 goes for any reason, this market is in serious trouble.

Wednesday, September 17, 2014

Silver Chart ( by Request)

Here is a look at the weekly chart of silver which has already fallen below chart support near $18.60 and thus far has not been able to regain its footing above that key level.

Note that the indicator below the chart has made a new low for the year which is suggestive of further downside yet to come. The key will be whether or not the metal can stay above $18.00 which is the next level of chart support. If not, it looks headed for a test of the bottom of the 2010 congestion zone near $17.50.

A weekly close below $18.00 would suggest the beginning of a TRENDING MOVE LOWER.

GLD continuing to disgorge gold

One of my main metrics for measuring the intensity of Western-oriented investment demand for gold is the giant ETF, GLD. When gold prices are rising alongside of rising reported holdings in GLD, it is a positive sign for future metal prices. When prices are falling, alongside of falling reported holdings, it is a negative sign for future metal prices.

Today's reported holdings dropped about 4.2 tons bringing the total to 784.22 tons. That is a mere 7.3 tons above the lowest level posted this year back in May. 

One can speculate whether or not the holdings with set a new low for the year as we move ahead but in my mind, it is indisputable, that investors continue leaving gold and buying stocks, as that is where the gains are to be found.

I think it also essential  to remind the more technical analysis-oriented investment/trading crowd out there, that the large speculators (hedge funds and other large reportables) still remain positioned on the NET LONG side of this market. That is based on the most recent Commitment of Traders report. As these key technical support levels on the charts give way, those positions are increasingly underwater and are being liquidated. It is that long side liquidation, coupled with an increasing short side contingent, that raises the very strong possibility of seeing gold change handles from "12" to "11" once more.

Time will tell.

FOMC Statement sends Dollar Higher, Gold lower

The big thing that traders are taking away from today's much anticipated FOMC statement is the $10 billion further reduction in QE which is now down to $15 billion/month. Of that remaining $15 billion in QE, $10 billion consists of Treasuries and $5 billion of MBS debt. The Fed is on track to wrap up QE completely next month and that is what has traders pushing the Dollar higher and gold lower. Simply put, the era of abundant liquidity here in the US appears to be over. Note to QE taper deniers- you had better wake up in a real hurry. The market is telling you clearly that it believes the Fed.

Not that the Fed is in a hurry to raise short term interest rates. That still does not look as if it is going to happen any time soon.

What it therefore translates to as far as traders are concerned, is an environment in which low inflation still appears to be the general rule and one in which economic growth will be slow to moderate at best. This means that stocks are still the place to be; gold is falling out of favor even further, and commodities in general are going to be moving lower.

Not that they will not be exceptions to this general rule based on the individual set of fundamentals governing each specific commodity market. However, the big leveraged macro trade buying indiscriminately across the entirety of the commodity sector is not in the cards for now.

The result of this readjustment is that the Dollar remains the "Go-To" currency which can be easily seen in the steep plunge in the Yen, Euro, Swiss Franc and Australian Dollar ( the Aussie is a good proxy for commodities in general). The British Pound is getting a bid of a respite as traders are afraid to push too hard on it with the upcoming referendum over Scotland tomorrow looming.

With the Dollar/Yen hitting a six year high, the story is that the currency markets are going to dictate money flows and for now, those flows are into equities and out of commodities, including gold.

I have a full plate right now but here is a quick updated chart of gold for the reader. Notice that it is poised for a test of the last remaining support zone standing between it and the psychological $1200 number. That zone extends from near $1220 down towards $1212. If it fails there, it is going to test $1200. Below that is the low at $1180. Below that? That is scary.

India/Asia may be buying for festivals, etc. but that in and of itself will not be enough to launch gold higher on any wild surge higher before the year is out; not without Western oriented investment demand which has made the vote against gold for the time being.

One more quick chart - the US Dollar... If the Dollar closes through 85 basis the USDX by this coming Friday afternoon, look out above!

Tuesday, September 16, 2014

Copper Short Squeeze Pulls Metals Higher

If you ever want to know why we commodity traders are occasionally prone to be heard muttering meaningless, seemingly disconnected sentences, rambling incoherent utterances and other assorted bewildering, strange words, it is because life in the commodity futures pits can produce some of the most inexplicable and bizarre moments that the vast majority of sane, otherwise blissfully ignorant folks will never quite comprehend.

Take copper for example. Around 10:00 CDT, the red metal began to lift sharply higher on big volume. Something began to rattle the shorts in the market. Then at the start of the next hour, it really took off. Look at the extent of the price spike. It ran from 3.10 to near 3.21, a HUGE 11 cent per pound jump on no discernible news whatsoever. By the way, for enquiring minds, that is a near $2500.00 move per contract! Do any of you remember that recent COT chart I posted of the copper market noting the hedge funds had begun positioning on the short side of the market in anticipation of slowing global economic growth? Well guess what? They all must have run at the same time!

I am still trying to discover what the catalyst was to shove copper prices this higher in such a short period of time. I did note however that the move higher in the copper also coincided with a strong burst of buying in the crude oil and related energy markets. Also, in trading the soybean market, I also noted a surge of buying interest coming in at the same time. This all occurred against a backdrop of a push higher in the major currencies against the US Dollar.

What this tells me, and I still do not know the reason behind the move, was that this was the same old MACRO TRADE that we have seen in the past wherein INDEX FUNDS come in and buy a basket of commodities, across the board, regardless of fundamentals, because of the lower dollar trade. That will explain some of this but a large part of the move across the sector was also due to hedge fund short covering.

What makes this even more strange is that expectations are that the press release coming from the FOMC tomorrow is expected to provide some more definitive data on any upcoming rate hike. That has been expected to provide another upside boost to the US Dollar. Maybe the market is changing its views on that? Who knows? Whatever the reason the initial burst of buying has seemed to abate somewhat as the panicked shorts in the red metal apparently have been flushed out but now what?

Also, this big buying binge has been accompanied by another surge in the equity markets with the S&P climbing back above 1990.

I can tell you this - anyone who dismisses the Dollar's significance when it comes to asset prices is making a huge mistake. That big macro trade is always ready to come piling on or come piling off.

By the way, at the risk of having some fun with the "Gold is Always Manipulated All the Time" crowd, ( GIAMATT), is a big short squeeze higher considered upside manipulation or it is "Normal"? Those of us who have borne the brunt of the attacks from this group already know the answer to that. I merely point this out to show their complete silence by way of their condoning sharp spikes higher in price while constantly complaining and bemoaning all sharp moves lower in price. "oh Ye Hypocrites - why art thou so silent at such sinister conduct"? Enough fun for now however!

Remember, copper prices have been taking their cue mainly from disappointing Chinese economic data news with traders fearing a slowdown in the expected growth rate would crimp demand for the metal. Combine that with Dollar strength due to expectations, whether perceived rightly or wrongly is immaterial, of higher interest rates here in the US, and commodities have distinctly fallen out of favor with would be buyers, not to mention been the target of aggressive hedge fund related selling. Any sort of news therefore that sends the Dollar lower (such as dovish talk on interest rates ), for whatever reason, can easily spark a big wave of short covering across the commodity complex.

That is exactly what we got across the vast majority of the complex this AM.

Keep in mind that there are many who believe that the economy is in no shape to handle higher interest rates as it is not growing near fast enough nor has enough inherent strength to overcome the drag that would come from higher loan rates.

We'll see whether this is a one-day blip ( although it is terrifying if one is short in some of those markets that experienced a squeeze of this nature) and it all is for naught tomorrow when we get the actual FOMC decision to taper another $10 billion in QE plus news on the interest rate front or it is might be the start of more prolonged move.

I tend to think it is the former and will fade out fairly quickly but with these goofy markets and computers running the show, anything is possible. All one can do is to stay nimble and either learn to get the hell out of the way or trade very small at times. Be careful out there folks! If the FOMC release tomorrow is considered dovish, there could very well be more selling pressure seen in the Dollar, even though the Euro zone is a mess and going nowhere anytime soon. Ditto that for Japan.

Monday, September 15, 2014

USDA Latest Crop Conditions

Here is a summary:

                                   EXCELLENT                                                                  GOOD
                          09/14/2014            09/07/2014                         09/14/2014                      09/07/2014

CORN                    22                          22                                         52                                52

SOYBEANS          19                          19                                         53                                 53

As you can see, the crops held steady this week with the share rated Good/Excellent at nearly 3/4 of the entire corn crop and 72% for the bean crop. These are superb numbers. Last Friday, frost issues heading into the weekend propped up both markets and enabled them to shrug off the extremely bearish numbers from USDA in last week's Supply and Demand report.

With the frost damage minimal at best, the conditions index and more importantly at this point, the maturity ratings are going to come back into focus.

What a difference a single week can make for maturity.

I have been commenting recently about the lag in maturity of the crop with my thesis being that the outstanding growing conditions, ample moisture and mild temperatures, have kept more energy heading into the ears ( kernels) and pods respectively instead of the plants following their more usual process of beginning to shut down. That I believe is going to lead to heavier/larger kernel fill and the same with pod filling ( heavier/larger beans).

This week however both crops took some nice jumps in their maturity process. Corn is 82% dented now compared to last week's 69% and the 5-year average of 85% so it made excellent progress in that regards. A full 27% is mature compared to 15% last week and the 5-year average of 39%.

The extreme northern tier states are the areas in which the crop is the most behind but that is to be expected. It is also the reason that we got that burst of shortcovering when meteorologists began inserting frost into the forecast last week ( in those same northern tier areas). With recent forecasts showing a more seasonal trend in temps, we should begin to see some catching up on that maturity level pretty quickly now. By the latter half of this week, most of the corn belt will be enjoying some very nice warm temps.

By the way, 4% of the corn crop has been harvested. That compares to last year's number at 4% and the 5-year average of 9%.

For beans, 24% of the crop is now dropping leaves compared to 12% last week and the 5-year average of 32%. Not too bad!

I do not see anything in particular in these reports that would lend much if any support to the bull cause at the moment mainly because the forecasts that I see are not putting in any hard frosts for some time.

Today's blip up was the result of traders looking ahead to tomorrow's USDA acreage numbers ( from a different division with the USDA) trimming some off of the recent numbers we just got. My own view is that anything they come up with is going to be too small, ( if at all ) to change the perception of an enormous crop coming very soon. We will just have to wait and see.

I am more and more of the view that the last straw that the bulls are going to be able to hold to is an early killing frost, and while these weather forecasts are always varying on us, odds are lessening. Another week or two of nice warm days is going to really push this crop towards its final stage of harvest.