Weekly Gold close setting up to be Important

In looking over this intermediate term chart, and surveying its current bear market, I have noticed that since its peak near $1900 some three years ago, the metal has only ONCE managed to CLOSE out the week BELOW $1200. See the arrow.....

The close this week will therefore be critical in determining whether or not we are going to be more downside follow through and another test of the key $1180 level or if we are going to sit and grind sideways for a while longer yet.

Based on what I am seeing in the gold mining universe, I would say the odds favor a close below this level but I am not dogmatic about it. As noted yesterday in my comments on the gold shares, based on the ratio of the HUI to Gold, either gold remains OVERVALUED in relation to the shares or the shares remain undervalued in relation to the price of the metal.

I still am leaning towards the metal remaining overvalued especially as there as of yet seems to be no sign that the bloodletting in that sector is through. There remains a lot of die-hard gold bugs who are enduring some tremendous paper losses in their mining share portfolios. Look at the HUI - it is mere about 10% away from hitting the 2008 low! That is six years of whatever gains anyone might have had in that sector that have gone up in smoke. What is such a tragedy is every single bit of it could have easily been avoided. All that was necessary was to tune out the assorted hucksters, charlatans, stock peddlers, etc and just read the chart.

I do think that if we get that weekly close below $1200, the bears are going to be emboldened to go after that triple bottom ( which rarely hold ) near $1180. There is a MOUNTAIN of sell stops sitting there. They know it and can smell them.

Silver Collapses to 56 Month Low

One look at this chart says it all....

If the metal cannot bounce from its current level, the next level of chart support does not show up until near $15.00

Falling GLD Inventories - A Warning Sign Ignored by Gold Bulls

We have been painstakingly detailed in providing very regular updates and charts for the readers of this site of the reported holdings in the big gold ETF, GLD, for some time now. The reason for this is clear - like it or not, approve of the ETF or not, it is a proxy for Western-based investment demand for the yellow metal.

The FACT is that reported holdings have been plummeting lower even since peaking out two years ago. Yesterday saw yet another reduction in those holdings with the total tonnage now at a measly 742 tons. I saw "measly" because the trust is now at reported levels last seen in the first week of October 2008! Let that sink in a bit.

As the holdings have dropped, so too has the gold price, right along with the share price of the gold miners. There is nothing mysterious about this. It has been there right in front of everyone's eyes who were open enough to recognize the obvious.

What is so tragic about this is the number of innocent people who have lent their ear to the numerous peddlers of nonsense out there who assured them that this drop was ultimately bullish for the metal because, as they assured them, "the gold is being drained to go East". Whether it goes East, or North, or South or the earth's core, is irrelevant. It is being sold here in the West as money managers will not buy gold unless they see a very good chance of it moving sharply higher in price. It throws off no yield and therefore, any gains must come from capital appreciation.

In an environment in which most commodities are falling in price, and one in which the Dollar is holding up fairly well,  and one in which inflation fears are nowhere in sight, there is not enough Western-based investment interest in the metal to push the price higher. The East can buy all the gold that they want but without an accompanying demand surge in the West, the best the Eastern-based buying can do is to slow the descent of the metal or keep it from plunging even more sharply than it otherwise might have done. It takes hot money flows from the West to generate a bull market in gold, or in any other market for that matter and the simple truth is that those money flows are MIA when it comes to all things gold for the moment.

Gold has fallen below chart support near $1210 and is now trading below psychological support at $1200. Once more it appears the bears want to go down and test that now triple bottom support at $1180 to see if they can crack it this time around.

Note ( this is for you Hubert!) gold did fall to the lower Bollinger Band after falling below the median line yesterday. The bands are widening out suggesting that there is more to come yet to this move lower. Also note that the ADX line is beginning to slightly rise hinting that a trending move is the works. I do want to point out however that the ADX is well below the 20 level at this point so unless $1180 is clearly taken out, the market is officially still in a broad range trade with $1180 the bottom of that range.

If $1180 goes, look for $1150 in short order as a massive amount of hedge fund long positions will ALL BE UNDERWATER. With silver getting obliterated and with the mining shares disappearing from off the face of the earth, a lot of longs are in trouble.

Maybe the bulls can stave off any further downside but they had better flex what is left of their dwindling muscle very soon.

Hawkish Sounding Fed ends QE

Well, we got it. By, "it", I am referring to the final end of the tapering process that the Fed began so long ago I cannot even remember but will conclude at the end of this month.

Throw on top of that some happy talk about the US economy, in particular the job market (where that came from is unclear) by referring to "solid job gains", and that is all it took to send the US Dollar sharply higher on the crosses. Of course they had to throw in that falling unemployment rate but we all know the reason for the lower number is because the labor participation rate continues to decline. Where they also came up with the phrase, "that labor market slack is gradually diminishing" escapes me as well especially when we stop counting the folks out of work!

Perhaps, if you mean by "gradually diminishing", the sort of speed that one can observe when watching a blade of grass grow, then I will happily grant them that. We all know that is a bunch of hooey for if that was true, WAGES would be RISING, and not flat/stagnant as they currently are.

That was the major phrase however that got the currency markets all roiled as that phrase was not in the previous releases. As a matter of fact, I seem to distinctly recall the Fed being on record as being concerned about that labor market slack being substantial.

Hey - its election time; what more can I say. The Fed boss has to keep her boss, happy, if you know what I mean.

TAlk about overdoing it however. Where I come from, the idea that there is "underlying strength in the economy to support ongoing progress towards maximum employment in the context of price stability" is something we feed to mushrooms.

Are they kidding me?

Regardless, the talk in the market as a result turned to that interest rate hike thing once more. As before there was nothing in this month's release that would give any concrete evidence of a set date for an actual hike. What we got was the same as before - the Fed promised to keep interest rates low for " a considerable time". Where have we heard that before?

By the way, regular readers of this site are aware of that TIPS spread chart that I post regularly comparing the change in the spread to the price of gold and using it as a type of forecasting tool for the price of gold. The Fed noted falling inflation expectations as indicated by that spread. They also noted the move lower in energy prices but oddly enough came up with the idea that they did not expect downward pressure on inflation to last.

Where did they get that insightful view from? It sure as hell has not been from watching the CRB index or the Goldman Sachs Commodity Index or the Velocity of Money or any other such actual useful data. I guess they just said it because it sounded good! Seriously, I see no data that gives the slightest reason at this point to believe that the downward pressures on inflation is to be of short duration.

Then again, maybe they have been watching the slaughter in the grain markets and that has gotten them all revved up about food inflation.

This missive will be short for the moment as I am utterly exhausted from trading in the grains, which have become about as bizarre as I have ever seen them.

Meal once again led the entire grain floor sharply higher and for now, it looks as if one set of shorts is getting slaughtered each and every day at this point. Margin clerks are having their hands full forcing specs out of those positions and a veritable bloodbath is taking place.

At some point the temporary supply deficit in meal will be eliminated and then we will go from nothing to a glut. I am not sure how long it will take to fill the pipeline again but when it goes, it will go with horrible ferocity.

While this will not endear me to gold bulls, gold was flattened on the FOMC news and is currently down over 1%. The HUI is a bloodbath having fallen 3.25% at this time while the junior-laden GDXJ is being soaked, down 5.55% at this moment.

I honestly believe we going to see some junior miners disappear before this is all done. Be careful what you buy out there if you want to be a "hero contrarian" and start buying junior miners.

Take a look at this ratio chart briefly comparing the HUI to the price of gold and creating a ratio. It hit a level that was last seen - are you sitting down as you read this - December 2000! That is FOURTEEN YEARS AGO.

I said this before in a recent post and will say it again now, either the price of gold is too high and needs to fall further or the mining stocks are undervalued against the price of gold and need to move higher. Based on what I am seeing today, I see nothing to persuade me any differently. I still think gold is heading lower. Either that or some of these mining companies are history.

Notice on the gold chart that the metal has fallen to the support zone marked near the $1220-$1210 level. It is currently BELOW that level. the way it is trading at the moment ( and of course this could change) it does look as it a test of $1200 is coming. The reason I say that is because the price has fallen well below the middle line of the Bollinger Band indicator with the lower band sitting near $1197.

The ADX is still choppy suggesting that this move is a move back to the bottom of a wide range that has been in place for nearly a month now. However the clear break to the upside of the -DMI (red line) shows near term momentum with the bears.

To get out of the mess that they now find themselves in, the bulls are going to have to clear that downtrending 50 day moving average again. That is way up there near $1240 at the moment.

Incidentally, it does look as if Mr. "gold will be well north of $2000 before the end of this year and silver north of $50" has struck out once again. I am not trying to rub salt into a wound  - I am merely repeating something I have said here repeatedly in an attempt to teach and WARN readers - DO NOT FOLLOW ANYONE who claims to know in advance where a market is going. Here is the truth - THEY DO NOT KNOW in spite of their hubristic and reckless claims to the contrary.

Proof is in the price chart for the metals but I can say the same thing about these grains. Most of us who trade the grains for a living all had ideas where we thought the grains were heading. Most of us were also wrong!

I will try to get some stuff up later on the bean meal and the grain markets. The action in there has taken on a life of its own and a full-out money game is now what is occurring. Panic buying - despair- forced short covering due to margin calls - blown to pieces and to hell in a handbasket hedges are being obliterated. You name it - it is taking place in there.

I can tell you one thing - there are some very angry traders out there right now and some very angry hedgers at what has transpired. This is what happens when techicals take over a market and then take on their own life. Fundamentals are essentially irrelevant when positions are getting blown to hell. About the only thing that matters right now is who has the beans?

Consumer Confidence Reading Cheers Equity Bulls

The Conference Board released their Consumer Confidence numbers today and surprised a lot of us. The reading for October came in a 94.5, which according to Dow Jones, was the highest reading since 2007. Truth be told I find that number odd given the polling taking place ahead of next week's elections which show voters in a surly mood, the vast majority believing the country is on the wrong track. Trying to square those fairly consistent poll numbers with the Conference's Board happy face, is a feat that I must admit I have not been able to master.

Maybe the Conference Board asked about falling gasoline prices instead of overall consumer confidence? who knows.

For whatever the reason, stocks liked the number.

However, ahead of the FOMC release tomorrow, the sentiment seems to be while the Fed is going to end the QE program, it is going to stand pat on the interest rate front, essentially leaving short term ( and long term by consequence) rates near zero for some time.

Equities love that environment because quite frankly it makes them the only game in town for anyone who wants to earn more than a pittance on invested monies.

As many of you who regularly read here know by now, I have long expressed my disgust at what the Fed has done to senior citizens, those on fixed incomes and those looking for SAFE, CONSERVATIVE investment options as they approach their older years. Kiss that mostly goodbye, compliments of the Fed, which lives to service its master known as Wall Street, but more particularly, the big banks.

I do not know about some of you but I am filled with disdain when I see elderly friends and family members trying to navigate this bogged-filled financial morass that the Fed has deliberately chosen to create. Oh yes, they will tell us how such things are necessary for the sake of the overall economy. Perhaps that is true, perhaps not, but that is no consolation whatsoever to those who have earned some rest, and some peace and quiet in their golden years who are now forced into spending their afternoons sitting in front of the damned television set staring at one of the cable business channels and wondering if their money will still be there tomorrow.

Enough of my mini-rant for now... I am not going to spend any time commenting on gold since quite frankly it is a gigantic bore right now. It is waiting for the magic words from the FOMC anyway.

What is much more interesting, and much more havoc wreaking is what continues to take place in the grain markets, particularly the soybeans, which are doing things I cannot remember seeing in my trading career. By that I mean soaring in price in the face of one of the largest harvests on record.

What is driving this continues to be the meal - something I have been noting for some time here now. It still comes back to the same old, same ol' at this point - namely historically tight carryover stocks from the 2013-2104 crop year have left many end users/processors scrambling to secure enough beans to crush to meet demand for meal. Toss on top of that the fact that even some of the commercials were caught flat-footed by this squeeze and you have a perfect money flow storm. Shorts have gotten annihilated.

What is being reported is that farmers seeing the rally are becoming bulled up ( big mistake in my view) and are holding beans back hoping to get even higher prices. NOTE - it has been my experience that Farmers - as good as they are at growing crops - historically, and with great regularity, are consistently bullish at market tops and bearish at market bottoms. This is exacerbating nearby supply constraints as export commitments clash with the need for meal.

However, with the Real sinking to a six year low against the US Dollar, US meal prices, and bean prices, are no longer competitive on the global markets. I suspect we are going to soon be seeing export cancellations as a result. One cannot drive prices higher and higher and higher due to a TEMPORARY supply situation and not expect to produce an expected result - namely, high prices will ration demand. The problem is we are still sitting with a huge crop out there that needs to be moved and the last thing we are going to need is higher prices to move it!

Cash flush farmers from back in 2011-2012 farm prices used that money to build lots of shiny new, on-the-farm silos. They can hold the crop while they wait for higher prices, or so they think.

Personally I think that any farmer that is not using this meal-driven rally to price some of their new crop is nuts. The meal is pulling the entire grain floor higher but when it finally does top, and top it will, I fear that the entirety of the fund contingent which has been furiously buying, either covering existing shorts or chasing prices with new longs, are all going to head to the exits at the same time with no one to support this market on the way down.

the reason I feel so strongly about this is that this temporary tightness in the meal is not going to last indefinitely. It is a short-term phenomenon brought about by the combination of a small crop in 2013-2014 and a delay in the harvest of the 2014-2015 marketing year crop. However, based on what USDA reported yesterday - 70% of the total soybean crop has already been harvested. No matter how you cut it, slice it, dice it or scramble it, that is already a huge amount of beans. There might some areas in parts of the Eastern belt that experience some harvest delays but from what I am seeing at the moment, progress is going to continue into the weekend in general. 

Remember, there is still a lot of corn that needs to come in and find a home somewhere as well. Farmers have opted to let the corn stand and go after the beans first figuring that the sunny, though cooler and dry weather, will let it dry down some more anyway. But they are going to bring it in eventually and will need to put it somewhere. While they wait, the corn market seems to be keeping a bit of weather related premium in the corn for the moment.

Also, soymeal is not a stand alone entity - it does compete with DDG's.

My point in this is that when the grains finally exhaust this fund buying binge ( small specs have been destroyed by margin calls as well) and the bids start getting taken and absorbed as commercially-tied hedge pressure begins to ramp up in earnest, we should see some pretty severe moves in the grains.

One wild card in all this is the Brazilian weather for their planting season down there. It has been dry in some areas but timely rains are coming and look pretty good overall. That should remove some concerns associated with Brazil.

Shifting just briefly to crude oil - the black gold looks like it has found support near $80. It has made two trips down below that level on the chart in the last two weeks, but both times, it rebounded and CLOSED above $80. If, for any reason, crude oil CLOSES below $80, then look out. You would then see a very good likelihood of it falling to $77 and possibly even $75.

I am not sure how to take that to be honest. I can make the case that it would actually be friendly for the overall economy as lower energy prices always benefit consumers and some business entities. However, it could also feed into the notion that the economic strength is so weak, that more sluggish growth lies ahead. That would be negative towards more of the key commodities such as copper, which by the way, seemed to like the consumer confidence numbers or something today!

It was just a short two weeks ago that copper actually managed to close below the pivotal $3.00 mark. It did however recover the next day and managed to claw its way higher. Today, it just missed hitting $3.10. Copper looks to me to be carving out a trading range as I think one would be hard pressed to come up with a reason, or to point to any concrete data at this time, to justify any sort of sharp rally in the price of the red metal. Economic growth globally is just not strong enough.

Remember that Palladium chart I posted last week? Well, that metal has been essentially mirroring the price action in the copper. It has closed higher the last 8 days in the row, after bouncing off of the region near $740-$730. This is an industrialized metal that is very sensitive towards any slowdown in growth, much like copper, so one can read it and see that for the short term, investors seem to have put "growth" concerns on the back burner.

I guess so seeing that the VIX or Volatility Index is sinking once more. Back to "What, me worry?". We went from total fear two weeks ago to " I could care less". Astonishing - the entire business cycle has just been completed in half a month! Tell me that our financial markets have not become a nest of idiocy.