Safe Haven buying supporting gold today

 
This has been the pattern since August of last year and with just a few exceptions, gold has been moving in sync with 10 year Treasury note futures.

Remember, a rising Treasury market means FALLING YIELDS.

As money rushes into bonds to park it while waiting out the uncertainty which is negatively impacting the equity markets, yields will move inversely. AS a matter of fact, the yield on the 10 year is currently sitting at 1.664%. It is set to close out the month not that far above the all time LOW yield near 1.50% ( remember this is a monthly closing yield and does not take into account intramonth spikes.

As long as this continues to be the case - falling yields resulting in safe haven trades - gold will find support - however, it is going to take some sort of catalyst to kick it sharply higher as there is still a very large contingent out there who view this period of falling rates as temporary while they wait for the stimulative impact of lower energy prices, ( and lower food prices) to make themselves felt in the second half of this year.

Swiss National Bank signaling ECB Bond buying coming

This article is posted at my main site:

IN a surprisingly unexpected move, the Swiss National Bank threw in the towel on their Franc/Euro peg and threatened to move interest rates deeper into negative territory and announced a scrapping of the floor at 1.200.

The result - ABSOLUTE CHAOS across the currency markets, the oil markets and the gold markets.The result? The cross plummeted an astonishing 1400 points in the matter of 30 few minutes! Every single trader on the planet who was in that cross and expecting them to defend that floor that they have been so vocal about defending, within that brief time span, was financially obliterated.
This is what I HATE ABOUT CENTRAL BANKS - as I have said many times in the past, it is my personal opinion formed from years of trading and, I might add, from having been on the receiving end of something along this nature from the Bank of Japan at one time, Central Banks are the CHIEF CAUSE of MARKET VOLATILITY and instead of helping to create/maintain relatively calm and orderly markets, they inject disorder, chaos and devastation.

I just hope some of my readers were not trading that cross.

My take on this surprise is this - there was no reason for the SNB to do such a thing UNLESS they knew that a big bond buying program was coming from the ECB next week. Even though their interest rates were already negative, they were spending enormous amounts of their reserves in maintaining that 1.2000 peg. If the ECB were to go ahead on the bond buying/QE, the Euro would weaken ( at least that is what the market is expecting it to do and thus the reason for the strong downtrend in the common currency). A weaker Euro would exert even more pressure on the Euro/Swissie cross requiring even more ammunition to be wasted by the SNB.

Thus they threw in the towel and surrendered.

Gold certainly does like this!

The oil markets have gone beserk as a result as well.

Large Speculators returning to Gold - but with this Caveat

Here is the latest chart detailing the relationship between the Hedge funds NET POSITIONING in the Comex gold market and the price of the actual metal.

I have presented this chart for some time now over at my former website to rebut the silliness from the gold perma-bull camp that any moves lower in the price of gold are ALWAYS the result of "evil bullion banks working to suppress the price of the metal to discredit it". That mindset had a place at one time - back when the US Dollar was sinking - but is now passé and an extreme waste of precious mental effort and time. The camp that has this as a central tenet of their "faith" has long ago lost any credibility on this issue among serious-minded investors/traders.

Gold has been sinking in price because speculators were simply not interested in it when better returns on precious capital could be obtained elsewhere (in equities in particular). An ultra-low interest rate environment here in the US, with no signs whatsoever of any inflationary pressure, in which global commodity prices were sinking lower while the US Dollar was moving higher was simply one in which it did not favor any serious appreciation in the price of the yellow metal. There was nothing the least bit "conspiratorial" therefore about a falling gold price, an asset which throws of no yield or dividend whatsoever and requires storage fees, insurance, etc. when holding it in any size. In other words, it COSTS to store gold when such money could be better put to work producing actual returns in equities.

Now that there are some concerns about global growth and equities are looking a bit wobbly, gold is getting a bit of a look from some speculators who are cautious at the moment. This can be seen in the return of some hedge funds to the long side of the gold market at the Comex ( although I should note that the gold ETF, GLD, continues to display an amazing lack of interest on the part of big Western-based institutional buyers ).

The blue line shows the NET POSITIONING of the hedge fund community. The Red line shows the gold price. As you can see, as the NET LONG Position has increased, so has the gold price. The two track each other EXACTLY.

Something I do want to note however that really stands out for me when I see this chart and analyze it in detail.

Beginning in 2013, while the relationship between the gold price and the net positioning of the hedge fund community remained intact, something happened. Can you see it?

From that point forward, the build in NET LONG positions by the Hedge funds HAS NOT resulted in successively higher gold prices. The opposite is the case. In other words, it is taking more and more buying by Hedge funds to move the price of gold higher but the end result is that the gold price is at lower levels than such levels of net longs would have taken it in the past.

For instance, look at this week's net long level by the hedge funds. It is currently a bit over 106,000 futures and options combined. A similar level of hedge fund exposure to the gold market back in January 2013 had gold sitting above $1650!

How to explain this ? Simple - While hedge funds have been recently expressing an interest in playing gold from the long side over the Comex, there remains a correspondingly increasing amount of WILLING SELLERS of the metal. To see gold sitting closer to $1200 than it is to $1700 when the net long positions of the hedge fund are at the same level as they were TWO YEARS ago tells me that a very large number of players in gold do not expect high prices in gold to last.

This does not mean gold cannot and will not experience rallies. It is now currently in the midst of one which it taking it up to test resistance between the $1220-$1230 level. It might even be able to take that out and put in a test of $1250. But one does wonder how much buying it is going to take on the part of the hedge funds to really push this market to the point where it actually can do something the least bit exciting; not with this many willing sellers of the metal around.

Here is an intermediate term view of the metal (weekly chart). It has been able to keep aloft above the key $1180 level but thus far has not managed to even make it to the first level of chart resistance noted. Not especially impressive when viewed from this angle is it?

As noted many times when discussing the prospects of this metal - just because a market has found a bottom does not mean it is about to embark on a wildly bullish tear higher. It can meander sideways in a broad trading range for YEARS. Until I see some signs of serious life in this market, I am simply not interested in it other than for short term trading purposes only.

To the readers of this site and especially to those who continue to post here at the forum - please note that I have set in place a process that requires all posts to be reviewed prior to being posted. This is not so much an attempt at censorship as it is an effort to prevent the pestilential spammers from India which for some reason believe that they can use this website as a place to secure free advertising for their crap services. Those who do so, without at least having the common decency, moral integrity and professionalism to obtain my permission or even pay a small fee, deserve the scorn and contempt in which I hold these parasites.

Thanks for your understanding with this. In the meantime, I would urge my loyal readers here and regular posters to come on over to the new site and give it a go. You are missing out on a great deal of commentary and hopefully valuable insight into what is taking place in the markets and more importantly, the WHY behind the moves in price.

Also, it would be fun to have some of you long time posters contributing to any discussions at the new site as some of your contributions in the past have been very thought provoking and interesting.

For this Year's Christmas List

It's really too bad that we all are just now learning about this. All I can say is; "Santa - PLEASE, PLEASE, remember me because I have been really good".
This is the Ultimate Chocolate Lover's Dream come true - a printer that prints chocolate candies!

http://www.companyspotlight.com/news/the-hershey-co/14411/776693

Also, to my TraderDan.com readers - over the weekend we made the transition at the site to a dedicated server. Apparently there are still some issues with the move that are causing problems for some of you wishing to log in and read the commentary and analysis that I am posting there.

If you are a TraderDan.com member and are having problem logging in, please let me know here and I will forward your email onto the site administrator for help.

I apologize for this inconvenience and assure you we are doing our best to get it cleaned up as quickly as possible.

Year End Follies Continue

As noted in yesterday's comments, making too much of moves in ANY market at this time of the year is the height of folly. There is simply too much year end book squaring taking place in incredibly thin trading conditions to put any credence in price moves except in those markets with the absolute strongest of fundamentals.

Please be aware that I am limiting comments mainly because it is a waste of time for any trader to attempt to ascertain any future price movements from the action in this last trading week. As goofy as today's moves have been, tomorrow's are liable to be even worse!

There are huge air pockets above and below every market that is trading right now with so many large players out of the markets until next Monday that anyone who has a hankering to try their hand at market manipulation ( pushing prices around merely to run stops ) is going to give it a try to see if they can pull it off.

 Some are trying to make a big deal out of the situation in Greece but frankly that it a tempest in the proverbial tea pot in my view. Greece's problem is Greece's problem. It is not Spain's or Germany's or France's. Sure, any election that puts another left wing group in charge will foul things up for Greece's financing package but that is something that is limited to that country. Any government that might end up being elected is going to soon get a lesson in reality and that there is a huge difference between electioneering slogans and dealing with real world finance issues.

What you are seeing is an exaggeration of price movements due to the lack of liquidity at this time of the year. It is especially tragic that we do get something like the Greece thing this week and not next week. The reaction would likely be much more subdued.

For now, short term technical will dominate the markets. As mentioned yesterday, traders should have lightened up by now or have gotten flat. Watching hustlers run your stops and screw with your positions is never fun so after a while you learn to deprive them of their toys. Personally I have nothing but contempt for the parasites and ticks that make their livings this time of the year by raping the public. Sadly, the exchanges will never do the right thing and just shut down the markets for the last week of the year because they are too greedy trying to collect more trading fees.

As mentioned previously, look at the weekly and monthly charts and those will provide the perspective one needs to keep from being confused and frustrated by the meaningless and random price movements that we are currently seeing.
Early next week the full complement of traders will be returning and then we can put some credence into the moves we get at that time.

For now, this is the time for the worst of the worst in this industry to make themselves manifest.

USDA Reports - Focus shifts to Global Supply Numbers

USDA issued its December Supply and Demand report today and as usual, it set off some expected reactions across the grain floor.

About the only surprise in the report that I can see at this time came in the corn numbers. The trade was looking for a corn carryover near last month's numbers of 2.008 billion bushels. Instead USDA upped usage reducing the amount of corn leftover to 1.998 billion bushels. However, they also raised the expected GLOBAL stockpiles to 192.2 million metric tons from last month's 191.5 million.
Apparently, corn sweeteners will find the cheap corn prices attractive and as a result use more of the stuff in making HFCS. They came up with an additional 10 million bushels worth of demand from that sector ( note that it includes the feed sector but based on what I can see, USDA had already factored in the livestock and poultry industry numbers last month.

Strangely enough, they also RAISED the US export numbers by 10 million bushels. That makes ZERO sense to me since corn exports thus far this year have been lagging behind expectations in the trade. With the projected increase in global supplies increasing combined with the US Dollar as strong as it has been, (and with the greenback expected to resume its uptrend next year,) I have no idea why USDA would expect US exports to increase given the fact that corn is plentiful and cheap globally. The US is not the only game in town anymore when it comes to corn and currency differentials make a big deal when it comes to sourcing grain by foreign buyers.
 
On the bean front, everyone and their dog was expecting USDA to lower the projected marketing-year end supplies. They got that. The trade has been looking at the recent spate of huge bean inspections and export numbers ( CHINA, CHINA, and more CHINA) and had guessed that the initial export number estimates from USDA were too low.
 
I guess USDA did as well since they raised the export numbers by 40 million bushels. That is where the drop in the carryout came from as it was reduced from 450 million bushels to 410 million bushels.
 
Beans did sell off on the data however as the market has already priced this in due to the huge rally off the lows that we have been seeing which began back in October. However, what USDA did do was to lower the total global carryover from 90.28 million metric tons to 89.9 million. That would be friendly as well on the surface but the trade was expecting a smaller S. American crop as thus a smaller number on that global carryover than USDA gave it.

Also today, and I think it is significant, the Brazilian equivalent of our USDA released some data which has somehow managed to get completely lost in all the hoopla surrounding the USDA numbers. They raised the current year crop in Brazil to an expected 95.8 million metric tons. That is a WHOPPER. The agency cited improved weather conditions and a larger acreage number. Last month, that same agency, had expected a crop in the range between 89.3 - 91.7 million metric tons. Depending on which end of that range one wants to start from, that is an increase of either 6.5 million metric tons - 4.1 million metric tons! WOW!
Here is the thing - USDA also plugged some numbers into today's global supply report for Brazil but they used a 94 million metric ton number. CONAB came in nearly 2 million metric tons higher.
 
If the trade really comes to grips with this ( and it needs to be kept in mind that it is still very early in the growing season down there and we have to deal with weather for a while longer ), this CONAB number implies a greater global carryover than today's USDA report suggests.

Also, the soybean/corn ratio remains too high in my view and that is going to encourage more US farmers making the move to beans next year for their planting intentions unless the ratio corrects significantly from current levels. Translation - bean prices are too high in relation to corn and the market needs to do something to either lower the price of beans or raise the price of corn for next year to encourage more acreage going to corn. If not, we will be awash in beans at the expense of corn.
 
More on this later... I have to get back to some other markets... The Yen carry trade unwind is on full display today with the Forex markets now being thrown into convulsions as the price of crude oil falls, alongside of equities.

it never ends....

Draghi and Company Disappoint Euro Bears

Expectations were high heading into today's ECB meeting that the Central Bank would issue some news detailing the start of another round of stimulus for the lagging Eurozone economy.

'Twas not to be.

Draghi TALKED doing more stimulus at some point as he went through the same litany of things that he has been saying seemingly forever at this point:
 
"Economic risks remain to the downside"
"our projections suggest lower inflation"
"we now see GDP growth at 1.0% versus 1.6% in September"

BLAH, BLAH, and more BLAH. The problem is, as far as the market is concerned, they did NOTHING! Just talk.

That is NOT what the market wanted to hear so guess what? Time to cover all those short Euro positions were loaded in this week in anticipation that they would do SOMETHING. Up went the Euro, now over 100 points and once again, the currency markets are roiled by another yapping Central Banker.

Ah yes, another moment in the "CALMING" affect of Central Bankers on the financial markets. Thank heaven for these people - without them, chaos, instability and turmoil would be the norm in our lives!

Note the words dripping with sarcasm.

This is an example of how these monetary lords mislead markets. Draghi has been sounding like the uber dove for quite some time now and hinting about further measures, then - This - a big, fat egg.
It was amusing to see his excuse for the ECB's inaction - OIL PRICE CHANGES!  Personally I think the ECB is scared to death to follow in the footsteps of the US Fed and the Bank of Japan/ Abe government and get aggressive on the QE type front. I wonder what the Eurozone exporting related industries are going to think of their latest "plan" seeing that the Euro is going the other way than from what they were hoping?

Perhaps, some time during his current press conference, Mr. Draghi will look at this cell phone to check and see how the Euro is responding to all this, and then make some statement promising more definitive action next time around. Who knows?

I wonder what it must be like to have financial markets responding to every syllable that proceeds forth from one's mouth?

By the way, while this circus show was going on, Saudi Arabia cut all January oil prices to the US and to Asia! Crude oil went "thump" as a result.

Moody's Cuts Japan's Credit Rating

Moody's Investors Service, a credit ratings firm, cut the credit rating of Japan one notch this morning to A1, down from Aa3.
This has further spooked gold bears and we are seeing a rash of short covering in the gold market as a result.
Let's see how long the impact from the Moody's decision will last and whether or not it can attract any concentrated NEW buying.

US Dollar Relieving Overbought Condition

(Please note that this article is taken from www.traderdan.com).

It is no secret that the currency flavor of the year has been the US Dollar. King Dollar has reigned supreme over the Forex markets especially since this summer when it began a torrid bull move higher breaking out above 81 and making a run to near 87 before it caught its breath and backed down a bit. It decided to run some more, this time to 88.50 before again pausing.
 
Right now, the currency markets are rather subdued thanks to the US holiday ( don't blink however because it all might change!). There has been some movement in the major crosses but not that much to speak of in terms of anything significant. It seems that for the moment, traders are content to let the various pairs meander in some tight ranges.



In looking over the chart of the US Dollar Index (USDX), the currency unit seems to be consolidating in a tight range between 88.50 on the top and 87.50-87.25 or so on the bottom.
 
I have drawn in a shaded rectangle to denote the region where it is encountering some buying.

If you look down at the indicator on the lower plot, you will see the RSI or Relative Strength Indicator, an old but helpful measure of buying or selling internals. Note that since the strong bull trend started in July, the RSI has ranged exactly where it ought to range for a market in a bullish posture - it has not dipped below the 40 level ( see the lower dashed line).



To show the strength of this move, look at how long the RSI has remained above the 80 level, which is considered overbought.

The recent leg higher has produced a negative divergence ( higher high on price not confirmed by a higher high on the RSI) but the market thus far is unconcerned about this, so we will also remain unconcerned. We know this because the lower part of the range remains intact.



The market appears to be working off the overbought condition by moving sideways, allowing the RSI to fall towards the 40 level ( see the shaded rectangle on the RSI insert). The longer the Dollar can move sideways with the price remaining above the support zone on its plot AND the RSI remains above the 40 level ( and the rectangle), the more the odds increase that this is just another pause before the next leg higher in the US Dollar. Traders will want to monitor this closely the next week or so.

If the Dollar were to fall through its support, we would not want to see the RSI fall below 40. That would introduce some doubt as to the staying power of the current leg higher and would bode for a deeper correction. Let's keep an eye on this.

Those who are actively working gold, especially, will want to monitor this most closely.

A Special Announcement

Dear Readers;

 

When I first began this site, more than three years ago, I did so for two reasons.  First, I wanted to use it to both freely express my own personal views of the markets, without feeling constrained by the fact that I was a guest at the sites of others. Secondly, I wished to convey some of the knowledge I had gained from trading for many years to those who were attempting to learn how to understand and look inside the markets for themselves.

 Regarding the latter of these, when I first started trading, I had no mentor, and no one I could look to in order to make sense out of what was happening. You talk about confusion and bewilderment! The sums of money I lost in gaining my experience were quite large to be honest.  One could say that I paid dearly for my education at the School of Hard Knocks! Along that line there is an old joke in our profession:

 

“How do make a small fortune trading commodities?”

 

“Simple – start with a large fortune first!”

 

Some might think it rather quaint but in response to many emails I received back then from those who had read my writings, I was convinced that it might be a good thing to actually try helping these many wonderful folks learn how to make some informed trading/investment decisions on their own and thus rid themselves of dependency on others when it came to making wise choices into which to put their precious wealth.

 After so many years of doing this, I think I might have succeeded in a small way based on some of the responses I have received from this, my current site. The old adage comes to mind: “Give a man a fish and feed him for a day. Teach a man how to fish and feed him for a lifetime”.

 

That being said, the amount of time and effort that this site takes from me can be overwhelming at times. I mentioned this a while ago when seeking the comments of some of my readers about trying to actually cut back or opening the site to accepting Donations or possibly going to per click advertising.

 After much hesitation and with the friendly encouragement/ arm twisting from some of you kind readers, I decided to go with the Donation button.

 I wish to publicly express how grateful I am too all of my readers who were gracious enough to reciprocate and make a kind donation. I understand how valuable that your money is to you and the fact that you have felt moved to freely contribute something towards my efforts, speaks volumes to me about your generosity of spirit and your thoughtfulness. From the bottom of my heart, “Thank You!” You will never know how incredibly encouraging your gifts were – especially when at times it seemed the vast majority of emails in my box were vile, insulting and rude ( coming from members of the gold cult – as we have come to expect).

 As those of you know who have read here for any length of time, I make my living entirely in the markets as a trader. Nothing I have ever written in public, or spoken in an audio interview, has ever netted me a cent as I did it willingly and without charge. There does come a time however that the Scripture: “A laborer is worthy of his hire” becomes apropos. In discussions with my wife and some friends, I believe that this is that time.

 I want to therefore announce that I will be starting a fee-paid site, Trader Dan’s World. Before some of you completely panic, I will be keeping the free site up and running so that the posting community can continue to have a place in which to swap notes and such. I intend to post one or two articles there during the week. That will allow for the current posting regulars to continue to interact; however, the new site will contain the bulk of my work.

 The truth is that I have grown rather fond of some of my regular posters and although I have never met them, feel like I know them rather well as individuals because of the length of time that we have spent reading one another’s comments. I do hope some of you will be moved to come on over to the new site and give it a try.

 I fully understand that for this decision, I will catch some grief from some of the gold bugs, especially those who love to somehow manage to accuse me of always having some sort of agenda ( what that is escapes me but I trust that these all-knowing and all-wise individuals, who somehow know me better than I know myself, will be more than happy to enlighten me as to exactly what that might be). Suffice it to say, that one of the pure delights in having a fee paid site that I hope to enjoy is to finally rid myself of having to deal in any form with such people. And I must also say that having to put up with their non-stop attacks and insults, merely for calling the market as I saw it in the charts, was ONE of the factors that went into my decision to move to this fee-paid site.

 I suppose if they wish to continue their verbal assaults, they will have to fork over some cash for the privilege of so doing! Then again, considering the fact that none of them had the common trading sense to recognize a bear market and protect the value of their metals during a period of lower prices, I suspect that they are too busy nursing their many financial wounds to have any surplus cash available with which to contribute to my fee-paid site for the opportunity of continuing to insult their host. Let them grumble, murmur and complain therefore. I think the rest of us understand their kind!

 A quick word about the new site – I intend to focus on more markets that just gold or mining shares. I have been introducing other markets here at my site for those who are interested in looking at some of the other futures markets. Believe it or not, there is an entire universe of commodity markets which can be traded and which offer profit potential for those who like doing something besides watching gold prices all day long. As some of you know by now, my special areas of expertise lie in the agricultural markets, the livestock and grain markets. Those are the markets that I cut my trading teeth on and the ones that I spend the most time dealing with during the normal trading day.

 There are currency markets, and energy markets, as well as the bond market and of course the equity markets, that are all potential topics of articles that I will post and analyze from time to time. One thing that I can tell you, is that I will continue to call these markets as I see them, with no apologies for so doing. As I have said many, many times now, the business of a trader is to profit. Successful traders profit; those who fail make excuses. It is indeed that simple!

 As a way of introduction, we are going to provide a one month free trial period for my current readers so that they dip their toes into the water and check it out. I am excited about the forum that we will be setting up as well as some of the social media inputs. We plan on the site being an ongoing work in progress, making improvements and changes to it as needed or suggested. Also, I am trying to work up something extra for all those who made Donations to this site as an extra way of saying “THANK YOU”.

 In closing, I would like to thank all of my readers who have come here to read my thoughts over the years. It is an honor to have one’s views respected by a wide audience but it is also an honor that brings with it the responsibility to be truthful and to be honest. I have tried to take that charge seriously and I trust that you as my readers have seen this in my writings.

Sincerely,

Dan Norcini

“Trader Dan”

 

Corn Comments

Trading the grains the last two months has been akin to "Ted and Bill's Excellent Adventure". We have seen hedge funds pour money into the corn and bean markets in spite of the fact that we are dealing with record crops heading into the end of harvest season. The speed at which they have switched sides in these markets, going from big NET shorts to big NET longs has been breathtaking. The end result has been that speculative buying has caused farmers to become stubbornly bullish refusing to let go of their freshly harvested crops as they look for even higher prices.

The move higher was led by the meal, which dragged the beans higher and that in turn pulled corn higher. Of course, it does not hurt the bullish cause when China comes in and gorges on US beans. Grain traders are essentially watching to see when they will start cancelling US bean orders and move to sourcing elsewhere.

In the interim, hot money flows have forced a substantial amount of short covering as there was simply not enough commercially-related hedge pressure to absorb the buying from panicked shorts and bottom-picking bulls. Throw on top of that the usual index fund buying and you can see the result - corn prices have come well off of their late September lows.

The question now becomes - what next? Farmers have been holding back newly harvested grain in those nice shiny new grain silos that they were able to afford when corn prices were above $7.00 and bean prices were in the teens. that has keep the price relatively supported. But while US farmers are the best in the world when growing food they are oftentimes rather poor when it comes to marketing (pricing) it. No matter how one measures it, there is a HUGE amount of grain out there in the nation at this time. Farmers seem to forget this.

They get bulled up at precisely the wrong time and depressed at the wrong time. It is human nature and good business sense to want to obtain the highest price possible for one's goods - the problem occurs when farmers start thinking like speculators instead of business men. Specs take on risk in the hope of making gains - sound business policy involved AVOIDING or MINIMIZING risk as much as possible.

Farmers who are watching prices at the Board working higher and thinking: "I am not selling anything as prices are going higher" are essentially gambling with their farm's income. It makes sense, considering the soaring US Dollar (which is making US corn extremely expensive compared to corn from other source nations ) and the fact of the massive harvest and the fact that this rally has been primarily driven by short-covering (see below) to start taking advantage of this rally to price some of that newly harvested grain.

If a farmer is inclined to try holding out for even better prices, they are betting that weather problems are going to hit S. America or some other extraneous event (like the binge buying related to a modest Chinese interest rate reduction) will provide even better prices at which they can sell later on, but what if none of that happens? What guarantee do they have that weather will not be benign in the southern hemisphere? They are essentially rolling the dice and hoping and that is not a sound risk management plan. It is one thing to hold off some grain for "gambling stocks" but an altogether completely different ( and foolish in my view) thing to not price any grain at all.

That being said, take a look at the chart and notice the move off of the lows. This shows closing prices only so it does not reflect the fact that the front month contract touched $3.89 last week.

Now look at the Commitment of Traders report through this Tuesday where I have broken out the large speculative component and charted their long and short positions.

I have posted this chart up previously but wish to do so once more to make a point - notice that the number of long positions in this category have not varied by a substantial amount since late July/early August.

But look at the red line showing the short positions and note how incredibly volatile it has been. Shooting sharply higher as prices fell and then dropping off equally sharply as prices rose. What this tells us is that it is large spec activity that has been behind the move lower in corn since May of this year and the move higher in corn since October. A goodly portion of the short positions they put on over a 5 month period since late May, have now been taken right back off since October.

The question that should be asked by any farmer is simple - once these big specs are finished covering shorts ( buying back those short positions and closing them out) just who is it that is going to pay these kinds of prices for corn given the massive size of the crop out there?

Today might have been a sign that this short covering has run its course - it is hard to say given the horrific volatility in these markets of late - given the sharp drop heading into the closing minute of trade today. If it is, and again, it is not yet clear, farmers who failed to price any grain during this recent rally are going to end up kicking themselves for not doing so especially considering the amount of revenue that they might have passed up by not pricing any of their grain.

We might have to wait until after the first of the new year before we really see some heavier grain movement off of the farms, as there might be some farmers holding off selling for tax reasons. That being said, there is no guarantee of this rally lasting that long, especially with the US Dollar hitting a 51 month high today.

US corn, driven higher in price by speculative short covering, and a soaring US Dollar, are not the ingredients that go into the recipe for making US origin corn cost competitive on the global market.

Dollar Comments

I am going to keep these comments short mainly because I am utterly exhausted after the roller coaster ride from this week's markets.

The one thing that stands out, now that the dust has settled, is the action in the US Dollar.

One look at the chart and you can easily see the desired currency of choice among global investors. For all its problems, and there are many, the US Dollar remains the "Go-To" currency. The reason I say this is very simple - The Dollar put in the highest WEEKLY CLOSE in 51 months! It is also less than a full point away from taking out the peak made in June 2010. If it does, it is headed to 90.

Now, there are two things that were at work today which created the "Madhouse" that the commodity futures markets became.

The first was the expected inflationary outcome from a Chinese rate cut/ECB monetary stimulus measure. The latter was a deflationary outcome from the soaring Dollar and bond markets.

Interest rates are going down, not up. Many look at this as spurring more borrowing, more lending, more consuming and thus more economic growth. That group bought everything in sight today. The speed at which they did so was terrifying. I chose that word to describe it to see what a tsunami of hot money flows can do to markets when it invades them.

The flip side was another set of traders looking at the strength in the Dollar and drawing the connection between it and a general deflationary wave engulfing the commodity complex. They were big sellers.

The first group won out when the dust settled but you could see some impact from the latter during the session in the grains, and in gold. Gold had regained the "12" handle and then when the latter group came in and start selling, it promptly flopped and lost it. By the time trading ended in the pit, it managed a good close but failed to close above $1200.

Corn did something similar. It went flying higher with shorts being obliterated by the wave of hot money coming into it but in the final minute of trade, it surrendered all of the gains and closed lower.

Soybeans managed to close higher, which is even more bizarre as they had started off with a bang much like corn but during the middle of the session lost every single bit of their gains, went negative and then completely reversed and surged higher again to go out near their highs.

The thinking behind the bean move was that increased credit availability in China will mean more bean purchases from the US's largest foreign bean buyer. Frankly I don't see that connection but the people with the most money decided that was the reason to buy them and there was no one large enough by the time of the end of the session to take them on.

I can see what is taking place in the bonds and frankly, I think the group worried about inflation is greatly overlooking something but based on the bizarre and huge price swings that are being produced by all these infernal Central Bank actions, as well as Chinese actions, I honestly have no idea where all this is headed. Guess what - based on the type of trading we are seeing, no one else does either.

Here is the bond chart in closing. Note the general direction that they have been heading - UP...

 

 

Here is the yield on the Ten Year Treasury - same thing, except in reverse (yields move inversely to price) - it is moving lower reflecting the lower growth.

 

 

 

Lastly, here is a glimpse of the platinum chart - a metal that much like copper, tends to reflect sentiment towards global growth. It had a big up day today as the China news had industrial metal buyers giddy for some reason. It looks as if it might try to make a run towards $1280. If the inflation guys are correct, it will easily better that. If not, back down it will go.

What a week - there are times when I love these markets and then there was this past week, when Charlton Heston's classic line from the original "Planet of the Apes" is exactly how I feel.

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.

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?