The USDA Soybean harvest progress report was out this afternoon and it showed some hefty progress was made last week. Bean harvest as of the past weekend was at 83% compared to 70% last week and 85% for the same week last year. The five year average is 83% so it is dead on schedule.
The story essentially remains the same as last week... harvest progress out in the western regions of the Belt was very, very strong.
Iowa is at 91% complete, compared to 81% last week and 94% last year but it is also now ahead of the five year average of 90%. Minnesota is essentially done at 98% compared to 94% last week and 95% last year. Its five year average is 91%.North and South Dakota, along with Nebraska, are wrapping up as well. In short, the western part of the Belt looks great.
Just like last week, it is the eastern part of the belt that is lagging. However, very good progress was made last week in Indiana, which jumped up to 70% complete compared to only 50% the previous week. The five year average there is 87%.
Ohio also made good progress jumping from 50% the previous week to 72%. That compares with last year at 90% and its five year average of 83%.
Illinois had a nice ramp up as well with 83% now harvested compared to only 63% last week. Last year it stood at 91%. The five year average is 84% so Illinois has really made up some ground and is now essentially right where it ought to be.
Based on these numbers I find it hard to believe that we are going to continue to hear issues about "meal shortages" much longer. The beans are going into the bins and the crop is very large. As the harvest winds down, more trucks should become available to move meal that is produced as crushers have incredible margins right now in the beans with the heavy buying jacking the crush to some quite profitable levels.
It would not surprise me one bit to hear talk going from "meal shortages" to "meal gluts" sooner rather than later. The tightness in transportation will eventually clear up and the product is going to move.
Switching ever so briefly to the corn... the harvest is 65% complete compared to 46% last week ( farmers have opted to go after the beans and leave the corn for later) but is catching up to last year's pace of 71%. The five year average stands at 73%.
There does not seem to be a standout feature in the report as to a clear cut difference between the eastern and western portions of the Belt. I should note that Illinois is essentially tracking its five year average of 78% with this week's 77% complete.
Iowa and Indiana are lagging with the former at 58% compared to its five year average of 75% with the latter at 58% compared to its five year average of 70%.
This is perhaps the reason that the funds have been able to jam corn prices off their worst levels right at the closing bell both last Friday and today. The trade is waiting for a larger percentage of the harvest to come in before they begin to get aggressive on the hedging but I look for that to pick up this week. Opposition to the hedge funds and other large specs is building between $3.80-$3.70.
The forecasts show some moisture in the belt but the amounts forecasted vary. Also, some regions look to see sunshine and clear weather, but colder temps on the way. Depending on location, farmers will have some open windows available to get some more done before next Monday's reports.
Monday, November 3, 2014
Unleaded Gasoline Strikes Fresh Four Year Low
Could we possibly see a "1" handle on the price of unleaded gasoline before the year is out?
I don't know but I can say that the chart shows a region of congestion between today's session low and the $1.80 level.
Wouldn't that be something?
I don't know but I can say that the chart shows a region of congestion between today's session low and the $1.80 level.
Wouldn't that be something?
Crude Oil Price War Stirring?
I sure think so... What I am referring to is the move by Saudi Arabia to CUT its oil price for oil sold to the US while raising its price to other countries, notably in Asia.
There are some analysts who are downplaying the move as only an attempt by the Saudis to maintain US market share but I think not. I think they are going after the US shale industry.
This is rather interesting if you ask me because of the impact on Russia as well.
Either way, the cut in price by the Saudis has oil traders thinking along a common line right now and that is burgeoning supplies. Economic growth is just too slow to burn through all of the oil that is accumulating.
The impact of falling energy prices should not be underestimated. It does two things:
1.) It benefits consumers and businesses with heavy energy usage such as those in the Transportation sector
2.) It harms the one bright spot in the US economy, namely the energy industry and the companies associated with production, exploration and service to some extent.
I might also mention something more along the psychological front - it feeds the DEFLATION psyche. Look at the plunge in the commodity indices today. Given that sort of environment, gold is going to continue to fall out of favor. Why buy a metal that throws off NO yield in an environment in which commodity prices in general are heading lower?
Here is a chart of crude oil...The black liquid hit a 2+year low today.
If it breaks the support level noted on the chart, we could see another $2.50 break lower from current levels. I also want to remind the reader that based on the most recent Commitments of Traders report, large speculators still remain heavily long in this market by a more than 3:1 ratio.
Just like they are in gold, they are caught on the wrong side of a plunging market meaning the resulting money issues at work will tend to keep the price depressed as rallies are viewed by losing sides as opportunities to get out and cut their burgeoning losses somewhat. It is all about reducing the pain at this point.
There are some analysts who are downplaying the move as only an attempt by the Saudis to maintain US market share but I think not. I think they are going after the US shale industry.
This is rather interesting if you ask me because of the impact on Russia as well.
Either way, the cut in price by the Saudis has oil traders thinking along a common line right now and that is burgeoning supplies. Economic growth is just too slow to burn through all of the oil that is accumulating.
The impact of falling energy prices should not be underestimated. It does two things:
1.) It benefits consumers and businesses with heavy energy usage such as those in the Transportation sector
2.) It harms the one bright spot in the US economy, namely the energy industry and the companies associated with production, exploration and service to some extent.
I might also mention something more along the psychological front - it feeds the DEFLATION psyche. Look at the plunge in the commodity indices today. Given that sort of environment, gold is going to continue to fall out of favor. Why buy a metal that throws off NO yield in an environment in which commodity prices in general are heading lower?
Here is a chart of crude oil...The black liquid hit a 2+year low today.
If it breaks the support level noted on the chart, we could see another $2.50 break lower from current levels. I also want to remind the reader that based on the most recent Commitments of Traders report, large speculators still remain heavily long in this market by a more than 3:1 ratio.
Just like they are in gold, they are caught on the wrong side of a plunging market meaning the resulting money issues at work will tend to keep the price depressed as rallies are viewed by losing sides as opportunities to get out and cut their burgeoning losses somewhat. It is all about reducing the pain at this point.
Japanese Yen Succumbs to BOJ Wishes
It is no secret that the monetary authorities, as well as the political leaders of Japan, want to see a weaker Yen. The current Japanese leadership is desperately trying to stave off a deflationary wave that has held the nation in its iron-fisted grip now for what seems like an eternity.
The entire idea behind the attempts to take their currency lower on the crosses is to ramp up inflationary pressures associated with a falling currency ( that is a subject matter that requires a post of its own ) and to somehow turn the Velocity of Money higher by getting people to spend now and incur more debt now rather than wait for lower prices to spend later.
The Yen is therefore one of those LONG TERM macro trades that many hedge funds are interested in playing ( much to the delight of the Japanese leaders). It has however been an extremely difficult trade at times to remain in if one is short simply because the Yen can experience some violently sharp rallies anytime there is a rush away from risk and into safe havens.
With ultra-low interest rates in place as far as the eye can see, and with a clear signal from the authorities there in Japan, the temptation to use the Yen as a funding currency for a highly leveraged CARRY TRADE is just too great to pass up by some very powerful speculators.
However this huge macro trade will see very swift reversals whenever FEAR RISES or equities plunge. The size and scope of those carry trades is enormous but the fact that they are heavily leveraged means that losses can quickly accrue if the leveraged positions move the other way. As a result, one will see the yen shoot up rapidly when stocks are selling off. That is simply the sign that the carry trade is being unwound during that time period.
For the trader who is interested in catching a trend, this currency is one that looks to be firming up and asserting itself once more but one must understand , and be prepared, that any of these "risk aversion" episodes can punish you quite severely. It is therefore not for the faint of heart nor for the poorly capitalized trader.
I have noted some technically significant levels on the long term monthly chart. As you can see, the Yen has plunged rather dramatically the long two months and has begun the trading month of November down sharply as well. But look at the big spike it made in last month's trade before closing out on the lows last week. It was a 500 point move ( please note I am using CME reporting and not the usual Forex reporting and I have dropped out the decimals). That is very tricky to sit through if you are short and are watching "your life passing in front of your eyes" type short covering rallies.
The plunge in September took it down through chart support which was followed by a rally back up to that broken support level ( that then served as resistance) followed by a plunge lower. As you can see on the chart, the Yen can make some rather steep, unidirectional moves at times so the idea of "overbought" or "oversold" are not especially applicable when it comes to this currency.
Here is the one of the things to note about this - the Yen comprises almost 14% of the weighting of the USDX. While obviously not near as great a weighting as the Euro, continued weakness in the Yen does tend to feed into the current trend of a stronger Dollar.
A stronger Dollar here in the US tends to have a deflationary impact on commodities and serves to keep inflation at bay. I said all this to say that a weaker yen may very well tend to feed weaker gold prices here in the US.
The entire idea behind the attempts to take their currency lower on the crosses is to ramp up inflationary pressures associated with a falling currency ( that is a subject matter that requires a post of its own ) and to somehow turn the Velocity of Money higher by getting people to spend now and incur more debt now rather than wait for lower prices to spend later.
The Yen is therefore one of those LONG TERM macro trades that many hedge funds are interested in playing ( much to the delight of the Japanese leaders). It has however been an extremely difficult trade at times to remain in if one is short simply because the Yen can experience some violently sharp rallies anytime there is a rush away from risk and into safe havens.
With ultra-low interest rates in place as far as the eye can see, and with a clear signal from the authorities there in Japan, the temptation to use the Yen as a funding currency for a highly leveraged CARRY TRADE is just too great to pass up by some very powerful speculators.
However this huge macro trade will see very swift reversals whenever FEAR RISES or equities plunge. The size and scope of those carry trades is enormous but the fact that they are heavily leveraged means that losses can quickly accrue if the leveraged positions move the other way. As a result, one will see the yen shoot up rapidly when stocks are selling off. That is simply the sign that the carry trade is being unwound during that time period.
For the trader who is interested in catching a trend, this currency is one that looks to be firming up and asserting itself once more but one must understand , and be prepared, that any of these "risk aversion" episodes can punish you quite severely. It is therefore not for the faint of heart nor for the poorly capitalized trader.
I have noted some technically significant levels on the long term monthly chart. As you can see, the Yen has plunged rather dramatically the long two months and has begun the trading month of November down sharply as well. But look at the big spike it made in last month's trade before closing out on the lows last week. It was a 500 point move ( please note I am using CME reporting and not the usual Forex reporting and I have dropped out the decimals). That is very tricky to sit through if you are short and are watching "your life passing in front of your eyes" type short covering rallies.
The plunge in September took it down through chart support which was followed by a rally back up to that broken support level ( that then served as resistance) followed by a plunge lower. As you can see on the chart, the Yen can make some rather steep, unidirectional moves at times so the idea of "overbought" or "oversold" are not especially applicable when it comes to this currency.
Here is the one of the things to note about this - the Yen comprises almost 14% of the weighting of the USDX. While obviously not near as great a weighting as the Euro, continued weakness in the Yen does tend to feed into the current trend of a stronger Dollar.
A stronger Dollar here in the US tends to have a deflationary impact on commodities and serves to keep inflation at bay. I said all this to say that a weaker yen may very well tend to feed weaker gold prices here in the US.
Friday, October 31, 2014
HUI / Gold Ratio hits lowest level ever recorded (UPDATED with Gold Chart)
I have been detailing this ratio chart quick often of late as I am of the opinion that the gold shares still lead the price of the metal. My concern for the outright price of gold has been noted as this plunging ratio has been a very good indicator for the future direction of the gold price thus far.
Much is made by the same culprits as usual about big sell orders on the Comex, takedown of this, takedown of that, the usual, blah, blah and more blah, as an attempt to buttress the notion that this fall in the price of gold has been orchestrated by the powers that be to discredit the metal.
The problem with this theory in this environment is that the MINING SHARES have been LEADING the metal lower. Gold is merely following what the miners have been very effectively signaling now for some time since this ratio began declining.
I cannot tell you how disconcerting it is to read the same discredited individuals ( who will not do us all a favor and simply go away) pedaling yet another "special insider claim" that they are privy to the origin of the sellers that "have hit gold with big sell orders eating through all the bids". What else is to be expected when large speculators are entering a market on the sell side or bailing out from off the long side, as their positions grow increasingly underwater? Tiny offers? Small lot sell orders? That is not the nature of today's computer-driven markets and anyone who trades for a living knows this quite well.
Those who continually attempt to make some sort of big deal about big sell orders as IF they are coming from the powers that be are nothing but pompous windbags spouting hot air that deludes only the unsuspecting and naïve.
Also, are we to assume that some nefarious evil agent has been working over the share of each and every mining company PRIOR to then going in and "taking down the gold price"? If the mining shares lead the way down in gold, then to be consistent with the latest gold perma-bull spin, someone would, by necessity, have had to first orchestrate a takedown of the mining companies that comprise all of the gold stock indices, not to mention have been selling all of that gold that has been withdrawn from GLD.
Here is the simple truth - the Dollar has been surging against its competitors; Central Banks have signaled their intention to either keep interest rates low or to provide stimulus or both; and commodity prices in general are falling. In that environment, one in which inflation is not a concern, stocks remain the GO TO asset class. Until that changes, gold is not going to attract sufficient capital flows from serious money managers and hedge funds to keep it levitated. Since the path of least resistance in the metal is therefore lower, that is exactly where it is going. There is no mystery whatsoever to any of this nor is there any conspiracy to force the price lower. Specs simply are not interested in an asset that pays no yield and which requires an overall economic environment in which its price is more likely to head higher.
Along this line, take a look at the HUI/Gold ratio chart once again. the only reason I note it once more is because something historic occurred with it today; it hit the lowest recorded level in the history of the HUI.
Again, this is HISTORIC. As such it signals either more losses lie ahead for gold or an abrupt turnaround for the mining shares. Since both the HUI and especially the GDXJ closed near their weekly lows, that does not look too likely at the moment.
In closing, let me say this... gold's downside breach of $1180 has as much technical significance as its breach of major chart support near the $1530-$1525 level in April of 2013. That too was a TRIPLE BOTTOM that failed.
Note that gold spent 18-19 months moving sideways in a broad range between roughly $1800 on the top and $1530-$1525 on the bottom. When it broke down below that range at the TRIPLE BOTTOM it proceeded to fall another $345 before bottoming out and forming the base of a new 16-17 month long sideways trade above what proved to be another TRIPLE BOTTOM at $1180 that failed today.
The question now becomes will gold do what the pattern calls for, namely eventually leg down somewhere between $300 and $345 before bottoming and carving out yet another base? That could put the metal down as far as $835 - $880 before reaching a new bottom once more.
Of course that seems inconceivable to many but back when gold was trading in the range between $1800 and $1525, it seemed inconceivable at that time that it could ever fall as low as below the $1200 level!
Please note that this is not a prediction; it is merely an observation based upon an analysis of former price action which extrapolates POTENTIAL. Much of course depends on the overall direction of the US economy and whether or not Central Bank activity proves to be insufficient to deal with the deflationary headwinds buffeting it.
One thing that inclines me to not rule out a move this low is that HUI to Gold ratio charted and commented upon above. That is so far off the mean that some sort of reversion seems as if it is necessary to correct it and bring it back more within the norm. As stated before, it can do so either by the mining shares gaining on the price of gold or the price of gold falling faster than the overall price of the shares.
One last look at the LONG TERM CHART shows some Fibonacci retracement levels sketched in to provide some shorter term targets if the selling intensifies.
The downside is now open first to near the $1150 level. Failure there targets that $1100-$1090 level.....
Much is made by the same culprits as usual about big sell orders on the Comex, takedown of this, takedown of that, the usual, blah, blah and more blah, as an attempt to buttress the notion that this fall in the price of gold has been orchestrated by the powers that be to discredit the metal.
The problem with this theory in this environment is that the MINING SHARES have been LEADING the metal lower. Gold is merely following what the miners have been very effectively signaling now for some time since this ratio began declining.
I cannot tell you how disconcerting it is to read the same discredited individuals ( who will not do us all a favor and simply go away) pedaling yet another "special insider claim" that they are privy to the origin of the sellers that "have hit gold with big sell orders eating through all the bids". What else is to be expected when large speculators are entering a market on the sell side or bailing out from off the long side, as their positions grow increasingly underwater? Tiny offers? Small lot sell orders? That is not the nature of today's computer-driven markets and anyone who trades for a living knows this quite well.
Those who continually attempt to make some sort of big deal about big sell orders as IF they are coming from the powers that be are nothing but pompous windbags spouting hot air that deludes only the unsuspecting and naïve.
Also, are we to assume that some nefarious evil agent has been working over the share of each and every mining company PRIOR to then going in and "taking down the gold price"? If the mining shares lead the way down in gold, then to be consistent with the latest gold perma-bull spin, someone would, by necessity, have had to first orchestrate a takedown of the mining companies that comprise all of the gold stock indices, not to mention have been selling all of that gold that has been withdrawn from GLD.
Here is the simple truth - the Dollar has been surging against its competitors; Central Banks have signaled their intention to either keep interest rates low or to provide stimulus or both; and commodity prices in general are falling. In that environment, one in which inflation is not a concern, stocks remain the GO TO asset class. Until that changes, gold is not going to attract sufficient capital flows from serious money managers and hedge funds to keep it levitated. Since the path of least resistance in the metal is therefore lower, that is exactly where it is going. There is no mystery whatsoever to any of this nor is there any conspiracy to force the price lower. Specs simply are not interested in an asset that pays no yield and which requires an overall economic environment in which its price is more likely to head higher.
Along this line, take a look at the HUI/Gold ratio chart once again. the only reason I note it once more is because something historic occurred with it today; it hit the lowest recorded level in the history of the HUI.
Again, this is HISTORIC. As such it signals either more losses lie ahead for gold or an abrupt turnaround for the mining shares. Since both the HUI and especially the GDXJ closed near their weekly lows, that does not look too likely at the moment.
In closing, let me say this... gold's downside breach of $1180 has as much technical significance as its breach of major chart support near the $1530-$1525 level in April of 2013. That too was a TRIPLE BOTTOM that failed.
Note that gold spent 18-19 months moving sideways in a broad range between roughly $1800 on the top and $1530-$1525 on the bottom. When it broke down below that range at the TRIPLE BOTTOM it proceeded to fall another $345 before bottoming out and forming the base of a new 16-17 month long sideways trade above what proved to be another TRIPLE BOTTOM at $1180 that failed today.
The question now becomes will gold do what the pattern calls for, namely eventually leg down somewhere between $300 and $345 before bottoming and carving out yet another base? That could put the metal down as far as $835 - $880 before reaching a new bottom once more.
Of course that seems inconceivable to many but back when gold was trading in the range between $1800 and $1525, it seemed inconceivable at that time that it could ever fall as low as below the $1200 level!
Please note that this is not a prediction; it is merely an observation based upon an analysis of former price action which extrapolates POTENTIAL. Much of course depends on the overall direction of the US economy and whether or not Central Bank activity proves to be insufficient to deal with the deflationary headwinds buffeting it.
One thing that inclines me to not rule out a move this low is that HUI to Gold ratio charted and commented upon above. That is so far off the mean that some sort of reversion seems as if it is necessary to correct it and bring it back more within the norm. As stated before, it can do so either by the mining shares gaining on the price of gold or the price of gold falling faster than the overall price of the shares.
One last look at the LONG TERM CHART shows some Fibonacci retracement levels sketched in to provide some shorter term targets if the selling intensifies.
The downside is now open first to near the $1150 level. Failure there targets that $1100-$1090 level.....
Hedge Funds Feasting on Small Specs in Silver
If you want to get some sort of idea how the big sharks eat the little fish alive, take a gander at the following Commitments of Traders chart for the silver market.
Here is the chart:
I dropped out both the Swap Dealer Category and the Other Large Reportables Category for the sake of keeping the chart cleaner and more readable.
The Blue line is the NET POSITION of the hedge funds. The Red line is the net position of the Small Spec or the General Public. The other line is the Commercial category.
What have the hedge funds been doing in silver for the last few months? Answer - liquidating longs and adding shorts. In other words, they have been SELLING.
What has the general public or the minnows been doing since then. Well, some longs have liquidated so there has been some selling but look at their position. They are still net long in the silver market!
What has silver done since the peak in July on this chart? Answer - it has collapsed in price from near $21.50 to today's low near $15.50. That is nearly a 30% LOSS in 4 month's time.
I cannot count the number of emails that hit my inbox from the gold cult members yapping about HIGH OPEN INTEREST in silver as if somehow that is yet one more reason to be long the precious metals. When pointing out to them that the interest is both from increasing numbers of spreads, and from speculators interested in SELLING THE METAL, I am usually greeted with derision and condescending rebuttals as if somehow I am ill-equipped to understand the esoteric secrets of the strange universe that they are privileged to inhabit.
Some love to argue even more throwing around such insightful comments as, "Mr. billionaire fund manager asserts with great confidence that sometime this year, silver goes north of $50" as if somehow that settles the matter.
And yet, look at the chart. What does it tell you? Answer, a long silver position has butchered those who were foolish enough to think that they knew more than the market especially Mr. billionaire fund manager who is now probably Mr. millionaire fund manager.
The thing about this which is even more tragic, is the sheer size and extent of the losses that this erratic metal can inflict on the account of anyone who gets on its wrong side. A $1.00 move in silver is $5,000 per single contract. Do the math and you get the idea how much money the hedge funds took out of the pockets of the inept general public who continue to listen to the siren-songs of those self-proclaimed market experts who keep pushing them to buy it in spite of the obvious.
Now, this late session bounce in silver is interesting as it indicates some decent buying came in late, very late, in the session but in looking over at the mining share indices, they stink, having barely managing any sort of significant closing bounce heading into the weekend.
That today was also the end of the month, a day on which one can expect to see a great many big price swings and a day on which some funds tend to realize some paper gains for the sake of their monthly statements, and the fact that those mining indices closed so poorly, one has to be skeptical that the bounce higher in this metal signifies the end of the downtrend. It could very well just sit down here for a while and move sideways while it consolidates its severe losses from this week.
I will be watching closely next week to see what kind of follow through to the upside, if any, we might get. The ability to push back above $16.00 is constructive but we will know whether or not it has any staying power early next week. Until then, the general public remains LONG and WRONG and is serving as fodder for the hedge fund bears who are mercilessly goring them to no end. A lot of would-be trading careers from the small public were ended this week by the devastation suffered at the hands of this most fickle of metals.
Here is the chart:
The Blue line is the NET POSITION of the hedge funds. The Red line is the net position of the Small Spec or the General Public. The other line is the Commercial category.
What have the hedge funds been doing in silver for the last few months? Answer - liquidating longs and adding shorts. In other words, they have been SELLING.
What has the general public or the minnows been doing since then. Well, some longs have liquidated so there has been some selling but look at their position. They are still net long in the silver market!
What has silver done since the peak in July on this chart? Answer - it has collapsed in price from near $21.50 to today's low near $15.50. That is nearly a 30% LOSS in 4 month's time.
I cannot count the number of emails that hit my inbox from the gold cult members yapping about HIGH OPEN INTEREST in silver as if somehow that is yet one more reason to be long the precious metals. When pointing out to them that the interest is both from increasing numbers of spreads, and from speculators interested in SELLING THE METAL, I am usually greeted with derision and condescending rebuttals as if somehow I am ill-equipped to understand the esoteric secrets of the strange universe that they are privileged to inhabit.
Some love to argue even more throwing around such insightful comments as, "Mr. billionaire fund manager asserts with great confidence that sometime this year, silver goes north of $50" as if somehow that settles the matter.
And yet, look at the chart. What does it tell you? Answer, a long silver position has butchered those who were foolish enough to think that they knew more than the market especially Mr. billionaire fund manager who is now probably Mr. millionaire fund manager.
The thing about this which is even more tragic, is the sheer size and extent of the losses that this erratic metal can inflict on the account of anyone who gets on its wrong side. A $1.00 move in silver is $5,000 per single contract. Do the math and you get the idea how much money the hedge funds took out of the pockets of the inept general public who continue to listen to the siren-songs of those self-proclaimed market experts who keep pushing them to buy it in spite of the obvious.
Now, this late session bounce in silver is interesting as it indicates some decent buying came in late, very late, in the session but in looking over at the mining share indices, they stink, having barely managing any sort of significant closing bounce heading into the weekend.
That today was also the end of the month, a day on which one can expect to see a great many big price swings and a day on which some funds tend to realize some paper gains for the sake of their monthly statements, and the fact that those mining indices closed so poorly, one has to be skeptical that the bounce higher in this metal signifies the end of the downtrend. It could very well just sit down here for a while and move sideways while it consolidates its severe losses from this week.
I will be watching closely next week to see what kind of follow through to the upside, if any, we might get. The ability to push back above $16.00 is constructive but we will know whether or not it has any staying power early next week. Until then, the general public remains LONG and WRONG and is serving as fodder for the hedge fund bears who are mercilessly goring them to no end. A lot of would-be trading careers from the small public were ended this week by the devastation suffered at the hands of this most fickle of metals.
Surging US Dollar Technically Strong on the Chart
The greenback, as illustrated by the USDX, has managed to poke through the chart resistance level at 87 in today's session. The overnight, surprise action by the Bank of Japan, has given currency traders a strong reason to hammer the Yen lower and they are doing exactly that.
The Euro is holding a bit better and is only down some .7% compared to the 2.5+% beating that the yen is taking, but both majors are down against the Dollar and that has enabled the greenback to finally better that tough chart level noted.
Essentially what we have is a currency, that was trading in a very broad range for the last two years that broke out of that range to the upside in September. The reason for the breakout was simple - investors and traders are convinced that is any of the Western industrialized nations ( and I am including Japan in this group ) was going to move higher on the interest rate front, it would be the US.
This is in spite of the clear statements by the Fed that they intend to keep interest rates low for a "considerable time".
The issue however is very clear - the ECB and the Bank of Japan were NOT going to move higher on rates. Neither was Canada or Australia, not with the price of commodities moving lower. In effect, the Dollar wins by default when it comes to the currency of choice for investors and traders in such an environment.
After the upside breakout on the chart, the Dollar has spent the last month consolidating its gains building a base from which to launch the next move higher. That appears to have finally taken place today with the BOJ move the catalyst.
At this point, a weekly CLOSE above 87, sets up a likely run at 89. As long as the Dollar is exhibiting such strength, gold has little chance of halting its slide lower.
I can add another comment to this... grain traders who are oblivious to these movements in the critical currency markets and are happily chasing grain and bean prices higher, are going to experience a lesson in global markets very soon that they will not forget.
With crusher margins at levels not seen in two months, and at levels which by any historical standard of comparison, are incredibly profitable, they will crush as many beans as they can get their hands upon and do it as fast as they possibly can. At some point, the supposed meal shortage is going to become a meal glut.
The Euro is holding a bit better and is only down some .7% compared to the 2.5+% beating that the yen is taking, but both majors are down against the Dollar and that has enabled the greenback to finally better that tough chart level noted.
Essentially what we have is a currency, that was trading in a very broad range for the last two years that broke out of that range to the upside in September. The reason for the breakout was simple - investors and traders are convinced that is any of the Western industrialized nations ( and I am including Japan in this group ) was going to move higher on the interest rate front, it would be the US.
This is in spite of the clear statements by the Fed that they intend to keep interest rates low for a "considerable time".
The issue however is very clear - the ECB and the Bank of Japan were NOT going to move higher on rates. Neither was Canada or Australia, not with the price of commodities moving lower. In effect, the Dollar wins by default when it comes to the currency of choice for investors and traders in such an environment.
After the upside breakout on the chart, the Dollar has spent the last month consolidating its gains building a base from which to launch the next move higher. That appears to have finally taken place today with the BOJ move the catalyst.
At this point, a weekly CLOSE above 87, sets up a likely run at 89. As long as the Dollar is exhibiting such strength, gold has little chance of halting its slide lower.
I can add another comment to this... grain traders who are oblivious to these movements in the critical currency markets and are happily chasing grain and bean prices higher, are going to experience a lesson in global markets very soon that they will not forget.
With crusher margins at levels not seen in two months, and at levels which by any historical standard of comparison, are incredibly profitable, they will crush as many beans as they can get their hands upon and do it as fast as they possibly can. At some point, the supposed meal shortage is going to become a meal glut.
Gold Bears Nail Hedge Fund Sell Stops
We have been chronicling with some detail the regular weekly Commitment of Traders reports for some time in many of the markets that I choose to comment upon. In those comments, I have noted the positioning of some the LARGE speculative forces as being on the LONG SIDE of gold.
Here is a graphic of the condition ( or better - what WAS the condition ) of all those SPECULATIVE longs in the market.
Note the HUGE NUMBER: It currently stands at 241,792 if you include option positioning.
By the way, just for comparison's sake, the total number of SPECULATIVE SHORTS in the gold market is a trifling 134,381. As you can see, speculators have continued to be stubbornly long in the gold market despite the deteriorating chart pattern and despite the deteriorating fundamentals for gold. By the latter, I am speaking primarily of the surging US Dollar and the fact that commodity prices in general are falling right along with the TIPS spread which is indicating the sentiment that inflation is of no concern at this moment.
Here is the point in all this... an examination of the chart shows that approximately 55,000 of those new long positions put on in gold near the $1200 are all completely underwater. That is where this selling is coming from. Once the TRIPLE BOTTOM at $1180 failed ( remember the old trading adage that, "TRIPLE BOTTOMS RARELY HOLD" ), the sell stops were activated and out they came.
Bears have been licking their chops to get to those for some time now. Today, they got them. With that level being the last line of defense in the sand for the gold bulls, speculative forces are going to be aggressive in going after gold from the short side now, just like they had begun doing in the silver market for some time. The carnage might just be getting started.
Interestingly enough, at the moment I am typing these comments, gold is down 2.96% compared to the HUI being down 5.42%. Guess what - that HUI-gold ratio that I have been charting, noting that it has reached levels last seen 14 years ago in the year 2000, is still falling lower. Gold is therefore either going to continue to move lower or the HUI Is going to have to move higher. Gold is overvalued, even after its fall today, compared to the mining universe.
Either that, or as I said yesterday, many mining companies are finished.
Here is a graphic of the condition ( or better - what WAS the condition ) of all those SPECULATIVE longs in the market.
Note the HUGE NUMBER: It currently stands at 241,792 if you include option positioning.
By the way, just for comparison's sake, the total number of SPECULATIVE SHORTS in the gold market is a trifling 134,381. As you can see, speculators have continued to be stubbornly long in the gold market despite the deteriorating chart pattern and despite the deteriorating fundamentals for gold. By the latter, I am speaking primarily of the surging US Dollar and the fact that commodity prices in general are falling right along with the TIPS spread which is indicating the sentiment that inflation is of no concern at this moment.
Here is the point in all this... an examination of the chart shows that approximately 55,000 of those new long positions put on in gold near the $1200 are all completely underwater. That is where this selling is coming from. Once the TRIPLE BOTTOM at $1180 failed ( remember the old trading adage that, "TRIPLE BOTTOMS RARELY HOLD" ), the sell stops were activated and out they came.
Bears have been licking their chops to get to those for some time now. Today, they got them. With that level being the last line of defense in the sand for the gold bulls, speculative forces are going to be aggressive in going after gold from the short side now, just like they had begun doing in the silver market for some time. The carnage might just be getting started.
Interestingly enough, at the moment I am typing these comments, gold is down 2.96% compared to the HUI being down 5.42%. Guess what - that HUI-gold ratio that I have been charting, noting that it has reached levels last seen 14 years ago in the year 2000, is still falling lower. Gold is therefore either going to continue to move lower or the HUI Is going to have to move higher. Gold is overvalued, even after its fall today, compared to the mining universe.
Either that, or as I said yesterday, many mining companies are finished.
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