"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

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Monday, September 19, 2011

Gold chart and comments

Gold continues moving in a broad sideways pattern, unable to breach overhead resistance centered just below the $1840 but remaining above longer term support just above the $1760 level. The current short-term bias is negative until it can at least climb back above $1820.

Thus far forays down below the $1800 level have been met with quality buying in the physical market so this will need to continue to hold it from moving lower through $1760. Should these buyers step back a bit in the hopes of picking up the metal a bit cheaper, we could see it lag down towards the $1730 - $1720 region where one can expect to see very active buying occuring.
There is still some of this risk aversion selling occuring in gold (that is very easily seen in silver) but that is more a function of traders raising cash on their losing equity positions by selling their only winner, namely gold. In watching the price action today it seemed more a matter of a lack of eager buyers rather than any large scale fresh selling. That allowed price to drift lower until it triggered enough downside technically-related sell stops which then took it through $1780 before getting a bit of a light bounce up.

If you look at the copper chart, you can see that today it crashed through a former strong level of chart support. On the weekly chart, it has confirmed a double top pattern but that will not be totally confirmed unless it closes the week below the $3.85 level. Chinese buying had been keeping copper well bid below $4.00 but that buying disappeared today. The 100 day moving average, another key technical level, is now within easy striking distance for the bears. If they can take it down through that level, Dr. Copper will not be telegraphing good economic times ahead anytime soon.

There was also a hit to the unleaded gasoline market as well as crude oil. GAsoline is moving down towards a significant chart support level near the $2.60 region. Weakness in the grains is also evident. The result of all this is to bring the Continuous Commodity Index ( CCI ) back down towards the lower part of its now 5 month long sideways trading pattern.

This widespead selling across the commodity complex is a function of fears concerning the stability of the European Banking system which is reeling from its exposure to sovereign debt from that region. Investors are rightfully fearful of a contagion effect and a subsequent slowing of global economic growth. This is being reflected in severe weakness in the Euro, which as you can see from the price chart, is flirting very dangerously with falling below the 100 Week Moving average. It dipped briefly below this level last week but then recovered by the close of trading Friday and averted more serious damage. That respite was brief however as it has started off this week on a troubling foot. Unless it can rapidly recover above this level, it looks like a move towards 1.30 is in store. That would put even more upside in the US Dollar leading to further pressure across the broad commodity sector.

Take a look at the following chart and you can see where the safe haven money has been flowing over the last month. This is the gold/bond ratio. When the line is rising, gold is the safe haven of choice compared to bonds. When the line is falling, the bonds are the asset class of choice. Ever since the Central Bank organized hit on gold earlier this month, gold has been underperforming the US long bond. This is no doubt much delight to the Federal Reserve and to the Treasury Department, the former of which MUST HAVE LOW LONG TERM interest rates to prevent any further shocks to the already "on-life-support" economy; the latter of which cannot AFFORD to pay higher borrowing costs without worsening the already hopelessly incurable federal debt situation.

The HUI held fairly well today considering the weakness both in the equity markets and in the precious metals but it does need to clear 610 and hold that level if it is going to have a shot at the recent all time high once again. Downside support is initially near 600 followed by strong support near the 580 level.


  1. The CBs where manipulating the price of gold again. It is a carbon copy of a Yen takedown chart.

    I don`t buy the "sell your winner`theroy". Sell gold and buy what ?

  2. Looks like gold will retest its 50 day at 1715-1720 area.

  3. Sell gold and buy what?


  4. miners relative strength today should NOT be ignored.....this was a great opportunity for miners to tank....didn't happen....money's buyin'

  5. Thanks, Dan, for the plain yet comprehensive analysis. This is high value commentary.

  6. love the lOOk of that AU pitchfork Dan. Doing my part to slay the beast.

  7. Jake - they are not selling to gold to buy anything; rather SOME of them are selling a winner to cover LOSSES in EQUITIES and to raise cash to MEET MARGIN CALLS.

    It really is never a good idea to get rid of a winning trade to cover losses on a losing trade but some of these guys leverage themselves to the gills and as a result do not have enough spare cash laying around with which to keep the margin clerk off of their backs. They would rather pay up the margin clerk and hope that their losing trade will turn around or that it will at least move to levels that they can exit it with a smaller loss. When I was a novice trader many, many years ago, that is what I did. Thankfully I learned my lesson rather quickly.

  8. Gold put in a double top and has since been in a downward channel which could persist for many months and take gold down toward 2-year lows. Look at the charts from 2008. Early in the 2008 financial crisis, gold rose, but as the crisis worsened gold collapsed by 50%. History is likely to repeat in this financial crisis. So sell gold now before the bottom drops out again! (of course if Bernanke announces a big asset purchase program on Wednesday - which I don't think he will - then instead go grab as much gold and especially silver as you can! Good luck.

  9. J, you just said that gold dropped 50% in 2008. It did not. Look at the charts on kitco, goldmoney, et al. Now if you'd have said silver, that would have been different.
    The rest of your post is just as helpful. Folks, gold will (continue) to drop. How much is Impossible to predict. However, we have huge unfunded liabilities and no desire to cut or raise taxes. So. A short term commodities complex collapse followed by a steady rise upwards, perhaps? Rinse, lather, repeat.


  10. It's just as likely we could see a short-term channel and commodities continue to rise despite the technical indicators to the contrary.

    Get your popcorn folks. It's going to be quite a ride.

  11. KevW, I was thinking about my experience with coins and premium. Premium was wiped out and actually went negative at the dealer level during the height of the panic in 2008. That is something that people should keep in mind when buying gold/silver eagles etc at high premiums. The premium can/does evaporate at times when the lemmings all run the other direction - as they usually do at least for awhile - although in the long run these coins hold value better than paper money (incl interest) but not always.

  12. Thanks Dan!
    So a correction on gold and silver is possible in the short term.
    This is confirmed by the weekly MACD 9 19 6 on gold which looks scary.
    I think buyers will wait a bit for lower prices from now. Silver may pay the price too and drop towards 37 $.
    So much for Mr Turk, who writes everyday of his life that he sees silver and gold going higher.
    He forecasted 50 $ silver by end of september!
    Sure, when he's right, everyone says "wow, he was right!!", like this summer.
    When you say all the time that silver is moving higher, someday you eventually are right.
    Honestly, I do prefer your analysis, which are mre balanced, in a world of people who fell in love just a bit too much with their metal.
    Thanks for your neutrality and clarity of mind.

  13. Thanks Dan! Particularly that Gold/Bond chart I find very interesting!

  14. One cannot compare today to 2008. It is a different animal. We are further down the road. We have the spectre of sovereign defaults and a global currency crisis this time around. Plus the banks are in a far worse position now.

    Anyone who thinks gold is going significantly lower is missing the bigger picture, which is leading to sustained buying at lower levels. For sure volatility will increase but there are so many dominoes ready to topple which will send gold upwards rather than a sustained uneventful deleveraging scenario which could take it lower.

    This time around the panic will be more acute than 2008. Gold will be a successful safe haven (not necessarily PM stx though which may get chucked out with the bath water at least initially. Just wait for Greece to default. This is a certainty.

  15. thanks Dan.... and u got it BlackSwan

  16. @ J

    Thanks for providing the much needed doubt for this market to shoot higher. Even somebody with who follows Dan is in doubt haha.

    Gold had ONE 50% retrace in the 70's bull run. Good luck finding TWO 50% retraces in this one.

  17. @ BlackSwan

    After the US debt downgrade on Aug 4th, the market had an attempt at a 2008 redux and it failed. Gold shot to the sky.

    Using J's logic, gold should have fallen after QE2 ended. That was what all the closet deflationists like J believed. Look what happened. Now J is saying that gold will only go up if there is an asset buying program.

  18. As far as gold is concerned, we do not need to concern ourselves with the great inflation/deflation debate.

    Global economic foundations are so systemically weak, that we will witness a flight to gold in either scenario. Given the current weaknesses, the banks can not and will not survive in either environment and hence gold will thrive.

    As the last bastion of real money in a decaying terminal fiat system, the very worst it will do is merely retain its store of value.


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