"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


Thursday, April 17, 2014

Geneva Talks Pressure Gold

"She loves me; she loves me not", could be the expression best used to "time" one's entry into or out of the gold market lately. Just look at the headlines I have chosen to employ the last few trading days and you will get the idea. Back and forth they have gone as the mood of the market has been flipping from day to day. Most of gold's recent gains are related to the situation in Ukraine; take that away and the other fundamental factors remain bearish. Gold is therefore ultra sensitive to any sort of swing/change in what is taking place over there.

Today, apparently talks in Geneva ( 6 hours worth ) between the US, Russia and the EU, yielded some fruit, at least in the mind of traders. A framework was agreed upon which it is hoped that tensions could be throttled back. We'll see how that goes but for today, it was negative for gold prices, especially with yields on US Treasuries rising and a stable to firm Dollar. The yield on the Ten Year jumped today to 2.721% as I type these comments from a low near 2.60% earlier this week.

Again, at the risk of beating a dead horse, buying gold based on geopolitical tensions is always tenuous at best because as soon as those tensions are viewed as diminishing, gold is going to come under selling pressure not only from longs who are seeking to book any gains that they might have achieved before those are lost, but also from opportunistic shorts who are hoping for additional long liquidation to take the market down into sell stops that they have been eying.

We got that today in the form of a breach below psychological chart support at the $1300 level. Once gold lost that "13" handle, the stops kicked in and took it down sharply. It did get some buying right above $1290 but the technical damage was done at that point.

Looking at the daily chart, the market looks heavy heading into next week. Keep in mind that we have a long holiday weekend in the West with Easter coming up. That means a lot can happen between now and Sunday evening ( in the West) or Monday morning in Asia. If we do not see any flareups over in Ukraine over the weekend, gold could be in for some more selling come then. Everything is contingent on events meaning the market can go either way.

Back to the chart however...The big move down on Tuesday this week has cast a bearish pall over the market. It did bounce from the support level near $1280 but that was due to events in Ukraine. Two things have happened as a result of this. First, is that the price fell BELOW the 50 day moving average on Tuesday; that is negative. Then today, it fell BELOW the 200 day moving average once again. It should be noted in a trendless market moving averages are notorious for producing whipsaws but nonetheless, technicians keep an eye on these things to try to gauge just who might have the upper hand, bulls or bears.

The support noted is not that far off meaning if tensions lighten up a bit over the weekend, we will more than likely see gold test that support level. If it holds, fine. If it does not, $1260 will be seen in short order followed by a trip to $1240 if that fails to stir up active buying. All of this to say one simple thing - $1280 is shaping up to be a most significant chart technical level. If the bears crash it, watch for them to really pour on new, fresh short positions.

The ADX continues to move lower indicating the trendless feature of this market. The trading range, once between $1400 and so on the top and $1280 on the bottom has now constricted to near $1320 on the top with the bottom remaining the same. Bears are currently in control based on the directional movement lines.

A big contributor to the lack of upside enthusiasm in gold continues to be the poor showing by the gold mining shares. As mentioned yesterday, the market does not like these bidding wars it is seeing among some of the larger firms and is punishing their stock prices as a result. By more importantly, look at the technical price chart of the HUI and you will see what the problem is:

The HUI ended last week on a horrible note and it has been bleeding lower for most of this week. As things now stand, it is precariously perched just on top of chart support near 216 closing in the lower half of today's trading range. If it loses that, there is not much in the way of help until the index would near 211- 210. If 210 were to go, all bets would be off for the gold shares as one could begin to make the case that the index is on course to surrender all of the gains of the year. Let us hope not for the long suffering bulls.

Disgruntled Bulls - Please keep the hate emails and the nasty posts to yourself as I am just relating how things could shape up from a purely technical posture.

The overall commodity sector ( as a whole ) is working higher adding some support to gold but as far as any sort of upside trending move higher, the GSCI is not indicating one at the moment. Instead we see the index continuing to make a series of lower highs and relatively stable lows. Keep in mind something I wrote yesterday - this index is designed to key off of the most active or front months in the commodity futures markets. Currently a goodly number of these markets are showing markets in a backwardation structure. What is important to note about this is that the futures markets are anticipating a comedown in commodity prices as we move deeper into this year. Markets, being forward looking by nature, are discounting any serious threat of upward price pressures later this year. Of course, unforeseen events, especially weather, can always trigger reassessments of such things, but for now, the markets are signaling a break in upward price pressures in the commodity sector towards the third quarter of this year.

Along this line, economic data coming out of China will be closely scrutinized.
There are already rumblings of credit issues in that regards involving Chinese buyers of soybeans. That is not insignificant and will be closely watched due to its implications in the grain markets. Old crop beans seemed a bit nervous about this today although with the way the funds have been buying them, they did not break down all that much. Quite frankly, that soybean market makes me nervous. There remains a large number of farmers who are sitting with last year's beans in their storage bins who apparently will not let go of them. I have no idea what they are waiting for. If the function of the market is to ration demand, it is certainly doing that judging from the export numbers we got this morning. Maybe we need to see another week of poor numbers to convince some of these guys that prices are getting rather lofty. The thing is however, as long as the funds can push them higher without any serious hedge pressures from commercial entities, they are going to do just that. Standing in their path is a quick way to become a "former" commodity trader.

With the markets being closed for Easter, it will be a nice break away from the madness. We Christians celebrate the Resurrection of the Lord Jesus Christ from the grave as the evidence that His sacrifice for our sins was accepted and that they are now atoned for. We also believe that the resurrection is proof that Jesus was who He said He was, namely the Son of God. For those who believe, it is a glorious message!

"I am the resurrection and the life; he who believes in Me, shall live, even if he dies."   ( John 11:25).

Happy Easter!