Gold Shorts Get Squeezed Out!
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In This Issue.

* Gold soars, then backs off .

* Currencies back off gains from Thursday.

* Eurozone awaits LTRO repayment announcement.

* Olsen does his best John Connally .

And Now. Today's A Pfennig For Your Thoughts.

Gold Shorts Get Squeezed Out!

Good Day! . And a Happy Friday to one and all! I can tell already that this is to become a Fantastico Friday, for I went through all the traffic lights on green this morning on my way to work, and I've had no issues with my stomach this morning, or overnight! YAHOO! That all calls for everyone to take the day off, right? No Wait, Chuck! You can't do that! Well, I can do anything I want to do! So there! See? This is going to be an interesting Pfennig, as I'm already arguing with myself! HA!

Well, yesterday morning, I told you about how Janet Yellen's dovish comments after the FOMC meeting had deep sixed the dollar, and that scenario played all day long, with the star performer on the day. get ready for this. are you ready? Yes I'm ready, (sorry Barbara Mason) well, it was Gold! Holy rallying metal Batman! It has been a very long time since we could talk about Gold being the star performer on a day. But that's what we had on our Tub Thumpin' Thursday. Gold was not up $10, not $20, not $30, but more than $40 as it traded as high as $1,322 on the day! (started the day at $1,281).

Let me tell you what happened here, and then we can makes some sense out of what is happening to Gold's price this morning. Apparently short positions in Gold were building to a levels not seen before, and after Yellen talked about interest rates remaining at current levels, Gold started to rally. And soon, the price was rising faster than a speeding bullet, because, those short positions were having to be closed out (at losses I must add, with a smile on my face!) and soon, the price of Gold was a moon shot on the day. So, was it all a "fundamentals" rally? No. And therefore, the price of Gold was subject to be reduced today, given thoughts that the rally had gone too far.. You see, with all those short positions having to be closed out, it allowed Gold to rally further on false pretenses. Sure, I think Gold should be trading much higher than its current price, but yesterday's rally was short position covering, and nothing more.

So, Gold is weaker this morning from yesterday's high of $1,322 by $10, as I write. The rest of the currencies are all trying to make some hay this morning, but finding that they are not on terra firma to do so at this time. So, the dollar gets to end the week with a bit of a respite, after yesterday's bloodletting.

The only thing on any country's docket today, happens in Canada, where May CPI (consumer inflation) and April Retail Sales will print. The Canadian dollar / loonie is flat this morning, after a nice gain was added to its price yesterday, ahead of the data prints. I would suspect that April Retail Sales should rebound after a sickly looking March report. And CPI should show consumer inflation on a year on year basis up 1.5%... Nothing there to push the Bank of Canada (BOC) to even think about hiking rates, so the loonie will have to get any love it gets today from the stale Retail Sales report. And I think it will.

The euro is barely holding on to the 1.36 handle this morning, as we await the latest report on the LTRO repayments. Recall, that LTRO stands for Long Term Refinancing Operation, and it was short term loans made to Eurozone banks to help shore them up. Well, the Eurozone banks, have been repaying the LTRO loans, and each week, the European Central Bank (ECB) announces how much was repaid. If the amount is large (greater than 5 Billion euro) than the euro should regain some strength, if the amount is smaller than last week's 3.7 Billion euro, the euro would probably lose the 1.36 figure today.

The IMF had some things to say about the Eurozone economy. I always like to point out what the IMF has to say, because they usually end up being wrong! The IMF thinks the Eurozone needs bond buying. Well, if the IMF is saying that, then I sure hope European Central Bank (ECB) President Draghi, ignores them!

The Chinese renminbi saw another appreciation last night. Which was interesting, because recently whenever China announces some data, which is normally pretty good, the Peoples Bank of China (PBOC) weakens the currency, because the markets would normally think that good data means appreciation in the renminbi/ yuan. So, what was the data that I'm referring to?

Well, under the category of scary stuff. For the third straight month, China cut their U.S. debt holdings. That's according to a story in China Daily. Let's go to the tape to see what's up here. "China, the largest foreign holder of US Treasuries, held $1.26 trillion in US debt as of April, down $8.9 billion from the previous month and below the $1.27 trillion mark for the first time since August 2013, the US Treasury Department said Monday in a monthly report. China's holdings hit a high of $1.317 trillion in November." - China Daily

Uh-oh! But, you can't say that I didn't warn you years ago that eventually we could see this happen! People used to tell me all time that I was crazier than a loon, that China couldn't sell their Treasuries, for it would cause them to lose money on all their holdings. And I would explain that I was not calling for them to sell their Treasuries, but rather to allow them to mature, and not replace all of them, a little at a time, as to not highlight what they were doing. I guess China Daily is now highlighting what they are doing.

Yesterday, I told you about the mess in Norway, and how the Norges Bank had thrown the krone under the bus. Well, now there are comments from Norges Bank Gov. Olsen, who said that he had a willingness to tolerate more weakness in the krone.. UGH! He said something to the tune of: The krone's weakness will add to inflation, and "it will be close to target" (Norges Bank's inflation target is 2.5%) and "the impact (of a weaker krone) would have to be very, very strong before we end up being concerned."

So, basically, Olsen is giving us the John Connally speech from the 70's, when he told the world, "The dollar's our currency, but your problem". How many of you remember the former Secretary of the Treasury telling a group of European finance ministers that were worried about the weakening dollar after President Nixon had closed the Gold window and thus the dollar's Gold backing, that famous line?

You know, I've said this before, and last week I even gave you a snippet of Fred Sheehan's new book, in which he talked about former Fed Chairman, William McChesney Martin's fight with Inflationists. But what I'm getting at here is that these Central Banks are like little boys playing with fire, with their attempts to boost inflation. Let's hope these Central Banks don't set the woods on fire! But I'm afraid that's exactly what they are going to do. And before we know it, inflation will be soaring, and there will be no Paul Volcker to slay the inflation dragon this time.

A dear reader sent me a link to an article from MarketWatch by Rex Nutting, saying that anyone that doesn't believe CPI is delusional, and that John Williams of is the "dean of deniers" The writer, doesn't believe there's inflation out there folks. He even made fun of my good friend, Dennis Miller's, readers who said their inflation rate averaged 8%...

Well, I don't know who Rex Nutting is, but I do know who David Rosenberg is, and I prefer to think what he has to say carries more weight. And looky there! It's David Rosenberg giving us some of his thoughts on inflation. Talk about a co-inky-dink! Here's David. "Whether you are bullish, bearish or agnostic on equity markets, there is no greater complacency out there today than the outlook for inflation. It may have spent a long time in a coma, but it's far from dead. If you don't see inflation, then you have been focused on hedonically-adjusted consumer price data: the markets for assets and commodities tell a different tale." - David Rosenberg.

The Aussie dollar (A$) and New Zealand dollar / kiwi, have both given up the lofty figures they held earlier this week. The A$ has fallen below 94-cents, and kiwi has fallen below 87-cents. The A$'s run up to 94-cents has been nothing short of amazing, but I would think that given what we now know is on the mind of the Reserve Bank of Australia (RBA) (we talked about this earlier this week), that the A$'s will have to scrounge for crumbs of gains left on the floor by kiwi going forward, until something different pops up in Australia.

But kiwi is a different story, for here, interest rates have risen 3 times this year, and I still believe that there will be one more rate hike from the Reserve Bank of New Zealand (RBNZ). and the build up to that should keep kiwi "in the game" and not scrounging for crumbs of gains left on the floor.

British pound sterling is flat this morning after rising as high as 1.7050 yesterday. the 1.70 handle is light years away from the lofty levels of 2007, when it traded around 2.11. But 1.70 is also a far cry from the lows of January 2009, when it traded down to 1.35. YIKES! So, I just tell you this stuff to help you keep perspective on the currency moves. I think the pound has more upward movement in its future, but we'll have to be ready to move out to the country once the shine is off pound sterling.

Well, things are unwinding as I write this morning. Now Gold is down $11, and the euro has slipped below 1.36. So, stay tuned, same Bat Time, same Bat Channel, for more news on what's going this morning. HA!

The U.S. Data Cupboard is bare today. That's right nothing, nada, nil, zero, a big fat goose egg, zilch! But yesterday had a report that flew under the radar. U.S. Leading Indicators, which are exactly what they say they are, printed slower than expected and last month's print we revised downward. So, once again, the lofty prognostications for the economy have to be scaled back.

We also had The Weekly Jobless Claims fall 6,000 to 312,000, nothing to shout about.

I already talked about Gold this morning. But thought I would take a minute to talk about the other metals, like Platinum and Palladium. These two are getting whacked this morning as well. Remember earlier in the week when I told you how the miner's strike in S. Africa had ended, but the miners were still not back to work? I saw an article the other day that said it might take two more weeks before they went back to work. That's another two weeks of supply problems, and these two are getting whacked? Riddle me this Batman.

For What It's Worth. In my search of the site, I found what I was looking for. Another article by the great Richard Russell. Today, Richard is talking about the Fed, QE, Gold, the dollar and more! So take it away you have the floor, Richard!

"I haven't been listening, but Janet Yellen is being grilled again by Congress. And here is her chance to suggest a continuation of QE. Actually, she intimates that nothing will change. I still can't believe that the Fed will shut down QE in a few months. The stock market is obviously aware of this, but has chosen, so far, to ignore it. The choices ahead are -- the Fed will continue QE, or at some juncture ahead, all the smart boys will all rush for the exits at the same time. How this will all work out is a mystery to me. I'm just as happy to be out of common stocks and in the precious metals.

Another question -- what's holding the dollar up? This is a market full of mysteries and at the same time, exhibiting extremely low volatility. As I've said so many times before, after the calm comes the storm. Gad, I think I'm ready for another glass of buttermilk.

As I write an hour before the close, gold is up $41. This puts gold above its 50-day and 200-day moving averages. This should start squeezing the gold shorts. The bear market in gold is over, and gold again is in a bull market." - Richard Russell

Chuck again. Well, he was right, the move yesterday did squeeze the shorts, as I explained above, but In my opinion, Gold has to hold on to these gains, and it's not doing a very good job of that this morning.

To recap. The dollar bashing went on throughout Thursday, but as of the morning's sessions, the pain has been forgotten, and the a dollar rebound is on the table to end the week. Gold gained $41 yesterday, but is giving back $11 this morning. Gold short positions got squeezed out, which was responsible for the bulk of gains, which isn't a strong fundamental, but important to Gold's chances to shake out of the doldrums. The euro slipped below 1.36 this morning as we await the LTRO repayment amounts.

Currencies today 6/20/14. American Style: A$ .9395, kiwi .8695, C$ .9240, euro 1.3590, sterling 1.7040, Swiss $1.1165, . European Style: rand 10.6910, krone 6.1420, SEK 6.7295, forint 224.80, zloty 3.0595, koruna 20.1920, RUB 34.36, yen 102.05, sing 1.2500, HKD 7.7510, INR 60.18, China 6.1524, pesos 13.02, BRL 2.2265, Dollar Index 80.40, Oil $106.41, 10-year 2.63%, Silver $20.68, Platinum $1,456.28, Palladium $826.25, and Gold. $1,309.66

That's it for today. I knew I shouldn't have said the other day that the Cardinals had finally found their lost bats, because since then they haven't hit a lick. the Chuck kiss of death was placed on their bats! UGH! The World Cup is beginning to get interesting. Spain was already sent home! WOW! And England is warming up the plane. My team (besides the USA), Argentina plays tomorrow. Alex is gone for the weekend, I'm home alone. I think I'll survive, Christine.. Our little Christine and Jen always think that us men can't make it at home for any amount of time alone. HA! The College Baseball World Series is going on, when oldest son Andrew was young, we used to be glued to the TV watching these games. Back then not every Cardinals game was on TV.. It's exciting baseball, you should check it out! The Doobie Brothers (before Michael McDonald) were playing: Natural Thing when I turned on the IPod this morning. I love the songs from that album: The Captain & Me. And that brings me to the end of the line, it's a good place to get off the bus, so I hope you have a Fantastico Friday and Wonderful Weekend!

Chuck Butler
EverBank World Markets

Posted 06-20-2014 2:47 PM by Chuck Butler
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