DAN NORCINI ON TODAY'S DIP
Wednesday, February 29, 2012
Bernanke tries talking down Commodities
Today was Fed Chairman Bernanke's chance to testisfy before the Congress' Financial Services Committee. Here is a quick synopsis of his comments as I see them.
"The economy is getting better based on what we can see of the employment numbers but it is not growing at a fast enough clip to justify any immediate change in our accomodative monetary policy. The uptick in hiring has been helped by this policy and any change to it at the present time is not warranted. Real Estate is still a concern. Us fiscal condition is dire and faces a serious challenge at the end of this year. Inflation is not a concern although temporary rises in energy prices bear monitoring".
There you basically have it.
Based on this testimony, gold and silver were murdered. The supposed reason? - We are told that traders were expecting QE3 to be imminent and were disappointed because the usually dovish Bernanke did not sound quite as dovish as before. Thus the metals were hammered mercilessly lower.
Excuse me - but as a trader who watches these markets each and every day for more hours than I would prefer anymore, I have not seen any analyst explain the reason for the heretofore rally in the metals as traders EXPECTING AN IMMINENT QE3 program to launch.
The reason for the rally has been expectations by the market that Central Banks would keep the liquidity spighots open for the foreseeable future (near zero interest rate policy coupled with QE out of Europe and the UK) and thus create an environment in which there was little opportunity cost for buying the metals. This has been generating RISK TRADES in which traders/investors buy both stocks and commodities and generally sell off the Dollar, which was particularly pronounced after a rush back into the Euro once traders were convinced that the immediate fallout from the Greece debacle was past.
Comments this morning trying to explain the sell off in gold mentioned the failure of the metal to make it through the $1800 level and downside stops as the culprit but ironically they are deathly quiet in regards to silver, which only yesterday had staged a MASSIVE UPSIDE BREAKOUT on strong volume out of a congestion zone. Yet today we saw a nearly 8% wipe out in silver which completey erased yesterday's breakout and then some.
My thinking AT THE MOMENT is that Bernanke and company were watching the commodity complex begin to accelerate higher once again as a result of their free money policy and began getting extremely nervous particularly as energy prices were rocketing higher. This is an election year and one thing that the boss cannot stand for is having to deal with that pesky issue of unhappy drivers bitching and complaining about the outrageous cost of filling their gas tanks especially since he and his crew are doing as much as they can to shut down drilling on public lands and offshore.
If one basically states that the economy is doing better - not out of the woods yet but better - and all the hedgies are leveraged to the gills because the FED GAVE THEM THE GREEN LIGHT TO DO EXACTLY THAT when it first announced that it would keep this near zero interest rate policy out to the end of 2014, then it is a simple matter of throwing a bit of uncertainty in that regards to generate a bout of selling. Toss in the same permabears as always capping at the highs of the day and the algorithms did the rest of the work as the stops were picked off.
In the meantime today's wild move in silver was a daytrader's/scalper's heaven. As said before, there are no worse traders on the planet than the hedge funds. Those guys could not trade their way out of a wet paper bag if their lives depended upon it.
In watching both of these metals, it does seem that we are now getting a bit of stabilizing in here around midday.
Gold and silver shares as usual are going nowhere. They made it just to the bottom of the critical resistance zone that I noted on the chart yesterday at the gap region 555-560 before going Kerplunk.
Interestingly enough, the long bond is down a full point right now as I write this. I am keeping an extremely close eye on this market. As stated yesterday, I refuse to believe ANY talk about an improving economy as long as the bond market does not start a solid downtrending move.
"The economy is getting better based on what we can see of the employment numbers but it is not growing at a fast enough clip to justify any immediate change in our accomodative monetary policy. The uptick in hiring has been helped by this policy and any change to it at the present time is not warranted. Real Estate is still a concern. Us fiscal condition is dire and faces a serious challenge at the end of this year. Inflation is not a concern although temporary rises in energy prices bear monitoring".
There you basically have it.
Based on this testimony, gold and silver were murdered. The supposed reason? - We are told that traders were expecting QE3 to be imminent and were disappointed because the usually dovish Bernanke did not sound quite as dovish as before. Thus the metals were hammered mercilessly lower.
Excuse me - but as a trader who watches these markets each and every day for more hours than I would prefer anymore, I have not seen any analyst explain the reason for the heretofore rally in the metals as traders EXPECTING AN IMMINENT QE3 program to launch.
The reason for the rally has been expectations by the market that Central Banks would keep the liquidity spighots open for the foreseeable future (near zero interest rate policy coupled with QE out of Europe and the UK) and thus create an environment in which there was little opportunity cost for buying the metals. This has been generating RISK TRADES in which traders/investors buy both stocks and commodities and generally sell off the Dollar, which was particularly pronounced after a rush back into the Euro once traders were convinced that the immediate fallout from the Greece debacle was past.
Comments this morning trying to explain the sell off in gold mentioned the failure of the metal to make it through the $1800 level and downside stops as the culprit but ironically they are deathly quiet in regards to silver, which only yesterday had staged a MASSIVE UPSIDE BREAKOUT on strong volume out of a congestion zone. Yet today we saw a nearly 8% wipe out in silver which completey erased yesterday's breakout and then some.
My thinking AT THE MOMENT is that Bernanke and company were watching the commodity complex begin to accelerate higher once again as a result of their free money policy and began getting extremely nervous particularly as energy prices were rocketing higher. This is an election year and one thing that the boss cannot stand for is having to deal with that pesky issue of unhappy drivers bitching and complaining about the outrageous cost of filling their gas tanks especially since he and his crew are doing as much as they can to shut down drilling on public lands and offshore.
If one basically states that the economy is doing better - not out of the woods yet but better - and all the hedgies are leveraged to the gills because the FED GAVE THEM THE GREEN LIGHT TO DO EXACTLY THAT when it first announced that it would keep this near zero interest rate policy out to the end of 2014, then it is a simple matter of throwing a bit of uncertainty in that regards to generate a bout of selling. Toss in the same permabears as always capping at the highs of the day and the algorithms did the rest of the work as the stops were picked off.
In the meantime today's wild move in silver was a daytrader's/scalper's heaven. As said before, there are no worse traders on the planet than the hedge funds. Those guys could not trade their way out of a wet paper bag if their lives depended upon it.
In watching both of these metals, it does seem that we are now getting a bit of stabilizing in here around midday.
Gold and silver shares as usual are going nowhere. They made it just to the bottom of the critical resistance zone that I noted on the chart yesterday at the gap region 555-560 before going Kerplunk.
Interestingly enough, the long bond is down a full point right now as I write this. I am keeping an extremely close eye on this market. As stated yesterday, I refuse to believe ANY talk about an improving economy as long as the bond market does not start a solid downtrending move.
Posted by Trader Dan at 9:16 AM
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