Daily Gold Chart and Market Comments

Both gold and silver got a kick start and jumped higher on news coming out of China last evening and then out of the UK early this morning. Inflation has been and continues to be a serious problem for the Chinese authorities but it now appears that the plague is spreading to the West (at least it is finally showing up in their “official” statistics). When you get a similar report showing a mounting concern over the same contagion in Japan, you get a trifecta which shored up both of the metals.

The news was enough to push gold above the capping point near $1365 allowing it to run up towards the next resistance level near $1380 before the sellers showed up again.

Silver broke through its overhead resistance centered near $30.50 and made a run towards $31 before it too ran into selling pressure.

It looks like we are getting a good build in the open interest for silver which shot up nearly 5,000 contracts on yesterday’s strong showing and push above $30. That is exactly what we need to get this market powering higher. Judging from what we say in today’s session, it looks like there was more in the way of fresh buying. If managed money wants back into this market in a big way, there is not much that is going to stop them considering the fact that they had been leaving it until about 2 weeks ago and had greatly reduced their long side exposure.

Gold too saw an increase in its open interest but that looks to have come mainly from spreaders coming in. Today’s move higher however is indicative of an influx of fresh buying from the managed money camp which is constructive.

On the charts, the yellow metal now has overhead resistance near $1380 which it must take out before an assault on  $1400 can be mounted. Downside support exists first near $1360 and then again closer to $1350 - $1348. Upside momentum is good.

The price has pushed into the zone between the 40 day and 50 day moving averages and looks in good position to take them both out as it has now punched back above the 100 day moving average. That will get some the technicians interested in the long side.

Helping to confirm the strength in both metals is the fact that the HUI is putting in a good showing today. It was showing some signs of stalling out yesterday so today’s gap to the upside is a welcome development. I will still feel better about this sector if this index can clear 540 and hold its gains. It is early in the week but a weekly close above 540 would really help this sector. Downside support in the index comes in near the 520 level which it will continue to have to hold to keep the technical indicators friendly.

On the food front, the USDA magically increased the size of the nation’s corn crop and made all the shortage disappear by merely issuing a projection for increased corn acres for the next crop year plantings to 92Million acres yesterday. That made bushels and bushels of corn instantly appear out of nowhere solving the problem with the severe low levels of corn stocks. I never grow tired of watching the reaction of markets to official statistics. The crop is not even in the ground yet, nor have the fields even been plowed but suddenly the market is concerned that there is going to be too much corn. I am sure that the Mexican authorities are relieved to hear that the recent freeze which hit so much of their crop is nothing to be concerned about.

So let’s see now – we have the bullion banks selling what seems at times to be unlimited amounts of paper gold and paper silver. We have the Fed printing unlimited amounts of paper Dollars and we now have the USDA instantly creating millions more bushels of corn on paper. And to think, there is no need for fertilizer or seed! American ingenuity at its finest. And who the hell said we couldn’t compete with the world anymore? Personally I am waiting for the day when we can conjure up holographic images of corn filling our silos. I am sure my holographic digestive system will thrive on that. At least the environmentalists will be happy because there will be no stinky diesel tractors needed any more which might happen to put a little stink into that pristine farm air.

What makes this comical is that it should come as no surprise to anyone that we are going to see increased acreage for corn this crop year due to the lofty price levels on the board but the point in all this is that not one bushel of that corn is going to hit the market until very late this summer or very early in the fall which obviously does not do a single thing for dealing with the current problems of a shortage of supplies. Ah the hedge funds and their algorithms….

I bring this up because the sell off in the grains knocked the CCI down from near recent highs today. That combined with continued weakness in WTI crude and the liquid energies seemed to generate some selling pressure across the commodity complex as a whole. It seems to be that was partly responsible for silver fading from its best levels as copper was knocked down rather rudely today dragging on silver a bit. Were it not for the weakness in copper, I am fairly sure that silver would have closed up near $30.85 or so.

Considering the weakness in the Dollar, it was a bit odd to see such heavy selling pressure surface in so many of the commodity contracts.

Bonds are showing some signs of weakness after rallying back to nearly the precise point at which they suffered that massive technical chart breakdown 2 weeks ago. How they act here and what they do next will tell us a great deal about the future of interest rates in this nation.