Tuesday, August 13, 2013
Gold sets back from $1340 once again
Gold retreated from that stubborn band of chart resistance up near the $1340 level having failed to maintain its footing up there yesterday and today. There exists some very strong selling at that level, which adds to the significance of that zone. If and when it is broken, it will signify a strong shift in sentiment towards the metal. We will continue to closely monitor it.
Working against gold were several items today. The first is the strength in the US Dollar, especially against the Yen which is down over 1.5% against the greenback as I write this. Also lower are the Euro, Pound and Franc with the commodity currencies also lower. King Dollar is back, at least for today.
The second is the sharp selloff in the US Treasury market which is pushing yields up once again. Today the yield on the Ten Year which is at 2.715% and is knocking on the door of that recent spike to a TWO YEAR HIGH. Recently, a rising interest rate environment in the US has tended to quell gold buying.
Thirdly is the mining shares failing to extend past the top of the recent trading range and drifting lower.
Fourth was news out of India that they are back to slapping additional import taxes on gold and silver in an effort to get their widening current account deficit under control. Gold traders in particular viewed that with alarm fearing a drop in gold demand. However, and I think this is important, China is on its way to replacing India as the largest demand source for physical gold. Just yesterday we got the news from the China Gold Association that Q2 demand hit a record of 385.5 metric tons. That is double from the previous year! It also continues to explain where a great deal of the gold being dishoarded over in the West is ending up.
In a sense, it was a trifecta plus ONE against gold in today's session but all in all the metal is holding fairly well. I personally think that the Chinese news is really positive for the metal especially when you hear reports of gold mines being shuttered and low grade ore deposits being drained. At some point the supply/demand equilibrium becomes unbalanced and price needs to rise to adjust it.
Please realize that this is longer term oriented but it is something that those who have an investment horizon of that nature should keep in mind.
For the shorter=term oriented traders - gold is knocking on the door at the very top of the range but still has not forced it open. IF (note the emphasis) the market can stick around here closer to the top of the range and stay above $1300, the onus is going to be on the bears to cap it off because the seasonal tendency for the metal to rise heading into the 4th quarter is going to make life tougher for them.
One has to wonder if the fact that the yield on that 10 year is going to get the Fed governors back out to the microphones for a little "verbal intervention" soon. The last time we had mortgage rates kicking up recently, some realtors were already making noise about the rise hurting the sales of higher-end homes due to the inability of buyers to qualify for loans now that interest rates had gone up. not only that, but it is the BORROWING COSTS of the Federal Government that keeps the Fed awake at night.
Over in the grains corn was whalloped lower today after staging a big short covering rally yesterday on immense volume. USDA came up with some goofy number that I certainly do not believe for the final yield but it was enough to send a large contingent of shorts heading to the hills. Today, after some time to digest the number I think the market began pooh-poohing it and back in came the selling. Hey, gasoline is expensive at the pump but maybe I can afford to buy a box of Corn Flakes at the grocery store soon without having to leave a pint of my blood as a surety.
Silver remains impressive as does copper, both of which got a lift today on the news that Germany's economy is doing better than was expected. News that the Eurozone's largest economy has perked up is good for copper usage and silver usage as well. Remember, silver has been moving quite a bit in sync with the base metals recently having launched higher last week on the Chinese trade data. As long as the base metals are firm, silver bears are going to have to look for something else as an excuse to aggressively sell it.
I still need to see silver trading through $22.00, preferably through $22.50 or so to feel like it has a solid shot at beginning a more exciting trending move.
Working against gold were several items today. The first is the strength in the US Dollar, especially against the Yen which is down over 1.5% against the greenback as I write this. Also lower are the Euro, Pound and Franc with the commodity currencies also lower. King Dollar is back, at least for today.
The second is the sharp selloff in the US Treasury market which is pushing yields up once again. Today the yield on the Ten Year which is at 2.715% and is knocking on the door of that recent spike to a TWO YEAR HIGH. Recently, a rising interest rate environment in the US has tended to quell gold buying.
Thirdly is the mining shares failing to extend past the top of the recent trading range and drifting lower.
Fourth was news out of India that they are back to slapping additional import taxes on gold and silver in an effort to get their widening current account deficit under control. Gold traders in particular viewed that with alarm fearing a drop in gold demand. However, and I think this is important, China is on its way to replacing India as the largest demand source for physical gold. Just yesterday we got the news from the China Gold Association that Q2 demand hit a record of 385.5 metric tons. That is double from the previous year! It also continues to explain where a great deal of the gold being dishoarded over in the West is ending up.
In a sense, it was a trifecta plus ONE against gold in today's session but all in all the metal is holding fairly well. I personally think that the Chinese news is really positive for the metal especially when you hear reports of gold mines being shuttered and low grade ore deposits being drained. At some point the supply/demand equilibrium becomes unbalanced and price needs to rise to adjust it.
Please realize that this is longer term oriented but it is something that those who have an investment horizon of that nature should keep in mind.
For the shorter=term oriented traders - gold is knocking on the door at the very top of the range but still has not forced it open. IF (note the emphasis) the market can stick around here closer to the top of the range and stay above $1300, the onus is going to be on the bears to cap it off because the seasonal tendency for the metal to rise heading into the 4th quarter is going to make life tougher for them.
One has to wonder if the fact that the yield on that 10 year is going to get the Fed governors back out to the microphones for a little "verbal intervention" soon. The last time we had mortgage rates kicking up recently, some realtors were already making noise about the rise hurting the sales of higher-end homes due to the inability of buyers to qualify for loans now that interest rates had gone up. not only that, but it is the BORROWING COSTS of the Federal Government that keeps the Fed awake at night.
Over in the grains corn was whalloped lower today after staging a big short covering rally yesterday on immense volume. USDA came up with some goofy number that I certainly do not believe for the final yield but it was enough to send a large contingent of shorts heading to the hills. Today, after some time to digest the number I think the market began pooh-poohing it and back in came the selling. Hey, gasoline is expensive at the pump but maybe I can afford to buy a box of Corn Flakes at the grocery store soon without having to leave a pint of my blood as a surety.
Silver remains impressive as does copper, both of which got a lift today on the news that Germany's economy is doing better than was expected. News that the Eurozone's largest economy has perked up is good for copper usage and silver usage as well. Remember, silver has been moving quite a bit in sync with the base metals recently having launched higher last week on the Chinese trade data. As long as the base metals are firm, silver bears are going to have to look for something else as an excuse to aggressively sell it.
I still need to see silver trading through $22.00, preferably through $22.50 or so to feel like it has a solid shot at beginning a more exciting trending move.
Monday, August 12, 2013
Mining Shares Leading the Metals - Silver Strong
Silver is pulling gold higher today in a continuation of what the grey metal was doing late last week. It appears that the market is still keying in on the stronger-than-expected Chinese trade data from last week.
I should also note that the Goldman Sachs Commodity Index or GSCI has been higher the last two trading sessions with some short covering in the soybean market helping pull the grain complex a bit higher as traders attempt to balance today's USDA crop numbers with previous market expectations. It never hurts silver to see the broader commodity complex ( as a whole ) moving higher.
However, in the precious metals sector, what has my attention is the fact that the mining shares continue to lead the bullion higher. This is important as far as I am concerned because whether or not we like it or agree with it, the shares have been pretty accurate over the last two years in leading the metals lower. Now, if they are indeed reversing course and putting in some long term bottoms, then they should once more take the lead in the precious metals sector but this time to the upside.
Take a look at the following chart of the HUI. I am always fascinated by the price action of various markets that I track/trade but this HUI chart, especially that GAP REGION is incredibly interesting to me. So much of the price action over the last two months has revolved around this gap on the charts. It acted as a ceiling for the better part of a month beginning in late June until it was broken in the second half of July. Then it was giving a hint of something greater for the bulls but the miners promptly surrendered their gains leaving the index to plunge back through it to start this month.
Back up the index went into the gap last week on the Chinese news but it was unable to hold its gains into the bell Friday so that it closed within the gap. Today, it GAPPED ABOVE THE GAP - same exact thing it did back late last month.
Now the question is, will the bulls be able to finally drive the bears out of the shares cementing a solid, long-lasting bottom and the beginning of a sustained uptrend or will it run to the TOP of THE RANGE near the 260 level and sell off again signaling that the RANGE TRADE is alive and well? Who knows for certain but one has to be impressed thus far with the price action in that the last setback in price the first week of August uncovered willing buyers above the recent panic selling low down under 210. That tells us that buyers were more eager to get in than they previously had been...
I should also note that the Goldman Sachs Commodity Index or GSCI has been higher the last two trading sessions with some short covering in the soybean market helping pull the grain complex a bit higher as traders attempt to balance today's USDA crop numbers with previous market expectations. It never hurts silver to see the broader commodity complex ( as a whole ) moving higher.
However, in the precious metals sector, what has my attention is the fact that the mining shares continue to lead the bullion higher. This is important as far as I am concerned because whether or not we like it or agree with it, the shares have been pretty accurate over the last two years in leading the metals lower. Now, if they are indeed reversing course and putting in some long term bottoms, then they should once more take the lead in the precious metals sector but this time to the upside.
Take a look at the following chart of the HUI. I am always fascinated by the price action of various markets that I track/trade but this HUI chart, especially that GAP REGION is incredibly interesting to me. So much of the price action over the last two months has revolved around this gap on the charts. It acted as a ceiling for the better part of a month beginning in late June until it was broken in the second half of July. Then it was giving a hint of something greater for the bulls but the miners promptly surrendered their gains leaving the index to plunge back through it to start this month.
Back up the index went into the gap last week on the Chinese news but it was unable to hold its gains into the bell Friday so that it closed within the gap. Today, it GAPPED ABOVE THE GAP - same exact thing it did back late last month.
Now the question is, will the bulls be able to finally drive the bears out of the shares cementing a solid, long-lasting bottom and the beginning of a sustained uptrend or will it run to the TOP of THE RANGE near the 260 level and sell off again signaling that the RANGE TRADE is alive and well? Who knows for certain but one has to be impressed thus far with the price action in that the last setback in price the first week of August uncovered willing buyers above the recent panic selling low down under 210. That tells us that buyers were more eager to get in than they previously had been...
Gold Futures' Spread Continue to Tighten
I wanted to provide a quick update for those who are following the "backwardation" talk out there.
I am currently showing the August, October and December gold futures contract all at the same exact bid. Also, the December has a mere $0.80 discount to the February. The futures market has still not entered a backwardation state but it is just about there. I will continue to monitor this and report on it should it occur.
Also, thus far I have not seen anything that would signal any problems with the delivery process for the August gold contract but one thing that does stand out is that J P Morgan continues to be the consistent, large stopper of gold for their "House" account. Morgan is acquiring a lot of gold.
It is going to be interesting to see whether they retender it before the month ends or at some point during another delivery month process but either way, they are acquiring it right now.
I am still watching that $1340 level in the December gold contract. So far it is proving to be formidable resistance. Strength in the gold shares is helping keep a very firm bid in gold but it is silver that is really proving a great degree of lift to the yellow metal.
That push through $20.50 is squeezing the shorts and it now looks as if the metal has a decent shot at testing $22.00.
Downside support for silver is first at $20.50 followed by $20.
Incidentally, gold is moving higher in spite of the fact that the US Dollar is stronger today.
I am currently showing the August, October and December gold futures contract all at the same exact bid. Also, the December has a mere $0.80 discount to the February. The futures market has still not entered a backwardation state but it is just about there. I will continue to monitor this and report on it should it occur.
Also, thus far I have not seen anything that would signal any problems with the delivery process for the August gold contract but one thing that does stand out is that J P Morgan continues to be the consistent, large stopper of gold for their "House" account. Morgan is acquiring a lot of gold.
It is going to be interesting to see whether they retender it before the month ends or at some point during another delivery month process but either way, they are acquiring it right now.
I am still watching that $1340 level in the December gold contract. So far it is proving to be formidable resistance. Strength in the gold shares is helping keep a very firm bid in gold but it is silver that is really proving a great degree of lift to the yellow metal.
That push through $20.50 is squeezing the shorts and it now looks as if the metal has a decent shot at testing $22.00.
Downside support for silver is first at $20.50 followed by $20.
Incidentally, gold is moving higher in spite of the fact that the US Dollar is stronger today.
No comments:
Post a Comment