"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

Trader Dan's free work will soon be available at www.traderdan.biz

Monday, July 11, 2011

Gold now poised for a technical breakout to the upside

Sovereign debt fears out of the Euro Zone are filling investors' minds with fear and trepidation as many believe a contagion effect is inevitable. News concerning Italy has sent stock market bulls scurrying for cover today and has emboldened the bears who have been mericlessly squeezed out over the last two weeks once the S&P was miraculously recussitated from the 1250 level on the price charts. The thinking is that a rash of credit downgrades might commence hitting large bank balance sheets in particular which would have a similar effect on Europe as the collapse of Lehman did on the US back three years ago to this very month.

Risk trades went out the window today as most commodities were jettisoned along with equities while the bonds and the Dollar were both sharply higher as the latter two were beneficiaries of a safe haven flow. With the Euro looking shaky, traders were willing to buy the greenback in spite of the lack of any serious effort on the part of the current US administration to come to terms with the runaway costs of entitlement programs, which is where the serious money is going to have to be cut in order to get federal spending under control.

An interesting thing happened however to the gold market - it completely ignored the reversal of the risk trades and actually functioned exactly like a safe haven market is supposed to function in such an environment. It shot up through the critical technical resistance level at $1550 and while it did fall below that level briefly as silver get slammed, it clawed its way right back above that level and ended today's trading in New York firmly above $1550. That bodes very well for the future prospects of the metal as the bears have been able to successfully block its upward progress there for three separate attempts over the last 6 weeks. Given the strength in the Dollar, this is excellent price action as it translates into higher prices for gold measured across a wide variety of various major currency terms.

What we are now watching to see is whether or not it can attract buyers on any dip back down below that level or whether it sinks below $1550 and fails to regain its footing and incurs speculative long lonquidation instead of dip buying. If it can hold $1550 and plow through the last technical level shown on the chart below ($1560), it will be at its all time high very quickly. As it stands now, it has already made a new all time record high when priced in terms of the Euro and in the British Pound. That strength will aid the metal and SHOULD attract dip buyers as it is extremely difficult to be bearish on any commodity when it is making new all time highs when priced in terms of other currencies. What adds another element of interest to this current drama is the fact that gold is moving higher during the summer doldrums. Quite frankly, a fair contingent of traders are off of vacation with their families right now. Unless they are checking in regularly, they might well be surprised when they return.

The fly in the ointment is the weakness in the mining shares which succumbed to the selling that hit the broad equity markets. I would prefer to see those things moving higher in conjunction with the metal but no dice. The price action today confirms the 210 level in the XAU as the next formidable resistance level through which the index will have to climb in order to presage better prices for the sector lay just ahead. There is some technical price support down near the 200 level.

Silver today was viewed as a risk trade as it sank sharply lower alongside of copper and the energies and softs. That market is so schizophrenic in nature that one never knows from day to day how it is going to be regarded by traders. Is it a safe haven or a risk asset? The answer depends on whatever the hedge funds say it is on any given day. See the chart below for the technical posture.

The US Dollar was sharply higher today on a safe haven bid but was once again unable to successfully clear overhead resistance centered near the 76.50 level on the USDX chart. This level is taking on increasing signifance therefore as sellers have been able to hold it from breaking through even when volume has been good. IF, and this is a big "IF", the Dollar can punch through this level and hold its gains, it will have managed a breakout to the upside and should be able to garner enough buying momentum from trapped shorts to initially take it up towards 77.50 - 78.00. Should it do so, we will want to see how gold responds to any such event. If gold does what it did today and ignores Dollar strength, the Gold bears are in trouble.

The S&P 500 dropped down and bounced lightly off of its 50 day moving average. It looks heavy here as it is still reeling from the absymal jobs number from last Friday but today had to contend with traders running out of equities and into bonds. It will need to climb through 1350 to set up a run for 1375. On the downside there is additional support near and just below the 1300 level.

My last comment for today is a sure fire trade for the summer. Get ready - BUY FROZEN YOGURT at the market. Can't miss on that one!


  1. Can you make a general comment on the silver pumping that has been getting dull of hearing over the last year. Now we keep hearing it again with $100 to $500 forecasts in silver. You know who they are but I would just request an honest statement about this from those of you who actually have both a more accurate and sensible outlook of these market conditions and trends. Thank you.
    The News UNIT Blogspot

  2. In response to Weather, I will ask you a question in the hopes of leading you to the answer to your question. What is anything of value, i.e. A car, house, food, etc, worth in terms of something that holds no value? So if the USD becomes worthless, then anything of value when priced in worthless USDs is infinity. Thus it is difficult to determine how low the dollar will go and how high other assets will go when priced in USDs. $100 may be correct at a certain point in time as might $500. $1,000,000 may be correct if we enter into a hyperinflationary environment similar to Weimar or Zimbabwe.

  3. I'd say today's silver sell-off had a lot to do with a classic pre-OweBummer-speech ambush than a risk-off move by the traders. You can see it clearly in the chart.

  4. Rui, I agree with you on that. Gold was up, trading like a safe haven, safe currency while silver was flat to up, trading like a mix between safe currency and commodity.

    Then BOOM, both get hammered and we only see gold float back up.

    The question is how long silver gets held down until they take the pressure off.

  5. The question I can't seem to figure out is....
    why do they continue to hold silver down? I cannot tell you how many times I want to buy some gold w/silver, but there's something that keeps telling me that's EXACTLY what they want me to do. And therefore, I get a little paralyzed on my decision. What is it about the 36'ish in silver they can't allow? Today seemed like a blatant "fix" back under again. Is it possible that they value silver more than gold in their master scheme or is it strictly them forced to cover their shorts?

    Any help you can provide in this exasperating unknown is so greatly appreciated. Many thanks.

  6. Two circumstantial bits of info to ponder with regard to $36/silver:

    - The COT short position *continues* to shrink; it is seldom this low, and there is at least a correlation (if not causation) between raids on Ag and diminished short positions. Setting up for a switch to the long-side of the trade?

    - Poster "Markus" at TFMetalsReport (¡Yogurt! Olé!), mentioned our old friend Wynter Benton, who had a penchant for telling all that $36 is a make-or-break level for JPM.

    Thanks as always, Dan -- tremendous info!

  7. Or, more specifically (sorry to redirect traffic Dan) would be this repost of WB's comments over at TF's blog, which appeared while I left the above comment here. Synchronicity?


  8. for those confused or concerned or otherwise paralyzed into non-decision/action

    you truly are right where they want you

    remember it is no longer the economy, it is now the O-con-me

  9. Well I see that silver is sagging again. I guess we just have to monitor this as closely as possible and buy whatever dip we are comfortable with. Just wish I could get a better call on the bottom but then who can?

  10. @jake the snake,

    Good to see you still slithering through the grass. Pop your head up sometime and show your face in the place.

  11. @magis00: Thanks for the link. It's great info, but I must ask, what is the source of WB's information? If there is a solid source, why have other sources not picked up on this, massively important piece of data? Not that I doubt the veracity of WB's data since all circumstantial evidence seems to confirm it, but it would be nice to have some independent confirmation.
    On a related note, in fact confirming (by deduction) WB's information, it is a matter of public record that JPM's losses on silver are indemnified by the NY Fed. JPM's silver position is essentially what it inherited when it took over Bear Stearns. At the time of that takeover, JPM went over BS's books and their first response was a flat NO. They refused to take on the liability on BS books. The NY Fed then gave a guarantee to JPM that it would indemnify JPM agains all losses on BS's book, and that's the way BS became part of JPM. This much is part of public knowledge, news at the time of Bear Stearns implosion. So if WB's data of $36 being crucial for JPM is right, the market is actually fighting the Fed, not JPM.

  12. Dan: You crack me up!
    Great analysis, btw. I'm with you on gold. Watching 1558 on the close. We'l see...

  13. Dan the man.....just wanna say thanks to you and the Turd as well! Cannot tell you what lights in the darkness you all are. Thanks for protecting my family and possibly my community/friends. May God richly bless you for your compassion and all your efforts. Okay, mushy I know.....
    Now, let's celebrate, even if it is for a short time or not!

  14. Good call on Gold Dan.

    Silver? Confused.

  15. Hi Ken, re: Wynter Benton

    There is much speculation and very little satisfactory proof (read: negative proof) that WB had any actual credibility - - other than the overwhelming circumstantial evidence supporting her claims, as you point out.

    This was hashed and then re-hashed and then once or twice more, both on TF's old blog and at screwtapefiles (I believe that Warren had several contacts with "her", but has since distanced himself).

    Anyway, I believe like you do that we *are* up against the Fed . . . either NYFed's express guaranty of BS's Ag portfolio, or in the more conventional bankster kleptocracy sort of way.

    Nevertheless, the Ponzi will fall eventually and dollars will be dollars and money will be money...


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