A teaching moment on the nature of the gold cult

I wanted to share the following chart with the readers because this is perhaps one of the clearest examples that you will see of what I call, “selective outrage” on the part of those whom I have dubbed “the gold cult”.

By “the gold cult” I am referring to those websites and gold promoters whose view of gold is that it must always go higher in price and when it does not, it is because there are “sinister, evil powers” at work who are “manipulating its price” and preventing it from rising.

Just this week, we watched gold experience a sharp selloff on Wednesday. Almost immediately, the gold cult websites (Zerohedge is their leader) were out with their breathless denunciations about “sellers smashing the gold price by dumping huge amounts of gold within minutes”. They went on to say that “No seller attempting to maximize their profits would sell in this fashion so clearly it was a takedown attempt on the metal by its foes”.

Note well – the complaints were all about the HUGE VOLUME involved in the selloff and that was pointed to as the proof that this was a blatant takedown attempt.

Check out this chart with that in mind.

Chart_16-08-26_08-33-02

Notice the massive volume surge involved in today’s “Yellen induced rally”. It absolutely DWARFS the volume during the down move on Wednesday.

HOw much would anyone be willing to wager that we will not hear one single complaint about this – “No BUYER, attempting to obtain the best possible price for the metal would be so foolish as to buy in such size that they force the price higher, running all the upside buy stops and guaranteeing that they will have to pay higher prices. This was an obvious and blatant manipulation effort to mark up the price of gold by these evil, nefarious forces”

Natural Gas injections – strong demand

That seems to be the story for most of August thus far this year – natural gas injections have been running well below normal indicating that utility demand for the fuel to spin those massive turbines has been robust.

I have a tendency to focus more on supply because we can easily quantify that but demand is more elusive. We generally do not know that until after the fact. Thus the importance of the price chart since the boyz who are in the best position to know what the actual demand for the commodity they deal with will know before the rest of us do and that will show up in the price chart.

The EIA reported this AM that injections were only 11 bcf last week. To give you a comparison, last year at this time, 67 bcf was added to storage. Thus far, we have 3.35 trillion cubic feet of natural gas in storage. While higher than last year (3.094 trillion), it does relieve some fears of heading into the winter with 4.0 trillion cubic feet of gas in storage.

nat gas

The bulls are working hard at convincingly clearing the downtrend line in the commodity this AM egged on by the friendly injection number. From what I can see, analysts were pretty much in agreement that today’s number was going to be a small injection so we are getting a bit of what looks like some “Buy the Rumor, Sell the Fact”. Still, downside dip buying is being seen.

Chart_16-08-25_08-08-23

A strong close up near the session high at $2.85 would be a sign of further gains to come. At this point in the session, traders have not yet been able to push past the session high made prior to the release of the EIA data. Perhaps they will later on today?

From what I can see of the projected path of that storm, it looks as if it will miss the regions where most of the natural gas rigs are located in the Western Gulf of Mexico. I should note that most of the nat gas we produce here in the US comes from shale rigs with estimates that the Gulf is only good for about 5% or so of total US natural gas production. Still, old habits die hard and traders will not aggressively sell natural gas if a storm has the potential to disrupt production from those offshore rigs. Generally speaking, they will bid the price of gas higher as the storm approaches and then, provided that the storm has not smashed them to pieces as it did during Katrina, will then sell it off. Depending on how high they bid it ahead of the storm, even if the storm does mangle some rigs or shut them in, they will sell it off anyway.

For now, the biggest factor in determining where this thing will go from here is the weather forecasts to close out the month of August. If heat remains in the heavily populated Northeast and Southeast, traders will look for that to buoy demand to close out the summer A/C season. That would put the market in better shape heading into the shoulder season.

Most of the readers know that I am a long term bull for natural gas. I have been recently looking for a pullback in price as traders brace for a large supply of the fuel heading into winter but if these small injections keep coming our way, that will cause me to reconsider this market having much in the way of downside at this juncture. It all depends on the weather. A truism but it is true nonetheless. We still have lots of natural gas in storage so demand will need to stay very firm especially during September and October to prevent a glut of the stuff from swamping us in the winter.

For now, bulls remain in charge with all the indicators friendly and with price above all of the key moving averages.

Chart_16-08-25_08-08-23