"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, April 25, 2014

Safe Havens Boost Gold

Once again, it is back to tracking events in Ukraine when it comes to gold. Traders are running away from risk and into the usual safe havens ( gold, bonds and the Yen).

This is going to be the scenario until something changes over there so get used to it. As I mentioned yesterday, it is basically a crap shoot. Those who expect the events to get worse are buying gold; those who expect them to be more contained are selling the rally. Both sides are utterly dependent on what happens next but more importantly, what is PERCEIVED to be the course of events.

Personally I do not see a lot of  upside for gold here because the situation, as tense as it is, has not thus far spread to anywhere outside of Ukraine. In that sense, while it is not insignificant, it is not likely to have much impact ( other than the short term market gyrations associated with geopolitical events ) on regions outside of that immediate area. It certainly is not going to move the Fed one way or the other when it comes to Tapering plans or interest rate policy. As mentioned many times here, that will be completely dependent on subsequent US economic data releases.

This is the reason that gold is struggling to maintain the "13" handle in spite of the escalation in tensions. If the bombs start going off in earnest or we get larger scale shooting or conflict, gold will be bid higher but many traders do not see this thing moving beyond Ukraine at this point.

What we have seen is a bout of sharp, short-covering from speculative interests who had been pressing the metal from the short side. They are standing aside and allowing events to unfold further before coming back in to sell in size. That is allowing an air pocket above the market and price is moving in the path of least resistance which for now is higher.

I would caution those who are looking to buy the metal here. Just be careful - geopolitical events are very tricky - you might hit it big and then again, you might not. Whatever you decide to go, no matter which way, long or short, do not be slow on the draw if need be. You can never anticipate when events on the ground will change and flip the market in the other direction.

As a trader you do not always need to be in the market. Sometimes the sidelines is the proper place. Let others chop each other up while you wait for the trend to re-establish itself after the excitement lifts. I have made it a habit never to chase gold over geopolitical events because one never knows how those will turn out. If you own some physical gold, you can be content with that but do not chase it higher if you are a trader. Even if you miss out on a move, the structure of the market becomes too unstable and that sort of thing is asking for disaster in these highly leveraged futures now that computers are doing the brunt of the trading.

I am noticing that crude is getting hit hard today. We have large supplies of the stuff but some are unsure how to trade it due to the geopolitical concerns. For now the bears are flexing their muscles. Gasoline is a bit weaker today but the stuff has moved up some $0.50/gallon since mid-January this year much to the chagrin and frustration of consumers who were relishing the lower prices back then.

Moo-Moos and Piggies parted ways today with hogs going down and cattle going up. Packers have been able to move the higher priced beef for now while pork demand has hit a temporary lull it would seem. Consumers are going to learn quickly, if they have not done so already, that beef prices are at record highs. Again, I look for relief later this year but the summer grilling season is going to suck.

Corn continues to draw buying from those playing up the cold, wet planting season weather. There is no doubt that planting is running behind normal. Most expected it to do so given the intensity of the cold winter and the fact that some of the Great Lakes were frozen over. The big question is whether or not we will have a good growing season regardless. Some chatter that El Nino will help out the crop is around but it is a bit early to bank on that. For now, the bulls are in charge of the corn market. They were certainly back to playing " the US is going to run entirely out of old crop soybeans" theme  in the bean market once again today as May hit the magical $15.00 level. We'll see if China begins any cancellations in earnest and whether or not imports from S. American begin to really take off.

I will get a chart up later for both gold, the COT stuff and the mining shares. I do not know whether or not the COT data will show the hedge fund short covering that has been occurring this week. My guess is that it will not, at least not in size because the big move from down below $1280 did not come until events flared up over in Ukraine on Thursday, two days after the cutoff point from the CFTC. Same goes for silver - hedge funds have been playing it increasingly from the short side and the combination of a stronger durable goods number, plus the psychological support from a higher gold price no doubt sent a fair number of shorts scurrying to cover but that occurred after Tuesday of this week. In other words, do not read too much into today's COT data. With what happened on Thursday, it is interesting but far too dated to give a clear read on how things stand here at the end of the week.

 Considering the move higher in gold and its ability to recapture a "13" handle, the miners look rather lackluster at the moment. Maybe that will change by the closing bell. The HUI continues to trade down below both its 50 day moving average and its 200 day moving average, not exactly a glaring example of a big market endorsement of the sector. There is value-based buying at work in the sector but the momentum crowd is MIA.

The US stock markets are getting hit with some selling ahead of the weekend as traders are nervous holding long positions over the weekend in which anything can or might happen. Caution/prudence dictates standing aside, especially if you have some decent profits. I suspect that a fair number of money managers/institutions are welcoming this move lower in the broader equities. Valuations have not been cheap keeping many from buying. Their problem has been that they do not want to miss the move up but are hesitant to buy when many issues are trading up so close to chart highs. The setback will allow some strategic positioning to begin taking place.

So far, 1880 - 1890 on the S&P has proven to be a bridge too far for the bulls. Its session low at 1853 is right about even with the 50 day moving average. The 100 day comes in near 1830 which also corresponds  closely to the mid-March swing low at 1823. If the 50 day does not hold it, I would look for prices to drift down towards that level to see if the market can uncover some buying there.

More later...