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October gold prices from the 2011 lows to the recent 2011 highs are up roughly $300 an ounce! From the July lows, October gold has already managed a rally of roughly $150 an ounce. Therefore one might suggest that half of the rally from the 2011 lows was the result of a collection of uncertainties earlier this year, while the other half of the 2011 gold rally was the result of more recent events. Clearly the Euro zone debt threat was responsible for a 
hefty portion of the early July rally in gold prices, but over the last two weeks, the US debt situation seems to have taken over as the primary driving force in the marketplace. Furthermore, over the last two weeks the Commitments of Traders report has highlighted a 73,700 contract build in the non commercial and non-reportable net long position in gold and that suggests the bullish gold trade is becoming increasingly more crowded. While it might be just as premature to suggest that the debt crisis in the Euro zone has been fully corralled, seeing both the US and European debt crisis placated at the same time that the world is being presented with tightening threats from both India and the Chinese could create some significant headwinds for gold and silver.
Other temporary limits on gold prices might be seen from the realization that commodity prices in general have remained caught in a weak down trend pattern since the April highs and with the brunt of the North American growing season soon to pass beyond the most critical weather stage, and the energy complex partially off balance because of the threat of strategic petroleum reserve releases, the whole inflation argument has at least temporarily lost its bite. About the only consistently bullish trend for gold from the outside market environment is the ever present pattern of weakness in the US Dollar. However, even the Dollar might be expected to bounce in the wake of a debt deal as the US media will probably be slow in covering the low points of the latest US legislative disaster.
In the end, the bull camp can certainly argue that the gold bull market will probably continue beyond the ultimate resolution of the US debt ceiling battle but our concern is that gold might be presented with a rather aggressive correction in the event that US uncertainty is temporarily deflated. In fact, with $1,600 gold pricing, there has not been a clear indication of a pattern of gains in physical gold production. So far, there also haven’t been many signs of gold producers moving to hedge their forward production. It also seems as if Central Bankers from China, Russia and India remain more inclined to expand their holdings rather than liquidate those holdings so it is possible that net central bank action in gold will remain supportive.
In conclusion, the basis of this special report is to predict a temporary correction in October gold of $70 to $110 an ounce into and immediately after the US announces a debt deal. To make things perfectly clear, the goal of this special report is not to predict a sustained washout or a top in gold prices. However, given the rancor of this latest political battle and the fact that many politicians continued to put party before country, one has to think that time will quickly expose almost any deal from Washington as a smoke and mirror spending reduction package. In the end, the market can certainly expect the US deficit to continue to build by perhaps as much as another $2 trillion in the best case scenario and perhaps by as much as $4 trillion under a less favorable environment. It is also possible that many credit rating agencies are simply poised to cut the US debt rating “when” and “if” the debt ceiling is raised and the latest US spending cuts are judged to be phony. Other bulls will suggest that another expansion of the US deficit ceiling will in turn increase the need to inflate out of the current mess, and that the US Fed might become even more accommodative after they are shown some false fiscal promises on the spending front. However, the bull camp in gold probably can’t expect the Fed to instantly change its stance in the wake of movement on Capitol Hill and it is possible that gold prices could be confronted with noted slowing fears for a period of time before the Fed is pressured to save the day again.
Since we think that ultimately the bull market in gold will survive and will likely forged another round of new all time highs later this year, longer term traders that are risk averse or capital restricted might simply wait for a massive correction and then look to purchase some December gold call options.
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Cattle: Loss of Breeding and Feeder Supply & Drought Should Tighten 2012
by Terry Roggensack on July 28, 2011
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The market remains at a premium to the cash market and cash markets look lower this week. Talk that the weaker beef prices of the past 10 days was just a short-term negative force due to weather and ideas that this could be made up by seeing better beef demand ahead has helped to justify the premium. However, lost demand from weather generally does not resurface as higher than expected demand when the weather is more normal. If a consumer avoided a steak last week due to extreme heat and humidity, the consumer may have a steak this week but not two steaks to make up for the lost demand. Talk of a sharp drop in average weights and increased death loss from last week helped to provide some underlying support. August cattle closed moderately lower on the session yesterday and back into the recent trading range as weakness in the stock market, a surge higher in the US dollar and weakness in the cash market this week helped to pressure. The market traded down to its 200-day moving average during the early morning hours. Some traders indicated that the uncertainty over a debt ceiling solution in Washington served to saddle risk-taking appetites, and that weighed on a number of commodity markets including live cattle. A weak tone for beef demand and a cash cattle trade of $107 in Kansas on Tuesday continue to exert a level of pressure on the market. Packers in the southern plains are bidding $107 with offers at $110-$111. This leaves August at a significant premium to the cash market. The estimated cattle slaughter came in at 129,000 head yesterday. This brings the total for the week so far to 385,000 head, up from 384,000 last week at this time and up from 382,000 a year ago. Boxed beef cutout values were up 89 cents at mid-session yesterday and closed 99 cents higher at $175.73. This was down from $178.24 the prior week.
TODAY’S GUIDANCE: The drought situation and a continued loss of breeding supply plus a declining supply of available feeder cattle are factors which should tighten supply significantly for the 2012 contracts. With a positive longer-term supply view, a follow-through break this week might be a good buying opportunity for the February cattle.
TODAY’S MARKET IDEAS: August cattle looks set for a continued decline to near 107.42, with resistance at 111.62. Look for 2012 contracts to gain on 2011.