Daily Gold Chart and Market Comments

There is so much to write about today that it is difficult to pick a place from which to get things rolling.

We will start with the grey metal – attempting to describe what is occurring with silver is like attempting to describe a sunset over the Pacific – it is breathtaking. This market is blowing through upside resistance levels as if they did not exist. I cannot confirm this as of yet because the open interest is not currently reflecting it, but this has all the look and smell of a large short in some very serious trouble with a pack of wolves slashing at its throat. The sheer speed and angle of its ascent is indicative of a panic among the short sellers. Apparently some large entities are going for the jugular here and from the looks of it, they have succeeded. This might indeed be the very long awaited Commercial Signal Failure that some have been predicting for many years now. We will know shortly if that is indeed the case. If so, this market will go vertical.

One thing that happens when a large short or number of short sellers end up getting trapped  - they are all desperate to get out and will pounce on any offers that might hit the pit that are large enough in size for them to exit as many contracts as possible in the shortest time possible. When the sharks see that, they begin to compete with the shorts and will go for the bids also, forcing the price higher and making it more and more difficult for the shorts to extract themselves from their losing positions without having to pay up. Simply put – the pit takes no prisoners and there are no such things as friends in the pit. It is a ruthless business.

In attempting to project some potential resistance levels on the silver chart we are pretty much in new territory. I am one of those guys which while I study the long term price charts in an attempt to decipher levels where selling or buying might surface, also realizes that when you are talking about going back in time for more than 30 years, a large amount of those who might have been making the market in silver at that time, are either no longer trading in size or might even possibly be dead! In other words, I am just saying that I am not sure how relevant resistance levels from 30 years ago might be in today’s world.

That being said, it looks to be like silver could have a bit of resistance show up near the $33.20 - $33.30 level. If that gives way, it then runs to $33.50. If the trapped shorts really begin to get squeezed, then $33.50 will also not hold and will promptly give way. I will be going through the COT reports this afternoon to see where we are in the size of the short position from the Commercial and Swap Dealer category to get a better feel for all of this.

Open interest is slowly but surely moving back up again in gold announcing the return of the specs to the long side, precisely the medicine this market needs. They are looking over at silver and seeing its strength and are moving into gold. Their return is behind the ability of the yellow metal to punch through the $1380 - $1382 level. It now looks on a firm footing with the setup to make a run towards $1400.

Downside support in gold now lies first back near $1380 and down a bit from there near $1365.

The HUI is very strong today, gapping up on the open and not looking back since. It looks very strong on both the daily and the weekly charts with the index solidly above all major moving averages and those all either moving higher or in the process of turning higher indicating a trending move is underway. Bulls will try to take the shares high enough to push the index into the 570 level. I would expect to see a bit of selling there. If not, the shares are going to move high enough to take the index through 580 and put it in a position to make another try at the 590 – 600 region.

On the rest of the commodity front – the Brent / WTI crude spread reversed today and is currently near $15.75 with both markets moving higher. Brent does not seem to want to move below $100 and WTI seems to have found a floor at $84. What I find very noteworthy is the push higher by gasoline today which has continued to make new 29 month highs time after time this week. It certainly looks to be getting ready to put in a very firm close on the weekly charts and if it holds its gains for another week or so, on the monthly chart as well. On that chart, it will have registered a breakout to the upside. Based on what the futures markets are telling us, consumers had better get ready for an expensive driving season this year.

More and more we are getting reports about monetary officials from various parts of the globe expressing growing concern over the relentless rise in commodity prices, specifically food prices. That engenders chatter about the need to raise rates. Here is the problem for those monetary officials in the West – they need to hike rates if they are going to dry up the liquidity that is sloshing around the planet and making its way into the food markets. However, they cannot seem to hike rates because the “recovery” is still too fragile. So they basically sit and do nothing. Meanwhile, inflationary pressures continue to build in an environment of ultra low interest rates creating the perfect environment for gold in which to thrive.

Equities – well they do not care about anything except for all the funny money that is being created by the Federal Reserve – not the sheer overwhelming amount of debt that is swamping the US, not the protesters in the streets in Wisconsin, not the protests that are spreading to other states such as Ohio, not the fact that these protests are due to the fact that the states are out of money, not the fact that even the Fed officials are telling us that the labor markets are going to be stuck with mediocre growth for as far out as a minimum of 5 years and not the fact that the commodity markets continue moving sharply higher pushing input costs up for business across the board, etc. Nope – nothing matters except the punch bowl. “Drink up me hearties” as Jack Sparrow might say.

Along that line, China was once again forced to hike bank reserve ratio requirements in an attempt to cool down their overheating real estate market. I get the visual picture of a guy standing with a garden hose shooting water onto his house which is engulfed in flames whenever I see the battle that they are having over there with inflation. Negative rates of return on savings, a direct result of this roaring inflation, is what keeps feeding gold demand from China.

Bonds finally moved lower today in the face of a stronger equity market, but even at that, they have not fallen apart yet. Apparently there is enough Fed related buying coming in that the bears cannot pull the rug out from under that market for the time being. You can see it day after day by watching this market trade tick for tick. In come the bids every time it looks as if it is ready to break down. Even at that, this is a market living on borrowed time  which is going to break down as the year progresses. How much newly created money the Fed is going to waste on propping it up we will wait until they are done to calculate.

This is also the reason I have no patience for those who claim that any of us who believe that the US monetary authorities are constantly manipulating and interfering in the markets, particularly in the gold market, are a bunch of nuts. For crying out loud – they are publicly manipulating the bond market in the face of the entire world to behold! Oh but that’s the bonds – gold doesn’t count. Yep – that takes care of that argument now doesn’t it? Imagine Chairman Ben sitting in front of the Congress testifying with a straight face that there is no inflation problem with a gold price over $1500!