It sure didn’t take long for market participants to look at each other and say, “what the hell were we thinking yesterday”, when a mini selling panic hit the commodity markets on account of a miniscule ¼% interest rate hike in China. The Dollar gave back every bit of its gains from yesterday while the Euro promptly reversed course as if yesterday had never happened. We just dreamed that it did.

Just about every market out there experienced a reversal from yesterday as it was “Game on” for the hedge funds and their algorithms. Gone was fear from any impact of an interest rate hike in China with anticipation of a bag of goodies called QE2 replacing it.

“Fickle” does not even come close to doing justice to the madness that has gripped our markets these days. I cannot even begin to attempt to quantify the casualties mounting in that same hedge fund universe as they proceed to chop each other up and shred each other to itzy bitzy pieces with their whiz bang algorithms.

Dollar up – sell commodities; Dollar down – Buy commodities. Now is that a stunningly brilliant trading strategy or what?

My dog could become a better trader than most hedge fund managers if I took the time to teach him to hit the “Enter” button on my trading platform. For that matter, he could just mash the keyboard with his paws and probably produce a more realistic order flow than that coming from the hedge fund computers. This is what the markets have degenerated into courtesy of the whiz kids at the Fed.

Quite frankly, watching a day like this in which billions of Dollars are stuffed right back into the markets after the same billions were yanked out yesterday fills me with a great sense of dread and foreboding. If the Fed manages to pull the rug out from under the Dollar with its insane policies, the speed at which it can fall and the corresponding affects on the markets will be not only stunningly dramatic, but will be devastating for the chaos that it will unleash. The cost of the basics of life will rise at breakneck speed as this huge sum of hot money jams prices northward, with little to no relief in sight. Pandora’s box will look like a care package compared to what the next round of QE will unleash. And to think all of this is a pathetic attempt to bail out the abominable bastards at the big banks who gave birth to this carnage.

Enough of that for now –

The result of all this “reassessment” was that gold was higher along with silver. Yesterday’s open interest revealed a bout of long side liquidation was the culprit in the sharp drop in price but with the market stabilizing near the $1,330 level, shorts have been thus far stymied in their attempts to induce a larger wholesale exodus of longs out of the market. If bulls can now push price back above $1,350 and HOLD IT THERE, they will force more of these shorts out.

Considering the extent of the decline in gold yesterday based on the extent of the Dollar rally, it is a bit disappointing to see the metal moving up such a small degree as the Dollar gives back all of those gains from yesterday. Based on what I can see, there might be some hedge fund reversal of those ratio spread trades involving the mining shares as the HUI is up over 2% today as I write this compared to a rather modest gain of .71% in gold itself.

It could be that some of those funds are lifting longs out of the Comex and buying back the shorts in the shares in other words. I will know a bit more about this tomorrow when I can see the open interest figures and hopefully draw some conclusions from those numbers.

I still think we are in a holding pattern now in both gold and silver as the market waits for the FOMC meeting in November to determine the size and scope of the next round of QE. That seems to be keeping further aggressive selling at bay for now in both the gold and silver markets but they also lack a fresh catalyst to kick them higher. It could be we need to see another rotten set of data regarding the US economy that would shove the Dollar down below 76.80 on the USDX to jump start both markets.

The news from the Foreclosure Gate front is deteriorating but it looks as if the metals have factored this in, for now. Any further nasty surprises on that front will benefit gold. I still see no possible way for this fiasco to end well. One way or the other, the big banks are going to get slammed.

Technically, support for gold has emerged on the charts down near the $1,330 level. That seems to be attracting buying whether from fresh would-be longs or from some frustrated short sellers. It would take a strong push below this level to dislodge more of the speculative longs. As said many times here on this site, all that is required to force the shorts out is for the bulls to simply not run. There simply does not exist sufficient firepower on the sell side to take the gold market sharply lower without the selling that would come from long side liquidation. If the bulls stand, dig in and use their horns – they win. That simple.

The HUI’s ability to recapture the 500 level is impressive, considering that yesterday’s horrific sell-off really soured the technical picture on the charts. We are back to seeing if it can regain the 520 level. That level is becoming almost etched in stone for its significance from a technical chart perspective. I should point out that the index has held at the 50 day moving average and that probably encouraged some short covering in the gold sector. It will now need to hold above 494 or so to set up a consolidation type trade and avoid another move lower.

Crude oil broke through the bottom of its recent trading range yesterday only to recover a large part of those losses and move back within its price band. The market will need to see two consecutive closes either above $83 or below $80 to set up the next trending move. For now, it appears the market is relatively balanced between the two opposing bull and bear camps.

Soybeans set a 16 month high in price today. Cotton seems to be either going limit up or limit down these days. Yesterday it hit limit down out of fears that a rate hike in China would spell the end of the clothing manufacturing industry over there. Today it hit limit up on fears that the same industry would buy up all the world’s available cotton leaving none for anyone else. And people have the stupidity to say with a straight face that our modern markets are “efficient price discovery mechanisms”?

I am personally thinking of collecting all the rags in my garage and sewing them together to make a fresh set of clothes. Either that or I need to post armed guards around them as wild roaming hordes of bandits have been spotted in the region rampaging through neighborhoods looking for cotton clothing to steal and take to pawn shops for cash. Last week cotton prices posted the highest price since the War between the States for Pete’s sake. Tell me that is a market that has not gone whacky.

Bonds are basically putting in a repeat performance of yesterday. They are up slightly but remain below the major moving averages. The long bond needs to get over 133 to generate any upside excitement. They continue to bide their time waiting for further evidence of the size of any upcoming QE package.”- Dan Norcini, More at http://www.goldseek.com/email/lt/t_go.php?i=2828&e=MzM0MTg=&l=-http--www.jsmineset.com/">JSMineset.com