Dear CIGAs,
It was a rather strange day today in the commodity world with the Dollar seeing a bit of a bounce but with crude oil breaking an upside resistance level even as a goodly portion of the rest of the commodity complex was experiencing some hefty fund selling. The grains in particular were whacked by an unexpected and rather confusing USDA stocks report which sent corn and wheat sharply lower as a mass exodus of speculative fund longs occurred early in both markets. Sugar was slammed quite hard and even cotton did not seem to get much help from overnight news that China’s cotton crop might be hit by some freezing weather. Palladium notched a 28 month high before it too saw a wave of selling surface.
Gold and silver had set fresh highs in overnight trade with gold hitting yet another all time record while silver too scored another 30 year high above $22.10. As the commodity selling wave hit during the US session, gold and silver were also taken down but gold did see buyers come in on the dip towards $1,300, the former capping level by the bullion bank crowd. The push back from session lows in gold which at one point today was down $13 is most impressive. It ended the pit trading session down only a minor amount for the day! Bulls are for the most part refusing to run and that is against a backdrop of the HUI losing the initial support level of 510.
Both bonds and equities were down in tandem which is part of the “weird” nature of today’s trading session but the bonds are holding fairly well even after losing their battle to hold above last week’s high.
Looking at the chart patterns across a wide number of commodity markets today leaves me with the distinct impression that can be summed up in one or perhaps two words: “Confusion” or “Uncertainty”.
The catalyst for all this was the release of two data pieces – one was the Chicago PMI which came in better than expected (60.4 vs 56.7) while the other was a combination of a GDP report of second quarter growth at 1.7 versus an expected 1.6. That had some rethinking the timing or even the necessity of the Fed’s QE2 engagement. It did appear from the price action as the session wore on that many are not quite that confident about the overall strength of the economy. One thing is for certain, it was not a quiet day in most of the markets as volatility was on display in ample portion sizes.
The technical take on gold is pretty much the same as we have been seeing of late. The bullion banks attempt to cap at intervals of $15 dollars. When that fails, they retreat to the next multiple of “5”, dig in, and try again. Pit locals are piggybacking the bullion banks and when the buyers do not run en masse and price refuses to break down, these locals cover and price moves back up. This has been the same pattern for some time now and as long as it continues (the key being the willingness of the bulls to stand their ground and refuse to be stampeded) prices are going to continue moving up.
Considering that not only is it the last day of the month but also the last day of the third quarter, for the bulls to stand this resolute is remarkable. One typically sees the side that has gained the victory over the past month taking some money off the table, particularly if it is managed money as they like to book some paper gains to show their clients how well they have done on the upcoming statements. In the case of gold, with managed money heavily on the long side, to see only this amount of selling which did meet with buying at this time is unusual.
Open interest dropped in gold yesterday with once again the chief culprit being a drawdown in the October contract. That is not a heavily traded month and is heading into delivery this week. Between the two day’s unwind we have seen about 18,000 contracts closed out in that month. I still suspect that shorts do not want to have to stand for delivery and that is why they are exiting in such a hurry. They did not roll into the December yesterday either which I also find interesting. I want to continue monitoring this to see if we can glean anything by all these antics.
The monthly charts of gold and of silver are most impressive. I will get a copy of the gold chart up later on this afternoon.
The Dollar is getting a bit of a bounce today but considering the “happy” news about the Chicago PMI, the GDP numbers and the mild drop in initial unemployment claims, it ain’t much of a bounce. The Yen is within a mere hairsbreadth of the point at which the BOJ intervened. As said previously here on this site, they either intervene and knock it back down or they are finished as a market force to be reckoned with as the spec crowd will have called their bluff. What sea change that would be if the BOJ was defeated by the Fed’s QE2 and the Yen was going to soar onto new heights.
There is some chatter from the former “Mr. Yen” that intervention is a waste of time because it is not being done in coordination with the Fed nor with their consent and ultimately will prove to be a waste of time. Should his views hold sway and begin to gain a majority, it would signal that just like the Swiss Central Bank, the Bank of Japan has given up trying to fight the sinking Dollar. The implications for gold are obvious as it would remove a bit of further support under the USDX and probably allow the Dollar to quickly break 78 and head down towards 75 quite rapidly. Stay tuned. We might just yet see them in the market this evening.
Click chart to enlarge today’s hourly action in Gold in PDF format with commentary from Trader Dan Norcini
