Gold Chart

A quick update for those interested in observing the price chart... the metal bounced from support near $1280 on continued Ukranian unrest. That continues to reinforce the significance of the level. If it goes ( on a closing basis ) watch for a significant round of speculative long side liquidation.

One thing I am noticing is the series of LOWER HIGHS being made in this market. Each time it manages a pop from Ukraine events, the high is made at a lower level. That tells me that the events there are losing significance in the mind of many traders and that it is going to take a much more severe flare up in tensions to enable the bulls to push past chart resistance levels. The region near $1320 should hold any bounce to keep the picture bearish. A push through that level, particularly if it can breach $1330 or so, would spook a lot more bears. If not, they will use the rallies to sell.

I am watching to see if gold can manage to sustain any sort of closing price above the $1300 level.

The HUI is stronger today holding above support between 218-215 but remains well off any resistance levels.

It's Yo-Yo Time

Up and Down; Back and Forth; Where she stops, nobody knows. That pretty much sums up trading in the precious metals. Both silver and gold continue range trading with the metals bouncing off of their respective support zones but unable to break free to the upside. For silver that support is near the $19 level and for gold it is our old friend, $1280. The result is a stalemate between bulls and bears.

Bulls are holding the metals where they need to hold them to prevent a strong sell signal and the start of a fresh leg lower but they are unable to kick the price out of the range either. The result is a big, giant, "Yawn" for most traders except for those who are quick on the draw and want to trade the range. Those who do should use a one hour chart combined with a 4 hour.

Gold initially was sold down sharply as there was not much, if any, violence associated with the vote over the weekend. Traders' first inclination was to dump the metal. However, the results, overwhelmingly in favor of separating, sparked a united condemnation by European foreign ministers. One of them, the Swedish Foreign Minister, Carl Bildt, dubbed them, fake figures from a fake referendum". He was echoed by his German counterpart who graced the vote by saying that, "it cannot be taken seriously".

Well, someone took it seriously there because the talk rapidly shifted into how to ratchet up the sanctions and how to go after those Crimean-based companies who might stand to benefit from a Moscow-annexation of the area in question.

With that, back up went the gold price as shorts once again ran for cover. This will more than likely continue to be the pattern at least until we get to the big presidential vote in Ukraine, which is now less than two weeks away. As I have stated many times now - as long as tensions continue to simmer over there, gold will garner buying support. Depending on how this issue is finally resolved, once those tensions are removed, gold is more than likely headed lower especially if US economic data improves. We just have to wait and see and react accordingly.

In the meantime, this is a trader's market. Do not form any long term opinions based off these day to day gyrations being induced by the ebb and flow of geopolitical events. One never knows how events will play out. Again, and this is a strong bit of advice - do not take too large of a position, either long or short unless you have some sort of masochistic streak and enjoy pain. Stay flexible and nimble or stay out altogether until the situation is resolved. There are lots of better markets to trade right now.

Shifting therefore to something more interesting, the grains are getting hammered today. It started last night as follow through from last Friday's bearish USDA reports ( for new crop - old crop bean report was considered bullish) continued. Aiding the negative sentiment was rather widespread rains through some key growing regions in the Plains. That brought about strong selling pressure in wheat, which has been supported by hot and dry weather injuring the crop. The rains are a welcome relief and traders are thus taking some of the risk premium out as they look for some improvement in the crop's prospects.

This afternoon we will get the planting progress numbers and traders will get another look at how things stand in relation to last year and to the 5 year averages.

The Dow scored yet another all time high today while the S&P 500 is approaching its all-time high today as equity traders are pretty much dismissing Ukraine as having any impact whatsoever on anything OUTSIDE of the immediate region. Only if events were to take some sort of serious turn for the worse, would we see stocks impacted by that situation. For now, stock traders are of the view that it will be a non-factor in most global equity markets as it is now firmly viewed as purely a regional matter. The consensus for now is that the economy continues to slowly improve.

Copper moved higher today after comments out of China that authorities there are committed to reforming its money market. Traders took those remarks as signs that the leadership remains desirous of economic growth and with that, PRESTO, gone were last week's losses. This is just more evidence of how the conflicting cross currents in many markets are whipsawing hedge fund computers back and forth. "If you snooze, you lose" is an apt adage to describe certain markets right now. Again, be careful with large positions or be prepared to get skinned. Hedge funds are losing money left and right in the commodity markets - don't follow suit.

WTI crude is hanging around the $100 mark.  The Dollar is a tad weaker and the yield on the Ten Year is up a bit to 2.65%.

More later...

Silver Comments

I have had some private email requests to look at silver. This is in response to those who have asked for such.

The chart is an intermediate one so as to give a bit better of a picture.

Bearish forces are currently in control of the market. For the last seven weeks, the $20 level has served as an effective cap for the metal. Bulls simply cannot push the price up and through this level for any length of time.

Bears however have not yet managed to push a weekly close in price under $19 this year. This week's poor showing however resulted in the lowest weekly close since the last week of January. In other words, silver put in the worst weekly close in over 4 months. It is currently sitting in an important support zone on the chart. Failure to hold here and quickly rebound, increases the odds of a breach of $19 which would then target a hugely important support level near the $18 mark.

Note very carefully the solid ADX line is beginning to turn higher. As silver began to accelerate lower in January of last year, that ADX line was moving higher simultaneously indicating the presence of a strong trending move lower. In July the market found a bottom near $18 and began to retrace but that was merely a rally in an ongoing bear market as price failed near $25 and began retreating once more.

The ADX line however continued moving lower indicating that the downtrend had been halted and that the market was more likely to enter a ranging trade rather than begin a new leg lower. Bearish forces were in control but bulls were coming in and scooping up the metal near $19. That has been the case since last fall.

However, the ADX line is now beginning to rise as price nears important chart support indicating that the POTENTIAL for another leg lower in price is emerging. IF, and this is another of those big "if's", chart support near $19 fails, the indicator is going to generate a trending signal. Once that occurs, the $18 zone if going to take on even more significance from a technical analysis perspective as that is the last area that the bears must overcome to generate a move down towards $16.

From an internal standpoint, the Commitment of Traders positioning is revealing.

Look closely at the blue line which is the hedge fund category. Note how it peaked in February of this year. That occurred as silver prices peaked near $22. What is that category of traders doing since that time? Answer - dropping their exposure to the long side of silver. See how that blue line is moving lower and heading towards the "0" line? As of this week's COT report, they are now barely net long by only 988 contracts and options combined. Without active hedge fund sponsoring on the long side of silver, the metal's prospects are not good. Silver MUST HAVE HEDGE FUND MONEY CHASING IT to move higher. It is that simple.

Rather disconcerting is the positioning of the small traders or general public. Out of the entire category of speculators, they have the largest net long position. That is not much comfort if one is a bull and realizes that his allies are among the weakest of hands as they are the least capitalized group of market participants and the ones most subject to margin calls and least able to meet those if the market moves against them.

That is why this region near $19 is so important. With the general public remaining stubbornly long in a market sitting just atop a key support level, hedge fund managers may look to go after their vulnerable exposure. If they do and catch those downside sell stops lurking below the market, a quick $1.00 drop is entirely possible. Rest assured the margin clerks will be extremely busy making phone calls and demanding bank wires.

What does all this mean in simple terms? Bulls must hold the price of the metal above $19 to prevent a rout. Can they do so? Stay tuned as we are going to find out.

Draghi Wreaks Havoc on the Euro

I might add to the title the following words, " By Design".

ECB President Mario Draghi, apparently was feeling the heat from Eurozone manufacturing interests, exporters and some politicians, all of whom have been complaining and moaning about the relative strength of the Euro.

It was apparent that his remarks yesterday were designed to try to do something about that and judging from subsequent market price action, it worked!

The Euro fell from up near 1.40 ( a key level in my view that they will not tolerate ) all the way to down below 1.375. That is a drop of nearly 2% in the currency in two days' time. Not bad for a few minutes of speaking! 

I honestly could not handle power like that. I would run around my yard commanding it to mow itself and my flowerbeds to weed themselves if I had that kind of control over stuff! I would also command the tires of the cars that keep speeding through my neighborhood to go flat.

Seriously, look at the chart and the damage that Draghi was able to inflict on the Euro. He flipped the ADX indicator into a bearish mode and while not yet able to get the currency to trend lower, he managed to turn the ADX line higher. That will need to be watched because, IF THE EURO CANNOT HOLD CHART SUPPORT, and this is a big if, we might have just seen the high in this currency for some time. Again, I am not sure but am certainly watching this closely mainly because of the heavy weighting of the Euro in the USDX index.

COT Report for Gold

This week's Commitment of Traders report from the CFTC for gold, shows that last Friday's plunge resulting from the surprisingly strong payrolls number, which was promptly erased within a minute when news about a downed helicopter in Ukraine hit the wires, was the result of a rash of hedge fund buying. They added around 12,500 new long positions and only covered a bit less than 400 existing shorts. I suspected we would see more short covering on their part but that did not occur, at least not through Tuesday of this week.

What did occur however was that the spreaders had a field day piling on nearly 15,000 new spreads as I suspected these guys were up to something with that bizarre price action last Friday.

What has also caught my eye is the rather rapid build in new short positions being established by the commercials and swap dealer category. They have wasted no time using the geopolitically-induced bounce in the metal to sell it as it approached $1310 and slightly above that level.

It has been fascinating for me to watch has been the stubborn bullishness of the speculative community in the face of a deteriorating chart pattern. Specs refuse to give up the ghost on the near-permanent bullish sentiment which has characterized this gold market for some time now. This is what concerns me as gold drifts ever lower to that $1280 support level.

The events in Ukraine continue to engender speculative buying in the market but the fact that we have so many in the spec camp remaining bullish with a market that continues to flirt with major chart support is rather unnerving.

I want to emphasize that the POTENTIAL, for a sharp sell off exists in gold if that level gives way. I am not forecasting anything but merely examining the sentiment in this market. Bulls have all their hopes pinned on the ability of gold to hold above $1280 on a closing basis. Ukraine continues to bail them out but with the ETF, GLD, continuing to bleed out gold, I have to wonder how long Ukranian events are going to be able to prevent a breach of chart support. That plus the fact that the HUI ( mining shares ) show very little if any buying enthusiasm at the moment makes me nervous when it comes to the ability of this market to remain above that chart support level. If I could see either a sharp jump in the ETF reported holdings and/or a sharper rise in the HUI breaking out of its range to the upside, I would have a different view. So far we are not seeing either of those occurrences.

For the last seven weeks, the HUI has essentially gone nowhere. It is stuck in a range with the top up near 235 or so and the bottom near 215. The ADX shows a trendless market ( ranging ) with the bears having a slight edge due mainly to this week's poor showing in the mining sector.

"So far, so good",  has thus been the message coming from the gold bulls but that can also be said of the guy plunging off of a 100 story building as he passes each new floor on the way down, " So far, so good", until he reaches the bottom and we all know what happens then.

In spite of all this, I want to continue to emphasize that while this COT report is making for some interesting reading, it has very little value as far as anything predictive at this point because gold is almost totally at the mercy of Ukranian events and no one knows how those things are going to develop or what form such a development might even take. We simply do not know and thus the reason for the very nervous gold trade right now. Until we get some sort of resolution to that crisis, gold should continue to garner some buying support. But just as that is true, so is it also true that many large traders are looking at rallies in gold as selling opportunities. Their focus is here on the US and that means they are looking at the withdrawal of the QE and eventually rising interest rates are bearish headwinds for gold. The market is thus stalemated between those two forces for the moment.

As to which force will gain the upper hand, it is unclear. I have no idea and truth be told, no one else does either. Anyone who claims that they do is full of BS unless of course they have a private line straight to the heavens and can discern the future before the rest of we mere mortals can. That means we sit and wait and watch the price action and go from there. Ukraine flares up = gold goes up. Ukraine abates - gold goes down.

Pick a flower petal or roll the dice - the end result is the same - you are just guessing, not trading.

Ignore the price predictions and the dipsticks which feel compelled to constantly make them. Listen to the market and you will be just fine.

By the way, old crop May beans managed to end the session above the $15 level. Traders are focused on that 130 million bushel carryover number. However, beans at these levels have heretofore managed to crimp demand so we will see just how long they can stay up here. With May in its delivery process, we'll see how many beans show up for tendering and who stops them.

Both corn and wheat stayed sharply lower and closed down sharply lower as well. Some of the pressure on wheat was tied to the weather forecasts for some rain in the parched Plains. The corn number was a shockers and has cast a bearish pall over that market for the time being. It should be kept in mind however that we do not yet even have the crop in the ground yet so a lot can happen between now and the final harvest that could drastically alter the supply scenario for corn.

Suffice it to say, good weather this growing season is going to act as a real damper on corn prices and that is a good thing for livestock producers and poultry guys. Unfortunately the ethanol lobby will still be around to gobble up way too much corn as far as I am concerned. I know my corn-growing farmer buddies love that stuff but I also have friends in the cattle/hog business and they hate it. At least we get DDG's so it is not a total loss but still, the idea of burning our food in a gas tank to appease a bunch of global warming alarmists is nauseating to me.

Spurs are up 2- 0 in the Portland series... way to go San Antonio!