Hourly Action In Gold From Trader Dan
Dear CIGAs,
There was a great deal of volatility in gold today although you could not tell it by just looking at the daily chart. The five minute chart shows a market bouncing back and forth between $1194 on the downside and $1206 on the upside. Volume picked up every time the market dipped down towards $1194 with buyers coming in and taking it back above $1200. When it got back above that level, it seemed as if they lacked the conviction to take it up through $1206. Finally, about 45 minutes before the close of the pit session trading, the longs were able to take it up through the barrier erected at $1206 and off she went carrying the shorts out with it. Once the pit session closed, the sellers came back in and tried pushing it back below $1206. The battle rages on.
Technically the gold bulls have cleared a significant hurtle and coming on a Friday in front of a weekend in which anything is possible, that was no mean feat. There looks to be a bit of light resistance just above $1220 which if cleared should give the market the necessary momentum to take on the old lifetime high. Depending on what transpires over the weekend, it could do that in Monday’s session.
Open interest increases reveal that managed money is pouring steadily into gold which is healthy. We will get a glimpse into the composition of the market internals this afternoon when the COT numbers are released. Sadly they will tell us NOTHING about what occurred internally the last three days of this week which is exactly what we really would like to see. Still, it is a given that managed money, the public and the CTA’s were on the long side with the commercials and swap dealers (banks) on the short side. What else is new…
There was some chatter that perhaps over the weekend the G7 comic book characters would come up with some sort of plan to stabilize the situation in Europe that is rapidly spiraling out of control although what that might be remains unclear. They of course could purchase Greek bonds as well as those of Portugal and/or Spain but the ECB still seems reluctant to do that. Any such plan would have a temporary effect but would not deal with the root of the problem at hand, to wit – too many countries that make up the Euro Zone have a dynamic that is going to require a great deal of pain and seemingly few of the political leaders have the intestinal fortitude to do what is required.
Several of these countries have established a Nanny State with cradle to grave benefits which are increasingly being funded by a smaller and smaller group of producers and being milked by an ever increasing group of recipients. The problem is that which Margaret Thatcher summed up so succinctly many years ago:” The problem with socialism is that eventually you run out of other’s people money”.
On top of that there is the sacred cow which it seems very few are willing to address and that is the declining birth rate in many of these countries. You end up with a growing group of retirees and other wards of the state being funded by a declining group of producers. That is simply not sustainable in the long run. The smart aleck Keynes quipped “that in the long run we are all dead”, but the truth is policies have consequences and the long term effects of the nanny state are now reaching a critical level. Until government spending is sharply reduced, and major policy changes are effected, any bailout or fix is only going to put a Band-Aid on a festering problem which will again return to haunt the Eurozone. With the citizens of Greece intent on burning down their own country as they take to the streets to riot and protest any cuts whatsoever in the lavish benefits which they are grown addicted to, one wonders how many politician are going to be statesmen with long term views or poll readers with short-term priorities. If you want to get a taste of where the US is eventually headed, barring an abrupt about-face on current policies, take a good long look at Greece.
A brief comment on yesterday’s severe meltdown in the US equity markets – I found it rather amusing listening to the financial TV folks yesterday attempting to come up with reasons to explain the 1000 point plunge in the DOW in minutes only to see it recapture more than half of its losses coming into the closing bell within minutes as well.
One guy noted that the sun came up in the West this morning and that startled investors who feared that the universe was being turned inside out by the “waves” coming from high frequency traders. That is obviously my poor attempt at some humor but the real problem is that which we have been talking about for at least 4 years here at the site now, namely, the computer algorithms that have all but taken over the US financial markets. I have quipped that SkyNet is now in control of our markets and if there is any doubt of that after yesterday’s debacle, that should be settled by now. These damn machines and their cursed algorithms front run every single order coming into the pits as fast as they hit the screen (faster actually). They are all doing the same thing at the same millisecond in time meaning that there is literally no one to take the other side of the trade, either going down or, as what happened when the market reversed, going back up. The end result – huge air pockets devoid of bids when the market is selling off or huge vacuums devoid of offers on the way up – just look at silver today and try explaining a market that dropped over 1000 points on Tuesday of this week followed by another drop of 800 or more points on Wednesday and then goes back up over 1000 points during the session today. That is an example of what is wrong with our markets.
These damn funds have got to be throttled in, exchanges bitching, kicking and screaming notwithstanding, or else the general public is going to walk away completely from them as will the commercial interests in the commodity markets. When that occurs, all that will be left is hedge funds trading against themselves which each of them trying to spend millions to see whose algorithm will rule them all (with apologies to Sauron). That will not be price discovery but rather an extremely expensive version of the World of Warcraft. Many of the battered hedge funds will end up needing more than “a Healer” to then fix what ails them.
Euro gold set a brand new all time high at the PM fix today at €949.045 as did British Pound priced gold which cleared £800 coming in at £818.581.
There is an element of the election returns in the British Pound priced gold fix. There was no clear winner even though Cameron’s conservatives won the majority of seats they did not win enough to have clear control of the government. Investors wasted little time in punishing Sterling as a result since it will be extremely difficult for the government to come to a consensus and tackle the many problems that now threaten its fiscal house. This, in conjunction with continued concerns with the stability of currencies related to Europe, allowed gold to push past the £800 level in British Pounds.
Bonds went on one huge, wild ride today after their wild ride of yesterday. I am not even going to attempt to give an analysis on that market other than to say those who think US Treasuries are any sort of safe haven for “wealth preservation” when they can purchase gold instead are sorely deluded. Technically, bonds have not been able to manage a weekly close much above 123 since April 2009 and that was on the way down. It would appear that sellers are more than obliging to unload them above 123. We will see what they do next week because for all the violent motion of the past two weeks, they have done nothing more but reach the top side of a trading range that has been in effect for the 7 months or so. An upside breakout would have significant meaning.
Crude oil is getting hammered again and threatening to sink all the way back down towards $70 if it cannot soon manage a weekly close above $78.
I am not going to comment further on the equity markets because at the rate they are going and the wild swings that they are making, any commentary would be obsolete 15 minutes after I write it. See the chart I sent up yesterday for a bigger picture view.
Same comment on the HUI as yesterday– until the hedge fund ratio trades get lifted, the miners are still more heavily influenced by the broader equity markets than the bullion price. That strategy is going to blow up in their faces eventually but for now it is a function of their infernal algorithms. Far too much money has been siphoned out of the mining shares by that Trojan Horse called a gold ETF. Keep in mind that what drives stock prices are profits and well managed gold miners with good properties and low debt levels are going to see those profits increase as gold powers higher. That is the Achilles heel of the hedge fund ratio trades.
Click chart to enlarge today’s hourly action in Gold in PDF format with commentary from Trader Dan Norcini
There was a great deal of volatility in gold today although you could not tell it by just looking at the daily chart. The five minute chart shows a market bouncing back and forth between $1194 on the downside and $1206 on the upside. Volume picked up every time the market dipped down towards $1194 with buyers coming in and taking it back above $1200. When it got back above that level, it seemed as if they lacked the conviction to take it up through $1206. Finally, about 45 minutes before the close of the pit session trading, the longs were able to take it up through the barrier erected at $1206 and off she went carrying the shorts out with it. Once the pit session closed, the sellers came back in and tried pushing it back below $1206. The battle rages on.
Technically the gold bulls have cleared a significant hurtle and coming on a Friday in front of a weekend in which anything is possible, that was no mean feat. There looks to be a bit of light resistance just above $1220 which if cleared should give the market the necessary momentum to take on the old lifetime high. Depending on what transpires over the weekend, it could do that in Monday’s session.
Open interest increases reveal that managed money is pouring steadily into gold which is healthy. We will get a glimpse into the composition of the market internals this afternoon when the COT numbers are released. Sadly they will tell us NOTHING about what occurred internally the last three days of this week which is exactly what we really would like to see. Still, it is a given that managed money, the public and the CTA’s were on the long side with the commercials and swap dealers (banks) on the short side. What else is new…
There was some chatter that perhaps over the weekend the G7 comic book characters would come up with some sort of plan to stabilize the situation in Europe that is rapidly spiraling out of control although what that might be remains unclear. They of course could purchase Greek bonds as well as those of Portugal and/or Spain but the ECB still seems reluctant to do that. Any such plan would have a temporary effect but would not deal with the root of the problem at hand, to wit – too many countries that make up the Euro Zone have a dynamic that is going to require a great deal of pain and seemingly few of the political leaders have the intestinal fortitude to do what is required.
Several of these countries have established a Nanny State with cradle to grave benefits which are increasingly being funded by a smaller and smaller group of producers and being milked by an ever increasing group of recipients. The problem is that which Margaret Thatcher summed up so succinctly many years ago:” The problem with socialism is that eventually you run out of other’s people money”.
On top of that there is the sacred cow which it seems very few are willing to address and that is the declining birth rate in many of these countries. You end up with a growing group of retirees and other wards of the state being funded by a declining group of producers. That is simply not sustainable in the long run. The smart aleck Keynes quipped “that in the long run we are all dead”, but the truth is policies have consequences and the long term effects of the nanny state are now reaching a critical level. Until government spending is sharply reduced, and major policy changes are effected, any bailout or fix is only going to put a Band-Aid on a festering problem which will again return to haunt the Eurozone. With the citizens of Greece intent on burning down their own country as they take to the streets to riot and protest any cuts whatsoever in the lavish benefits which they are grown addicted to, one wonders how many politician are going to be statesmen with long term views or poll readers with short-term priorities. If you want to get a taste of where the US is eventually headed, barring an abrupt about-face on current policies, take a good long look at Greece.
A brief comment on yesterday’s severe meltdown in the US equity markets – I found it rather amusing listening to the financial TV folks yesterday attempting to come up with reasons to explain the 1000 point plunge in the DOW in minutes only to see it recapture more than half of its losses coming into the closing bell within minutes as well.
One guy noted that the sun came up in the West this morning and that startled investors who feared that the universe was being turned inside out by the “waves” coming from high frequency traders. That is obviously my poor attempt at some humor but the real problem is that which we have been talking about for at least 4 years here at the site now, namely, the computer algorithms that have all but taken over the US financial markets. I have quipped that SkyNet is now in control of our markets and if there is any doubt of that after yesterday’s debacle, that should be settled by now. These damn machines and their cursed algorithms front run every single order coming into the pits as fast as they hit the screen (faster actually). They are all doing the same thing at the same millisecond in time meaning that there is literally no one to take the other side of the trade, either going down or, as what happened when the market reversed, going back up. The end result – huge air pockets devoid of bids when the market is selling off or huge vacuums devoid of offers on the way up – just look at silver today and try explaining a market that dropped over 1000 points on Tuesday of this week followed by another drop of 800 or more points on Wednesday and then goes back up over 1000 points during the session today. That is an example of what is wrong with our markets.
These damn funds have got to be throttled in, exchanges bitching, kicking and screaming notwithstanding, or else the general public is going to walk away completely from them as will the commercial interests in the commodity markets. When that occurs, all that will be left is hedge funds trading against themselves which each of them trying to spend millions to see whose algorithm will rule them all (with apologies to Sauron). That will not be price discovery but rather an extremely expensive version of the World of Warcraft. Many of the battered hedge funds will end up needing more than “a Healer” to then fix what ails them.
Euro gold set a brand new all time high at the PM fix today at €949.045 as did British Pound priced gold which cleared £800 coming in at £818.581.
There is an element of the election returns in the British Pound priced gold fix. There was no clear winner even though Cameron’s conservatives won the majority of seats they did not win enough to have clear control of the government. Investors wasted little time in punishing Sterling as a result since it will be extremely difficult for the government to come to a consensus and tackle the many problems that now threaten its fiscal house. This, in conjunction with continued concerns with the stability of currencies related to Europe, allowed gold to push past the £800 level in British Pounds.
Bonds went on one huge, wild ride today after their wild ride of yesterday. I am not even going to attempt to give an analysis on that market other than to say those who think US Treasuries are any sort of safe haven for “wealth preservation” when they can purchase gold instead are sorely deluded. Technically, bonds have not been able to manage a weekly close much above 123 since April 2009 and that was on the way down. It would appear that sellers are more than obliging to unload them above 123. We will see what they do next week because for all the violent motion of the past two weeks, they have done nothing more but reach the top side of a trading range that has been in effect for the 7 months or so. An upside breakout would have significant meaning.
Crude oil is getting hammered again and threatening to sink all the way back down towards $70 if it cannot soon manage a weekly close above $78.
I am not going to comment further on the equity markets because at the rate they are going and the wild swings that they are making, any commentary would be obsolete 15 minutes after I write it. See the chart I sent up yesterday for a bigger picture view.
Same comment on the HUI as yesterday– until the hedge fund ratio trades get lifted, the miners are still more heavily influenced by the broader equity markets than the bullion price. That strategy is going to blow up in their faces eventually but for now it is a function of their infernal algorithms. Far too much money has been siphoned out of the mining shares by that Trojan Horse called a gold ETF. Keep in mind that what drives stock prices are profits and well managed gold miners with good properties and low debt levels are going to see those profits increase as gold powers higher. That is the Achilles heel of the hedge fund ratio trades.
Click chart to enlarge today’s hourly action in Gold in PDF format with commentary from Trader Dan Norcini
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