PM Daily Market Commentary - 10/10/2013

davefairtex
By davefairtex on Thu, Oct 10, 2013 - 11:04pm

Gold closed down -20.60 to 1286.40 on moderately heavy volume, with silver down -0.21 to 21.68 on moderate volume.  The gold/silver ratio fell -0.37 to 59.34.  Gold tried rallying after a bad non-farm payroll report was released at 0830 EST but the rally was quickly sold.  Later in the afternoon in NY gold sold off even more hitting a low of 1281, quite close to its support level of 1275.  A close of gold below 1275 would most likely lead to heavy further selling, with the next support level down around 1200-1220.   Gold really needs to make it back to at least 1322 to recover from its pattern of lower highs that if not successfully challenged will most likely lead to a re-test of the June lows.

The buck was up +0.11 [+0.14%] to 80.57.  After moving up a bit in the morning in asia, it sidetracked most of the day.

The news on the day was the SPX, which was up big after yesterday's doji.  Pretty much from yesterday's close, the e-mini SPX futures climbed all day in asia and europe, with more than half of today's big 2.2% move coming prior to the open in NY.  In one day, this move up wiped out 7 days of the preceeding move down.  The timing of the overnight move in the futures gave me the feeling that some traders received some advance information yesterday evening as to how negotiations were proceeding.  Trading is a whole lot easier if you are a well-connected banker.

Gold mining shares did poorly today, but not as badly as gold did; the GDX:$GOLD ratio actually improved.  GDX was off -1.53% on moderate volume, and GDXJ was off -1.18% on light volume.  Mining shares opened down hard in the morning, rallied into positive territory through mid-afternoon, and were taken down hard in the last hour of trading.  Until the last hour, it looked as if we might get some confirmation on yesterday's rally, but that last hour took that off the table.  While the modest improvement in the GDX:$GOLD ratio does give me a modicum of hope and suggests there is some accumulation happening here, if gold plunges through that 1275 support level, it will take the rest of the PM complex with it.

It appears that gold is leading everything else down right now.  It is important that gold not close below 1275.  I know there's nothing we can do about it, but the gold shorts will start to become very aggressive if that support level breaks.  So far, the descending triangle in gold continues to play out to the downside.  It will take a break above 1325 to give the shorts that have been playing this breakdown pattern for the past two months any pause at all.  It was a long breakdown pattern like this that led to the April crash.  Many focus on just that one day in April, but I believe it was the long pattern of the descending triangle leading up to that one day where the real issue lay.

13 Comments

davefairtex's picture
davefairtex
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gold through 1275

Gold was pounded through 1275 in one massive move at 0842 EST, 8000 contracts traded in one minute, followed by 5000 the next minute, and 4000 the minute after, eventually touching a low of 1259.

Gold prices will move repeatedly lower until the pattern of lower highs and lower lows is broken.  The shorts are in a "show me" mode.  Until the longs can show them they outnumber the shorts, gold will go lower.

When it seems that pretty much any bit of news drives gold lower, that's the definition of a downtrend.

 

 

 

cmartenson's picture
cmartenson
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Today's Gold Slam

I will confess, I find nothing normal, free or fair about today's action in the gold market.  It looks more like a blatant bear raid, meaning a deliberate attempt to achieve lower prices for gain, than any legitimate price discovery.

I also remain convinced that the Fed does not object to such action, although it probably would if it went reliably in the other direction, and so I offer a chart and a quote to illustrate my perspective:

 

The Quote:

Whenever destroyers appear among men, they start by destroying money, for money is men's protection and the base of a moral existence.

Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values.

Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it.

Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it bounces, marked: 'Account overdrawn.' -

       ~ Ayn Rand

davefairtex's picture
davefairtex
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bear raids and what they mean

Definitely this was a bear raid.  I have noticed they often happen after a long period of lower highs.  Hot money retreats to the sidelines, the bottom-fishers gamble that "this is the bottom", and the raids continue right up until...you see a raid that gets bought hard, rallies past its entry point and then some.  At that point, the raids will stop, because buyers outnumber sellers.  Sometimes they will try again a few days or weeks later.  If that raid fails too, that's usually quite bullish.

I've done a study.  That's what I see.  Failed raids are an indicator of a near-term bottom.  A series of failed raids a week or so apart - that's a longer term bottom.

So given we are small fish, we have a couple of options.  We can be upset at the status quo, or we can use raids and their success and/or failure as an indication of "how far away the bottom is."  [FWIW, being upset at the status quo is a perfectly reasonable option, in my opinion.  But if it takes over, then that most likely will interfere with good judgement.  At least when I get upset, my good judgement goes right out the window.]

The same thing actually works in the other direction too.  Failed moves higher in an uptrend is a danger sign.  These aren't 100% certain indicators, but when the signal is particularly strong, it seems to have a very good correlation to outcomes.

This does not look like a failed raid, at least not so far.  A failed raid would see gold moving back above 1288 for gold, above 21.50 for silver within a 5-6 hour timeframe of the start of the raid.

In all seriousness, failed raids are one of the most awesome signals you can get.  A repeated series of successful raids don't feel so great especially if you are long (I am, for instance - that pesky core position), but these days, I don't really feel confident knowing where support is until I see a failed raid.

Jim H's picture
Jim H
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The Bear case for Gold

So Dave, Even if I don't agree with it, I can at least understand the bear case for something like, say, JCPenny, or Facebook stock.  What do you imagine might be the logic behind these Gold "bears" moves?  If you are going to attribute this move to real, legitimate bear investors.. and I think most here at PP.com know that I would not... well.. what are they thinking exactly?  What is the bear case?         

davefairtex's picture
davefairtex
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bear case for gold

Jim -

The bear case for gold is really, really simple.  Not enough buyers show up every time there is a bear raid.

If and when buyers show up, the "bear case" for gold is over.

Again, this is "the market view" - read Dan Norcini, he'll say much the same thing.

I seriously believe there will come a time when the bears try their raid and they will get their ... hats handed to them.  At that point, the raids will stop, and things will go in the other direction.  That's the reversal.  Reversals are not always dramatic, but when you do see a dramatic reversal pattern, its impossible to miss.  The trick as a trader is not to be so emotionally exhausted by trying to bottom-fish the whole way down that you are too worn out to take the reversal when it shows up.

As small fish, all we can do is watch and see how the market reacts to the raids.  If buyers show up, its probably a good idea to join the party, but we need to wait to see if the buyers will chase prices higher for more than just one day.  If they don't, probably its best to stay away.

Be from Missouri.  Make the market show you.  I want a 100% reversal before I'm convinced that the buyers really decided to show up.  Nothing less will do.

As for the case you really were asking about - I can make up some stuff that I think is true, and you can make up some stuff that you think is true, and we can debate that, but it's all a bunch of "debating society" stuff that is lots of fun to talk about, but won't really help anyone buy low and sell high.

Since you've stayed with me this long, I'll be a good sport and give you what you were really asking for.  My opinion on the bear case: money printing hasn't yet led to inflation.  Gold promoters promised inflation, and inflation didn't show up.  Inflation WAS there, through early 2011, and then it stopped.  Now understand, I'm not talking about GAAP deficit inflation which exists only as a twinkle in Shadowstats' eyes, I'm talking about hard commodity price inflation.  Food, fuel, metals, products, the works.  $CCI, in short.  So the hot money is waiting for inflation to show up before it jumps into the market in a big way.  Until then, it will be largely on the sidelines - or jumping into equities, etc.

Safe haven buying - which definitely exists - is all physical-gold related.  Physical buying moves prices much more slowly because there's no leverage involved.  Likewise, inflation hedges/currency debasement buying in the emerging markets are also physical - India & China, for instance.

With the hot money - its all about hedge funds both chasing momentum as well as stories like commodity-price inflation hedges.  And they do that with leverage, and so they affect prices out of proportion to the physical buyers.

Again, my opinion, worth about two cents, and no help to anyone trying to buy low and sell high.

Again FWIW I think if the raids push things too low, even if the hot money stays on the sidelines, we'll see the physical buyers slowly push the price back up again.  Shanghai premiums are back up to $12.  Low prices have brought out the Chinese bargain hunters.  Likely these low prices will drag in the Indians as well.  The pressure from that buying just won't happen instantly, the way it would if hot money suddenly decided to buy 20,000 contracts on the COMEX one fine NY afternoon, but it will have its effect over time.

Now then, if hot money were to find a new catalyst, we could see a move back up again much more quickly.

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sand_puppy
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Appreciate the explanation

Thanks for the explanation of how a bear raid works, Dave.  I also appreciate having an understanding that centers around how garden variety greed (with very deep pockets) can potentially explain how a player might create such happenings.

Jim H's picture
Jim H
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Bear case for Gold

Well, It won't surprise you to know Dave that I don't agree with a word you said.  There are no bears, and there is no bear case for Gold.  The entire run up in Gold.. the bull market that started in 2000, started before the money printfest even began - it was not predicated on imminent hyperinflation.  Nobody is even selling Gold.. this is action in a paper futures market.  My contention is that there do not exist physical Gold bears.  

The Gov't all the way up to Obama are now willing to lie to us, right to our faces.  We are so dumbed down - the average American does not know nor care.  Here is Obama telling a blatant lie about the debt ceiling (at about 1:32)

 

The Gold price action is every bit as much a lie, meant to deceive us into believing that the dollar is sound.. that its not on its deathbed.  I will reiterate here how the "chart" reads that is attached to the hospital bed that the dollar is lying in;  (from Jesse)

Andrew McGuire sees it clearly and explains the nature of the currency war underway;

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/10/11_Maguire_-_The_Vampire_Squid_Is_Busy_In_The_Gold_Market.html

“This week it was all about a cornered Fed.  They are running defense is what the Fed is doing -- intervening in the paper gold markets again.  What it’s really done is switch what should be an extremely bullish situation for gold, into a selloff.

This is like a catch-22 market intervention.  When you (as the Fed) time moves like we just saw, and then you coordinate that with really well-timed mainstream media reports (propaganda) saying that ‘Gold investors are giving up on gold because it isn’t reacting to obvious bullish inputs.’  Well, of course that is the strategy, and it’s working to some degree.

When the Fed steps in it’s for a reason, and we have to ask, why are they doing this?  They are defending the dollar.  The dollar is under attack, and the benchmark for the dollar is gold.  And when they (the Fed) sell gold, in big size, against the dollar in the foreign exchange markets, what they are essentially doing is going long dollar and short gold.  Even when we see the dollar (recently) under attack and moving down, we’ve seen gold going down too.  That is the Fed trying to defend the dollar in a very, very bad dollar situation. 

The Fed does not operate directly in the market.  They operate through two primary ‘agent’ banks.  They (the bullion banks), in turn, time naked short gold sales in the futures market to coordinate what the Fed is doing in the more opaque foreign exchange markets.

Pioneer's picture
Pioneer
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gold take-down a prep for gold confiscation at a lower price?

If a currency crisis does occur and the world turns to a new world reserve currency tied at least partially to gold, I suppose there will be a gold confiscation to consolidate the world's gold into the new currency holding (central bank vaults?).   If the powers that be (the Fed and plutocracy?) know, by the obvious fundamentals, that a new gold-backed reserve currency is inevitable, would they not want to artificially suppress the price of gold so they pay less in the confiscation?  

Some estimates of gold value in a monetary crisis are $10 K +   - what government will happily pay that kind of money in a gold confiscation?   So maybe the attacks on gold could be part of contingency plan to assure low-cost confiscation gold for a new gold-backed world reserve currency?

If central banks have unlimited buying power with their play money, what chance does the small investor have to preserve their assets?   Better to hold assets in the form of farmland, rail and wind turbines, than in precious metals?

davefairtex's picture
davefairtex
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Jim Doesn't Agree

Jim-

You're right Jim, it doesn't surprise me that you don't agree with a word I said.  But its perfectly fine, if your analytical method helps you buy low, and sell high, more power to you.

Let me sum up your analytical method as I see it:

1) if gold goes up, that is exactly as it should be.  gold should always go up, for there are no gold bears.

2) if gold goes down, its a raid by the forces of the Fed on the paper markets, attempting to keep the dollar from dropping.  see #1: there are no gold bears - nobody ever sells gold because the Fed is printing money.

If you were a newsletter writer, this construct would be a work of genius.  It is a perfect construct.  This analytical method can never be wrong.  Readers can read your newsletter, and be confident that they will always be right regardless of the success or failure of their trading strategy.  When gold rises, the writer is proclaimed a genius.  When gold drops, everyone is angry -- not at the newsletter writer for a failed prediction -- but at someone else!

As I said, a work of genius.

Its tough for me however, because sometimes I agree with the predictions of the folks who use this construct, and sometimes I don't.  However, Heaven help me when I don't agree because I'm immediately accused of being a member of the Forces of Evil - see #1: there are no gold bears - nobody ever sells gold, because the Fed is printing money.

Let me quote Dan Norcini, who has an alternate view:

To be successful at trading one must learn to accept what the market is saying even if you disagree with it. That means becoming a hard-nosed, thick-skinned realist and tuning out anything to the contrary.

When sentiment turns, you either turn with it or lose money. It is really that painfully simple.

Now, you may be correct in the long run and your view may ultimately be vindicated, but you could end up broke by then. Let the market itself speak to you and tell you when it has come around to your way of thinking. Otherwise, you are apt to look as foolish as someone spitting into a hurricane. It may make you feel better than you are defiant and standing tall, but all you are going to end up with for your effort is a wet face, courtesy of yourself!

Note: this is about trading, rather than buying a gold insurance policy.  If you aren't into trading, into buying low and selling high, then none of this stuff applies to you!

Arthur Robey's picture
Arthur Robey
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Posts: 3936
In defence of Unions.

When I first came to Australia I was discussing unions with the boss. He was complaining about the unions. I said "In Africa we would just line them up against the wall and shoot them."

Since then my stance has changed. Before unions fought for their conditions the following applied.

  • Workers had to carry a bottle to relieve themselves in.
  • 6 day working week, 12 hour days per day, sunrise to sunset.
  • No annual leave
  • No sickness benefits. You don't work you don't eat.
  • No minimum age for workers. Child labour was normal.
  • No pensions (We are back there now. The pensions are forfeit to the 1%)
  • Safety was non existent- I know. I have worked in these organizations.

Henry Ford realised that his workers had to be able to afford the product. No wages-no velocity of money-no profit.

No- the Bosses will Not raise your wages or improve the conditions of employment unless a gun is held to their head. The empirical evidence supports this view.

An anecdote: My friend Thomas from England was a factory worker. Old Harry, who had been working for the company all his life fell dead from a heart attack. Thomas and the workers formed a group and stood in front of the bosses office with their caps in their hands.

One of the spokesmen said "I am sorry to tell you this boss, but Old Harry has just died."

The boss turned to his assistant and asked "Has someone clocked him off?"

Au79's picture
Au79
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Posts: 13
Union Fallacy

@Arthur

Classic delusion about the evil employer and the good but poor exploited employee.

Wages are basically determined by labor productivity - not by unions.

An increase in labor productivity increases real wages and introduces the possibility for some of the benefits you mention - you just cannot demand benefits before the productivity can support the benefits. Today we stand on the shoulders of previous generations who endured much worse conditions. Conditions were not bad because of evil employers but because development in productivity was in its infancy.

Henry Ford is the perfect example of how an increase in productivity not only raises the wages for the workers but makes the products more affordable.

 

I think Unions can serve a useful function by improving working conditions and information to workers.

troof's picture
troof
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Posts: 39
Arthur tells the troof
Au79 wrote:

Classic delusion about the evil employer and the good but poor exploited employee.

Conditions were not bad because of evil employers but because development in productivity was in its infancy.

How blind are they who will not see,

And deny the lessons of history.

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gillbilly's picture
gillbilly
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Posts: 423
Collective manipulation

One might call the union of central banks a collective manipulation of our markets (since they have no one to bargain with...why would they, they're in control). So should we collectively rise up and try and bargain against their fraudulent manipulation? Anti-unionists will say no, that would go against the free market.

And where is this free market?...oh that's right, in our "models" that we constructed to make sense of the markets. Hmmm.

Not sure how the subject of unions ended up on the gold thread?...but I find it entertaining.

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