Gold has now gone down and visited the critical support level near $1680 three times in the last three trading days, each time managing to recover as it attracted quality buying and rebounded. Considering the weak action in both the HUI and in silver, and of course strength in the Dollar, this is encouraging but overall the market is acting rather poorly.
Until this market can manage to regain its footing above $1725, it is in a precarious position. I got the distinct impression that many traders did not want to go home short over a long holiday weekend period (many are taking off until Sunday evening) due to concerns over what may great them come Sunday evening/Monday morning of next week.
The Dollar is on course to end this week on a very strong note barring any changes in the fundamental picture in Europe. That will lead to further weakness in commodities in general. Now that the failed German bund action has sent shock waves through the markets in general and chatter continues to grow that France is next on the downgrade list, the US Dollar is seeing strong inflows as money comes out of Europe. One has to wonder if the Asians are dumping Euro-based debt and gravitating towards Treasuries.
At some point in this crisis, gold is going to stop following the general commodity sector lower and will trade as a safe haven but it is going to continue to experience computer selling from hedge funds and index funds which benchmark against the various commodity indices. It should be noted however that gold is holding much better than silver or the CCI in general. This is due to its function as a safe haven. Were it not for that, it would be getting sold down more severely due to the mad rush for cash currently underway.
Note the various support levels and resistance levels I have noted on the chart. The failure at $1800 is very evident now that we have had some time to put in some more trading bars on the chart. Rallies are being held in check by the downsloping dark blue line of the pitchfork. Support has been established below $1680 with some spiking down towards $1665 producing some decent ricochetting back above $1680. Failure to hold these lows established this week should let the market fall down towards the downsloping red line which parallels the upper tine of the pitchfork.
Silver rallied yesterday on news about a proposed IMF plan to aid Europe. That took equities higher, the Dollar lower and the metals up for the ride. Today that is yesterday's news as the pitiful German bond auction sent investors fleeing out of everything they bought yesterday and rushing back into the Dollar once again.
Down goes silver, crude oil, copper and just about everything else on the planet.
All you need to know about silver is contained in the following two charts. The first is the Continuous Commodity Index. The second is Silver. Note how eerily similiar the two charts are.
This is the reason that I keep saying that silver is not going to go anywhere until the sentiment towards "RISK" and towards "INFLATION" changes. As long as traders are seeing the sovereign debt crisis in Europe as worsening and eventually causing a contraction in global economic growth, they are not going to be piling into silver as they did back during the days of the Federal Reserves' Quantitative Easing program.
Silver does however continue to find buying on dips into the region near $30 which is becoming a critical chart support level. As long as buyers see value in this area it should remain well supported as they will accumulate the metal during such bouts of price weakness. If the European contagion begins to worsen, this level could become vulnerable.
As investors rush back into the Dollar, it is poised for another trip to the 80 level on the USDX. If it manages a weekly close above this level, it is going to be rough going for the commodity complex. If it traders become convinced that even Germany is going to succumb to the contagion spreading across Europe, the Dollar is going to move through 80 like a hot knife through butter. If on the other hand a change of sentiment towards Europe emerges, 80 will prove to be a formidable resistance level.We will have to see where events lead us.
Note that both longer term moving averages, the 50 day and the 100 day, are now moving higher in conjunction - a bullish sign.
Keep in mind that even though the Dollar has its own set of problems, and that set is very significant, right now it is NOT THE EURO, and that is what has money flowing back into it.
