"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Wednesday, March 23, 2011

Both Gold and Silver breach overhead resistance levels

To demonstrate just how fickle hedge fund sentiment has become, gold and silver are both the recipients of safe haven flows in today's session.

As you are aware, of late they have both been considered "risk trades". When risk was in, gold and silver were generally up. When risk was out, gold and silver were generally down. Of course that is a complete contradiction to their historical role as safe havens but that is how the hedgies have been treating them.

Over the course of the past week, gold has been basically trading in lockstep with the Nikkei as that has been a gauge of investor sentiment towards risk. Today the Nikkei is lower alongside of the S&P 500, but that now has gold going in the opposite direction, namely up.

Bonds are also higher today as is the US Dollar and even the Yen as once again the "risk aversion" trades are coming on. If that were not enough to totally baffle you, copper is moving higher on - guess what we are told - a general move TOWARDS risk! Confused? Join the crowd.

Some of this is due to the fact that crude oil is now trading above $105/bbl with  Brent trading near $116. That is creating all manner of worries for the equity side of things and shoving bonds higher on fears of a hit to the global economy. Yet, the precious metals markets are viewing the surge in price as inflationary and that is drawing buying into this sector. Heck, even the HUI is joining in on the precious metals rally for a change.

So let's put in into perspective - the US Dollar is higher, bonds are higher, equities are lower, risk is out but gold and silver are moving higher on safe haven plays and copper is moving higher as a risk trade. Yep - I think I have it figured out - for today. Tomorrow? Who knows?

Regardless, even with the Dollar moving higher, both gold and silver have breached overhead resistance levels on their respective price charts as the bulls performed just when they needed to in order to avoid a round of long side liquidation.

For gold, the breach of $1430 in very convincing fashion is significant. Unlike yesterday, when it took out the level but could not maintain its footing above it, the longs are driving hard this morning and have shoved back the bullion banks to $1440, a mere whisker away from the all time high.

In the case of silver, it has breached $36.50, the barrier that had checked it yesterday. It has now posted a fresh 30 year high in the process.

The key to both metals is whether they can maintain these gains going into the close of the session. If they do, they appear poised to run higher. STay tuned.


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