Silver Chart Analysis

Following is an 8 hour chart of the front month silver contract (that will be changing to May from March) detailing the technical action.

All of the readers know by now that the commodity complex was being targetted by the Fed in today's comments coming from Chairman Bernanke. Prior to his testimony in front of the House Committee, silver was trading higher recovering from some mild profit taking late in yesterday's session and into early Asian trading in the evening. This is normal in a market especially after having put in a strong upside breakout on heavy volume from a recent consolidation pattern. Dip buyers came back in taking the metal towards the $38 level before Bernanke levelled the boom on the complex.

Note the first down bar in black coming after the peak in price which showed the metal BOUNCED RIGHT OFF OF THE BREAKOUT AREA after touching it. That is excellent technical price action and confirmed the former resistance level was functioning as support.

However, once Bernanke's comments began circulating a wave of selling engulfed the metals with gold, copper, platinum, silver and palladium all getting hit extremely hard by algorithm selling. That took the silver price through the resistance level now turned support as large groups of downside stops were hit in a cascading fashion.

I do wish to point out however that the market bounced exactly at the zone where it should have, which is near the $34 level. Look carefully at this chart and you can see how significant this zone is from a technical analysis perspective for it is the region that had been serving as strong overhead resistance going back well over a month and had prevented silver from moving higher. Once price had pushed through $34, it began accelerating to the upside.

Now it has come back down to this level and seems to be attracting the same buyers who were busy accumulating it prior to the march higher.

I suspect that the reason the buyers are showing up here is because NOTHING HAS CHANGED IN REGARDS TO THE FED's EASY MONEY POLICY. Sure, based on what Easy Money Ben said today, we are not going to get a forthcoming QE3 program anytime soon but back when the Fed signalled an ultra low interest rate policy continuing until late 2014, did they tell the market that it was going to get a QE then? NO, it did not. In spite of that the entire commodity complex, but especially the metals, began marching higher based on that expected low interest rate environment being sustained for some time.

The facts are that the Fed is still on hold for an ultra low near-zero interest rate policy for the foreseeable future unless they see something in the economic data that leads them to conclude that this sort of low interest rate environment is no longer necessary. In my view that would necessitate some really astonishing payrolls numbers coming our way for starters. You would also have to see a successful resolution to the woes afflicting those nations in the Euro zone whose sovereign debt issues still linger unresolved in the background.

For now we will watch and see how this market acts over the next couple of sessions. I would not be concerned about it at all unless it were to punch solidly through the bottom of the former trading range down near the $33 level and fail to quickly recover.

Bernanke tries talking down Commodities

Today was Fed Chairman Bernanke's chance to testisfy before the Congress' Financial Services Committee. Here is a quick synopsis of his comments as I see them.

"The economy is getting better based on what we can see of the employment numbers but it is not growing at a fast enough clip to justify any immediate change in our accomodative monetary policy. The uptick in hiring has been helped by this policy and any change to it at the present time is not warranted. Real Estate is still a concern. Us fiscal condition is dire and faces a serious challenge at the end of this year. Inflation is not a concern although temporary rises in energy prices bear monitoring".

There you basically have it.

Based on this testimony, gold and silver were murdered. The supposed reason? - We are told that traders were expecting QE3 to be imminent and were disappointed because the usually dovish Bernanke did not sound quite as dovish as before. Thus the metals were hammered mercilessly lower.

Excuse me - but as a trader who watches these markets each and every day for more hours than I would prefer anymore, I have not seen any analyst explain the reason for the  heretofore rally in the metals as traders EXPECTING AN IMMINENT QE3 program to launch.

The reason for the rally has been expectations by the market that Central Banks would keep the liquidity spighots open for the foreseeable future (near zero interest rate policy coupled with QE out of Europe and the UK) and thus create an environment in which there was little opportunity cost for buying the metals. This has been generating RISK TRADES in which traders/investors buy both stocks and commodities and generally sell off the Dollar, which was particularly pronounced after a rush back into the Euro once traders were convinced that the immediate fallout from the Greece debacle was past.

Comments this morning trying to explain the sell off in gold mentioned the failure of the metal to make it through the $1800 level and downside stops as the culprit but ironically they are deathly quiet in regards to silver, which only yesterday had staged a MASSIVE UPSIDE BREAKOUT on strong volume out of a congestion zone. Yet today we saw a nearly 8% wipe out in silver which completey erased yesterday's breakout and then some.

My thinking AT THE MOMENT is that Bernanke and company were watching the commodity complex begin to accelerate higher once again as a result of their free money policy and began getting extremely nervous particularly as energy prices were rocketing higher. This is an election year and one thing that the boss cannot stand for is having to deal with that pesky issue of unhappy drivers bitching and complaining about the outrageous cost of filling their gas tanks especially since he and his crew are doing as much as they can to shut down drilling on public lands and offshore.

If one basically states that the economy is doing better - not out of the woods yet but better - and all the hedgies are leveraged to the gills because the FED GAVE THEM THE GREEN LIGHT TO DO EXACTLY THAT when it first announced that it would keep this near zero interest rate policy out to the end of 2014, then it is a simple matter of throwing a bit of uncertainty in that regards to generate a bout of selling. Toss in the same permabears as always capping at the highs of the day and the algorithms did the rest of the work as the stops were picked off.

In the meantime today's wild move in silver was a daytrader's/scalper's heaven. As said before, there are no worse traders on the planet than the hedge funds. Those guys could not trade their way out of a wet paper bag if their lives depended upon it.

In watching both of these metals, it does seem that we are now getting a bit of stabilizing in here around midday.

Gold and silver shares as usual are going nowhere. They made it just to the bottom of the critical resistance zone that I noted on the chart yesterday at the gap region 555-560 before going Kerplunk.

Interestingly enough, the long bond is down a full point right now as I write this. I am keeping an extremely close eye on this market. As stated yesterday, I refuse to believe ANY talk about an improving economy as long as the bond market does not start a solid downtrending move.

Gold-Silver Ratio strongly favoring Silver

See the following chart and the comments therein.

HUI still stuck below resistance

Gold and silver mining shares are moving higher today, especially silver shares, but the HUI is still lagging from a technical analysis perspective. It just cannot seem to clear this stubborn level near the 555-560 region.

If you note on the chart, this band of horizontal resistance also corresponds exactly with the downside gap that opened up in early December of last year. This gap is currently serving as a barrier for further upside progress.

We will have to watch to see whether bulls in mining shares are feeling confident enough to try to mark these things up agains the hedge fund ratio spread traders. One would have expected a better performance in these seriously undervalued shares especially with silver's sharp rally through resistance at $35.50 and gold's ability to remain above $1780. So far, nothing doing.

All Boats Rising?

Take a look at the following set of charts and see if it leaves you as confused as I am.

First the broader stock market as indicated by the S&P 500:

Now comes the commodity complex as illustrated by the Continuous Commodity Index:

Lastly comes a chart of the US long bond:

The rising stock market is supposedly the outcome of an improving economy, or so we are assured by all the experts. The economic recovery is evidently proceeding "so well" that the S&P 500 just made a brand new 52 week high in today's session and is now amazingly back at the exact same level it was prior to falling off a cliff in the summer that the 2008 credit crisis erupted. I guess we can all relax now since obviously the entire fallout from that fiasco is now behind us... or is it?

I am being sarcastic here since what we are seeing is the effects of liquidity splashing all over the entire US economy. It is that factor that is sending hot money into not only the equity markets but also the commodity markets and is pushing up the cost of tangibles once again. Rest assured that once these hedge fund money flows begin intensifying even further into the commodity sector (wholesale prices), we are going to all see this passed through on the retail side of the equation.

This is perhaps the reason that the bond market is not going in the opposite direction of the stock market. If the economic recovery were in fact actually as strong as the price action in the S&P 500 is signifying, the bond market would have already dropped below the bottom of its trading range and would have begun a strong downtrend portending a rising interest rate environment. It is not doing that.

This tells us that the bond market does not buy into all the hoopla surrounding the rising price of equities and is not anticipating anything remotely resembling a period of strong economic growth ahead of us in the immediate future. While one would think that rising commodity prices would be viewed as evidence that inflationary pressures are slowly building from the Fed's near-ZERO interest rate policy, bonds seem to have made up their mind that these rising prices, particularly energy prices, are going to act as a DRAG on the economy moving forward.

Until we see a breakout to the downside in the bond market, all the talk of an improving economy is just that - TALK. When I see long term interest rates beginning to rise steadily, then I will believe it. Until then, it is just the inevitable result of issuing enormous amounts of liquidity in an environment conducive to nothing more than WILD-EYED hedge fund speculation.

Gold encountering resistance near $1780

Based on what we have seen in the price action the last few trading sessions, gold is having some difficulty convincingly clearing the level near $1780. That has now formed as a technical chart level that will need to be taken out to set up the potential for a thrust to the $1800 mark. If the bulls can do that, the level near $1820-$1825 comes into play.

Downside support still remains untested near the $1750 level. You will recall that it was this level that kept the price from moving higher on the way up after gold stalled out there on several tests.

I will feel extremely confident that this market is going to move higher as long as we hold above $1725-$1720 on any possible move back towards those levels.

This market has had a sharp move off the lows near $1535 that was nearly unimpeded all the way to $1750. It then consolidated for nearly two weeks working in a range of some  $60 or so over that time period. The sharp spike higher through chart resistance  $1780 signalled the end of that particular range trade. It could be that the metal wants to base here a bit and gather another load of stem before moving higher. We'll see what we get in the next couple of trading sessions.

Silver looks to me like it was capped below major chart resistance at the $35.50 level on the continuous chart. Obviously the perma-bears know well the significance of that level. Shorts are digging in there and it will be up to the hedgies to dislodge them if they are to make this thing run to $39.

Strong weekly close in Gold

Gold was able to close the week out on a very strong note, although some traders did decide to cash in some profits ahead of the weekend, after getting a nice run of some $65 off of last week's close as of Thursday's peak price. Even in spite of the light round of profit taking, gold still managed to put in a very solid WEEKLY close surrendering only about $15 off its best level of the week and closing within striking range of $1800, the top of the heavy resistance zone noted on the price chart.

Take a look at the weekly chart shown below for an intermediate term view of the market. Note how the chart resistance near the $1800 level can clearly be seen. Gold did not challenge this level this week but from a technical standpoint, it does stand a very good chance of so doing next week.

If you notice the pattern I have marked as a "bullish pennant" or a "bullish flag" you will see the flagpole and the pennant or actual flag. These patterns occur often enough that they should be noted as they generally portend a strong move in the direction of the flagpole which can be used as a gauge of where price might be expected to run in the near future. The length of this flagpole which extends from the bottom near $1535 to the top of the pole coming in near 1765 is $230.

Once you get a brief period of consolidation, which is exactly what we have had the last three weeks prior to this one just completed, a fresh upside move which takes out the HIGH OF THE FLAGPOLE then gives us the potential for a move of some $230 higher. Some technicians will add this to the top of the flagpole giving a projection of $1995. Others whom are a bit more conservative (put me in that category) will add the length of the flagpole to the BREAKOUT POINT of the downtrending line forming the top of the flag. That price point came in near $1725 which yields a projection of $1955. Either way it gives us gold at a brand new all time high.

An ideal technical price action will be, in the event of any subsequent price reaction lower, to see gold find buying coming in along the line that marks the top of the flag which then causes the price to rebound and begin moving higher. It is just another way of demonstrating that buyers are eager to buy dips and see value at this new, higher level. They are not willing to risk sitting on the sidelines in the hope of purchasing the metal even lower. If you do break below the bottom of the flag itself, the formation will generally be void although that does not mean that price has peaked. It merely means that the bullish flag formation projection is not going to be reliable.

For a bit of a longer-term perspective, I am including a monthly chart of the metal. Note carefully the clearly defined uptrending channel that can be seen going back into the bottom in gold in late 2008, when the Quantitative Easing programs were first announced. Gold has tracked within this channel very closely with the brief one month exception when it got a bit overheated and frothy later last year. That sharp parabolic rise was met with selling that corrected the overbought reading and took price back within the channel.

Here is the significant point to make -this month's price action has thus far taken the price to the top of this channel once again. I think it is no coincidence that we did see some selling therefore arise late Thursday and into Friday's session particularly as gold approached the $1800 level which just so happens to be very close to the top of this channel. It is both a logical and a technical chart selling point.

If, and this is a big "IF", the metal pushes through the top of this channel and closes the month above it, odds would then favor an acceleration of the trend higher and perhaps a new and steeper uptrending price channel being formed. I would especially want to see a second consecutive monthly close ABOVE this old channel coming at the end of March to confirm this however to avoid another one month wonder.
If we were to get that, I do not think it would be very long before we revisit the all time highs above $1900.

What this would be telling us fundamentally is that gold is now convinced beyond all shadow of a doubt that the near world-wide currency debauchment by the Central Banks is not going unnoticed.
That environment, which is simply another way of stating NEAR-ZERO interest rate policy, is generating genuine fears of currency debasement and the subsequent strong inflationary impact that inevitably arises from such a policy.

We would also get a confirmation by a strongly rising Continuous Commodity Index.

Trader Dan on King World News Weekly Metals Wrap

Please click on the following link to listen in to my regular weekly radio interview with Eric King on the KWN Weekly Metals Wrap.

http://tinyurl.com/6ov65yp

Gasoline nearing an important Inflection Point

The following chart is a weekly graph of the price of unleaded gasoline showing some lines that detail areas where both resistance and support can be identified.

As you can clearly see, the price has rallied some 70 cents snce the end of last year without hardly a pause. It is currently closing in on a very important chart inflection point which is just shy of the $3.20 level. Based strictly on technical analysis and nothing fundamental, if this market pushes past that point (notice it is knocking right on the door of the lower line of the pitchfork - which is where it can be expected to encounter selling pressure), then not only will it have bested upsloping resistance but it will also have taken out horizontal resistance coming in near that level as well.

That would give us a technical signal that this market is going to make a run towards the all time high. I wish to emphasize again, that we are no where near the peak driving demand season for gasoline which generally coincides with the advent of the Memorial Day holiday.

Gasoline is obviously pricing in a risk premium in an attempt to pre-emptively ration supply fearing a drop in oil shipments out of the middle East should tensions with Iran further ramp up. However, this rally began prior to such fears initially moving higher in anticipation of a near zero interest rate policy of the Federal Reserve and additional liquidity being supplied by the Central Banks of the West. Even China was not left out of the equation with many traders suspecting that the Chinese would lower interest rates or reduce bank reserve ratio requirements as they indeed did.

What to bring away from all this? Simple - get ready for the very real prospect of all time high prices at the gasoline pump this summer.

By the way, Newt Gingrich has an outstanding presentation at his website for bringing down gasoline prices, permanently, and for sharply reducing American dependence on imported oil. Check it out.

http://www.newt.org/news/newt-2012-announces-first-air-dates-of-30-minute-address-on-american-energy/



Also, if you did not get a chance to see the current President's logic-challenged speech on US energy yesterday, relax; you spared yourself a great deal of mental anquish trying to follow his convoluted thinking. The Wall Street Journal has an excellent take on that speech which is also worth reading. You can find that at the following link: It is entitled, "Stupid and Oil Prices". I especially liked the fact that the writer brought up the pernicious effect of the Fed's near zero interest rate policy on the price of energy, and commodities as a whole. It was and is a very insightful read.

http://online.wsj.com/article/SB10001424052970203918304577241623995642182.html?mod=WSJ_Opinion_LEADTop


Take a look at what has been happening to the Commodity Complex as illustrated by the CCI. The index has been in a downtrending pattern since it peaked late last spring. It is however showing some definite signs of bottoming and what is more, possibly begin a trending move higher (remember that a market can bottom without necessarily embarking on an uptrending move higher - it can merely go sideways).

The first solid chance of seeing such a thing would be an index close above the horizontal blue line noted on the chart. Upside follow through that takes out the lower upsloping red line would be then very bullish activity.

$1800 in Play for Gold

I am posting a pair of gold charts today to note the clear resistance levels on the chart and to comment accordingly.

The first is the daily chart showing the resistance zone that was broken this morning after being tested in yesterday's session. The key to that test was the ability of the gold market to SUSTAIN GAINS ABOVE the $1750 level. That was the level all momentum traders were watching to determine whether or not they were going to move in. When it appeared likely that gold was going to hold above that level yesterday, in came the hedge fund algorithms and up went the metal before it encountered a bout of bullion bank selling right at the key $1780 level.

The ability of the bulls to absorb those bids and push past that defensive barrier has set the weaker-handed shorts on their heels and is bringing in additional momentum based buying in today's session.

The result is that the market is poised for a test of a big block of resistance centering on the round number of 1800. Gold ALWAYS keys on these round numbers and has done so since it began its ascent to $300 a decade plus ago.

If $1800 gives way, then the next target is the zone near $1850.

Initial downside support comes in back near the $1750 level.

Now let's shift gears to the weekly chart where you will see two horizontal blue lines. The lower of the two comes in near $1740. This is the reason that the battle centered on that number last week and why gold bulls were stymied in their efforts to launch the metal higher. Chart focused bullion banks were aware of the significance of that level and were making every effort to hold the price from closing through that level. Once they were repulsed, they then attempted to hold the price from popping back through $1750 as the algorithms would signal their buys once price moved through that level and held.

You can see from this longer term oriented chart, the significance of the round number of $1800. That is where the next focus is shifting and it will hold as much significance as $1750 did on the way up. Gold bulls have the wind at their back right now; the big question is how much money do they want to commit to the metal in terms of position size. Certainly they are making a strong play in silver right now which will tend to benefit the gold market as well.

Silver is sitting right on MAJOR Chart resistance at $35.35 - $35.50. There is not much in the way of significant overhead chart resistance above this level until you get to $40. I might add that a bit of minor resistance appears near $39. I should also note that silver is making this move independent of the copper market which is reacting to fears of slowing demand for the red metal especially after the disappointing numbers coming out of Europe this morning. Copper stocks are building in Shanghai so some traders are reading that as a slowing of growth prospects in China, which is responsible for approximately 40% of global demand for the metal. We'll have to keep an eye on that since Silver has been more sensitive to overall global growth prospects than gold in general.

Strength in the mining shares is further aiding the move higher in both gold and silver with the HUI closing in on a key technical level on the price charts as well. Bulls have done a consistently good job in supporting these things on any dips to the bottom of the 1 1/2 year long trading range which comes in near the 500-490 level. One thing they have not been able to do is to generate enough upside price action to bring in momentum based buying which will also begin squeezing some of the shorts out, or at the very least make them rethink their continuing in that infernal ratio spread trade that has plagued this sector for nearly two years now.

If this index pushes past the line noted on this chart, there is a very good chance that the shares will begin catching a very strong bid with the potential of moving the index back to the top of that trading range closer to 590-600.

One last thing - yesterday I showed you a chart of gold priced in terms of the British Pound and how close it was to reaching its former all time high.

Today here are two more - the first is Euro gold and the second is Yen Gold. Note the strength in the charts.

Gold bears have their work cut out for them.

Sterling Gold surging Higher

Gold priced in terms of the British Pound is surging higher being reinforced in its upward trajectory by news that the Bank of England was further expanding its bond purchase program (Read this as its version of QE). This is more evidence that nearly the entirety of the Western World Major Central Banks are completely engaged in the process of adulterating their currencies.

They BOE has now set a program target near the 325 billion pound mark or $513 billion dollars. That is not exactly chump change.

This is also the reason that bears at the Comex are increasingly having difficulty in capping the price of the metal there as it is surging higher across a variety of foreign currency terms.

Gold Reaches Resistance at $1780

Gold is surging higher later in the session today having caught a gust of wind that took it all the way to major overhead resistance at $1780. The ability of the market to REMAIN ABOVE $1750 caught the attention of momentum based traders and that was all she wrote. Up it went taking the weak-handed shorts out of their positions until the bullion banks could regroup and start their selling again at $1780.

Bulls have their sights set on putting a handle of "18" in front of the gold price. The Central Bank pals - the bullion banks - are going to try to prevent that. If the bulls can keep gold above $1780, they should be able to take out the bullion banks.

Downside support now becomes the $1750 region.

Platinum regaining Ground against Gold

There seems to be a type of stealth bull market in the platinum group as the metal begins moving up and regaining lost ground against the price of gold. The metal has been grinding higher since the beginning of the year and is currently up nearly $400 since then but has mostly gone unnoticed by the financial press.

It is unusual to see the metal trading at a discount to the gold price. Apparently some of the hedge funds have taken notice and are moving into platinum especially as news filters out of a strike in a large South African mine owned by Impala.

Platinum, while often viewed as a precious metal, is greatly affected by economic news due to the fact that it is also an industrial metal used largely in the automotive exhaust systems. Obviously any news that is considered bearish for overall global growth tends to depress its price. Conversely, a growing global economy in which consumers worldwide opt to buy new cars, is bullish for the metal.

As such, platinum has been greatly impacted by the risk off or risk on trades. Notice how it responded to the QE I and QEII programs with the former beginning in late 2008 and the latter kicking back in during 2010. Then look at what happened to it in late 2011 when investors were watching European woes proliferating with what seemed like not much of a Central Bank response at the time.

That all changed at the beginning of 2012. Near zero interest rates and the expectation that the Central Banks would be keeping this environment intact for the foreseeable future have now combined with supply related issues and are driving the metal higher with strong showings the last two sessions in particular and the first two months of this year.

Greece is Fixed so Let's Buy Everything

Greece managed to secure itself a bailout which takes the problem off the radar screen of hedge fund managers for the time being so it was back to "RISK ON" in a big way in today's trading session. Between China's 50 basis point lowering of its Reserve Ratio Requirements for its banks yesterday and today's money printing to throw at the Greek debt problem, it was "Happy Days are Here Again" as the equity market perma bulls wasted no time in bidding the price of stocks higher while the inflation camp decided to buy nearly anything that moved on the commodity exchanges with the grains being the notable exception to the party.

This buying resulted in copper and silver both EXPLODING higher while gold managed to finally take out both the $1740 level and the $1750 level in one fell swoop. Resistance - forgettaboutit! It evaporated with this rush of hot money into the markets again. This is money that has been sitting on the sideline waiting to see how the European sovereign debt situation was going to unfold. Once that particular stumbling block was removed out of the way, the path of least resistance in this pitifully low yield interest rate environment was higher for risk assets.

Notice on the chart that gold has finally managed that CLOSE over $1750 which it needed to set up a run towards $1780. The trick for the yellow metal will be to see if it can HOLD TWO CONSECUTIVE CLOSES over this important technical resistance level. If we see additional follow through buying in tomorrow's session, gold will go on to test the upper boundary of the zone noted on the chart as "Heavy Resistance Zone". That upper boundary is $1780 where the price capping bullion banks will be ready to attempt to stem the advance. If they fail there, we are going to see a handle of "18" in front of the gold price relatively quickly.

Downside chart support is initially near $1740 followed by $1720.

Let's also look at silver which finally managed to CLOSE ABOVE $34. This is the first signal that the consolidation pattern of the last few weeks is close to resolving itself. If silver can take out the initial resistance level noted on the chart, it will very  likely embark on a visit of significant resistance centered between $35.00 - $35.35. I would like to see a close above this level, preferably above $35.50 to indicate that silver is headed to $40.

Downside chart support is at the bottom of the recent consolidation pattern near $33 which is where buyers have been busy accumulating the metal for the last three weeks.

Here is a picture of the fallout coming from this nearly unlimited money printing that seems to be the order of the day (issuing new debt to pay off old debt) - look at what is happening to longer term interest rates. While still low by historical standards, the yield on the 10 year note is now above 2% and moving towards 2.10, the upper boundary of the recent trading range. If interest rates were to break out strongly to the upside, the multiplier effect on the gargantuan amount of US debt would begin having a keen impact on the US fiscal condition. The US monetary authorities want to have their cake and eat it too - by that I mean that they want to be able to artificially keep short term interest rates at ridiculously low levels to encourage consumer borrowing as well as keeping the cost of servicing the US debt load low.

However, if the Central Banks, particularly of the West, are going to keep this insane game of kicking the can down the road by basically adulterating their currencies, then those who lend their respective governments the money are going to demand higher rates of interest to compensate them for the fallout of all this, namely increasing risks of inflation originating from the debauchment of their currencies.

Crude oil has firmly broken out to the upside and is trading well above the key $105 level. Gasoline is going beserk to the upside. It looks like we are going to see $4.50 gasoline in most cities across the nation by Memorial Day and possibly $5.00 at the rate which it is soaring.

Gasoline is at a key crossroads on the long term montly chart. If it pushes through this level near $3.08 - $3.10, odds will then favor it running to $3.40 which will the last level of chart resistance before it revisits its all time high. The American consumer is now reaping the combination of Obama's stupidly inept energy policies along with the fallout from the Federal Reserve's near zero interest rate policy with a wild card kicker of Iranian tensions. What has me extremely concerned is that we are NO WHERE NEAR the PEAK DEMAND period here in the US which kicks in as we near summer and the driving season.

At some point, even the Johnnie one-note equity bulls are going to have to consider the fact that their beloved liquidity dumps are poisoning the well from which they are drinking. Energy prices that soar are a TAX on the entire economy and work to depress growth and confidence and no amount of spin from the
"BUY STOCKS ALL THE TIME" financial analysts that infect our financial media is going to be able to prevent that.

China to the Rescue Once Again

While the markets are closed for the President's Day holiday here in the US, the futures are open for trading in some markets. Those markets are reacing to overnight news that China is lowering the Reserve Ratio Requirement for its banks after having spent most of last year raising it.

Market watchers are interpreting this as a loosening of the monetary strings in China and reading it as bullish for the commodity sector as a whole while the equity guys (who never need a reason to be wildly bullish) are using the news to goose the S&P futures higher.

Risk aversion is getting tossed out on the news with the Dollar getting whacked lower, gold and silver moving higher and the long bond getting sold off and moving closer to the bottom of that multi-week trading range.

At the rate these guys are chasing stocks higher, we are going to see the S&P 500 over 1400 before Spring arrives. Ah yes, nothing like more liquidity to take care of everything. I really think we need to throw out all the old economics textbooks and rewrite them. Matter of fact, it would be a very short book containing only 4 words that one would need to know to become a world class economist: "LIQUIDITY CAN FIX ANYTHING".

Debt good; Savings bad.

Next question.

Gold has resistance that can be seen on the price chart near the $1740 level. That has held the metal in check for last few days. It ran to this level overnight but could not penetrate it so let's see if it can push through Monday evening here in the US or Tuesday morning. If so, it will set up a run towards $1750 which is where the next test will be. Bulls MUST clear that level and HOLD it above there to set up the critical challenge of the next resistance zone.

Trader Dan on King World News Weekly Metals Wrap

Please click on the following link to listen to my regular weekly radio interview with Eric King on the KWN Weekly Metals Wrap.

http://tinyurl.com/7rc862u

S&P 500 once again bumping up against 1350

The 1350 level in the S&P 500 is becoming a rather significant resistance level on the technical price chart as the market has rallied to this point several times over the last two weeks and stalled out. Bulls are counting on further liquidity blasts from the Central Banks to provide them with enough ammunition to dislodge the selling originating at this zone.

I find it rather odd to see how the broader market is apparently ignoring the surge in gasoline prices as if soaring energy costs are not going to have the least impact on consumer spending  in terms of disposable income or transporation costs across the entire economy.

Central Banks are attempting to ward off deflationary pressures from issues arising from massive amounts of debt in the system so what we have here is a battle between the forces of liquidity and those of debt. From what I can see of the price chart, the liquidity forces are apparently able to trump everything. It also goes to show you how utterly disconnected the stock market is from the reality of most citizens.

This rally in the equities is what is pulling silver and gold off of their lows in today's session. It is also pulling copper off its worst levels as well. If the Fed wants inflation, they are going to get it. A strong upside performance in the S&P will guarantee that the metals all begin moving higher, whether or not any fundamentals justify the move or not as hedge funds will bid up everything tangible and send those prices soaring.

The  Fed had better be careful however that their gambit does not allow the long bond to drop below the bottom of its nearly 4 month old trading range. That would be a No-No for Uncle Sam for if long term borrowing costs were to begin rising, the cost of servicing this idiotic mountain of debt that has been heaped upon our nation will becoming unbearable. No doubt orders will go out to Goldman and Morgan to buy bonds if it looks like the bond technical price chart might be breaking down.

General Comments

Gold is holding firm in today's session but has retreated from its best overnight levels. You will notice that within the larger time frame on the chart, gold has made a nice run to stiff resistance beginning near $1760 and then retreated. Buying on the downside coming in near the support level marked (close to $1720) has been extremely consistent over the last two weeks however. The result has been a constricting triangle forming which is a consolidation pattern.

Bulls cannot take it through resistance at this point but neither can the bears break it down. I happen to believe that the reason the latter cannot accomplish their intent is the reality of gold strength across a variety of other world currencies. Bluntly - the price of gold is holding in terms of all of the major currencies as savvy investors/traders are well aware of what the monetary authorities are doing to their respective currencies in order to keep the game of musical chairs, aka - the global economy - going.

Central Bankers and monetary authorities are doing what they were born to do, namely, destroy the value of their nation's currencies to benefit the big international banks within their midst. Gold is all too well aware of that and is doing what it always has done and always will do - function as a currency of last resort and a refuge from their depradations.

What we want to watch for in gold is a breach of this triangular pattern with a close preferably above the $1750 level to kick this thing up into that heavy resistance zone noted. Obviously gold bulls would want to see dips below $1720 meet with strong buying and an almost immediate return back above that heavy red line shown.

As another quick note of reference, check out the price of Gold compared to the price of the US long bond in the following chart. Note that going back to early 2009, when QEI was still in force, gold was the asset that investors favored in relation to the US bond market. After a brief dip lower in this ratio during the middle of 2010, when investors were fearful that another round of QE was not going to be forthcoming, the ratio returned in favor of gold until it peaked just after QEII expired and the Fed had nothing really significant to replace it. From that point on, bonds have been a better investment than gold.

That might possibly be changing at this point as interest rates crawl along at abnormally low levels and investors become more fearful of currency debauchment. The downtrend line in this ratio has been broken but has a bit more work to do in order to look more convincing. A move through the heavy blue line shown would do the trick.

At some point in this now multi-year game of constant liquidity doses and other quick fixes which solve nothing, investors will begin to dump bonds and move much more strongly towards gold. That will signal the beginning of the end game as the ratio will be flashing the loss of confidence in the political and monetary authorities to deal with this massive papering-over of the problem.

Here we go Again...

We had strong downgrades all across Europe and a total jettisoning of risk trades in Tuesday's session with the result that we had a sinking Euro and a surging Dollar. Overnight we learn that now China promises to join the money rain parade and pour its wealth into bailing out Europe to protect its export markets.

What do we get as a result of this? A complete reversal of the risk aversion trades with all the money that came pouring out of the markets Tuesday now turning around and flooding right back in again.

Up goes gold and silver after both sold off on Tuesday and up goes the Euro and down goes the US Dollar. Presto chango; wave that magic wand and all the woes of the financial world have just disappeared.

The promise of more bond purchases by China of European debt has sent the S&P 500 futures through very significant chart resistance at the 1350 in the Asian trading session. It looks like the drunken binge continues with no fears, no worries in sight now that China has become the lender of last resort. Apparently what the Central Banks could not do, China has.

I wonder how history is going to record all of this madness. I just hope we all live long enough to be able to tell what it was like living through it and watching it unfold day by day and week by week. No one from the future will likely otherwise believe that a generation of humanity was this ignorant. On the other hand, maybe it is those of us who actually believe DEBT is generally something to be avoided unless it is carefully managed and respected who are the fools here and those who just shrug it off as nothing to be concerned about are the truly wise among us.

Up is now down; down is now up; light is now darkness and darkness is now light; bitter is now sweet and sweet is now bitter. Welcome to the brave new world in which prosperity can be created by piling up massive loads of debt without the slightest bit of concern for how that debt will ever be repaid.

Gold Shares continue to lose ground against gold itself

The gold mining shares, as evidenced by the HUI, continue to lose ground against the price of gold bullion itself. They are approaching the three year low in this ratio that was made 3 weeks ago. One would think that they would find some buying support soon for valuation reasons.

The hedge funds continue to ply that ratio spread trade which they will do until they can no longer make any profits off of it. Maybe we are seeing a bit of a delayed reaction to news that the Obama budget contains a hefty 5% royalty tax on their revenues. That budget has zero chance of passing in its current form but it could be that the mere mention of such a thing has gotten some owners of these shares nervous especially if those risk aversion trades come back in vogue.

Once again it comes back to the desire on the part of investors to gain LEVERAGED exposure to the gold price. If they can do this by using the ETF and not have to concern themselves with risks of a political nature such as what is being attempted by the current Administration, they why bother buying these things at all is the thinking that is currently in vogue among the larger part of the speculative community at this point.

The mining shares are also now seriously underperforming the broader stock market continuing a pattern that has emerged since last summer.

Some of the readers wrote to expres their desire to see a tax of this sort hit the mining sector. My only response to that is very simple - a royalty tax comes right off the bottom line of any company involved in mining here in the US. The lower the net profits of a company, the more it impacts their share price. Be careful what you wish for if you hold these shares in your portfolio and take the side of the Administration that this is a good and necessary tax. That is your portfolio and your wealth that is going to take the hit. If you are willing to lose your money over it - fine and dandy - but then do not complain and bitch when you see your portfolio going nowhere or actually moving in the wrong direction.

Hedge funds are not going to acquire mining company shares out of the supposed "goodness" of their hearts. They will only buy them if they think that they can make a profit on them and that necessitates continued strong and rising profits from these companies. Anything that might impact that will be part of the equation in calculating whether or not they meet these criteria.

In Related matters...

This story illustrates something so eggregious that I felt compelled to post it so as to let the readers know what the fallout from this meddling Administration's policies is across this country.

We apparently now have Kathleen Sebelius's Department of Health and Human Services feeling that they have the right to POLICE your childrens' lunch boxes.

Take a look at the following story and tell me that we are not losing our freedoms in this nation. This is what Obamacare has wrought and what we can expect to see more of should Americans be foolish enough to empower this group of control freaks for another 4 years come this November.

The next thing you know these people will be telling us when we can wipe our rear ends and with what kind of paper.

Make no mistake whatsoever about it - Obamacare has nothing to do with Health Care - it is all about government control over your life. From its trampling on the First Admendment rights of Catholics here in the US to this "policing of lunch boxes", we are witnessing only a small foretaste of what is going to happen in this country if they are not defeated at the ballot box.


Carolina Journal News Reports

Preschooler’s Homemade Lunch Replaced with Cafeteria “Nuggets”

State agent inspects sack lunches, forces preschoolers to purchase cafeteria food instead

By Sara Burrows

Feb. 14th, 2012

RAEFORD — A preschooler at West Hoke Elementary School ate three chicken nuggets for lunch Jan. 30 because a state employee told her the lunch her mother packed was not nutritious.

The girl’s turkey and cheese sandwich, banana, potato chips, and apple juice did not meet U.S. Department of Agriculture guidelines, according to the interpretation of the agent who was inspecting all lunch boxes in her More at Four classroom that day.

http://www.carolinajournal.com/exclusives/display_exclusive.html?id=8762

Gold moving higher in Yen terms; strong in Euro terms

Some of the friends of gold are no doubt frustrated by its inability to breach stubborn chart resistance near the $1750 level in US Dollar terms. Bullion bank opposition near this line is absorbing bids and has thus far resulted in some light long liquidation among the more short-term oriented bulls.

However, as stated many, many times on this site, gold is not ONLY A DOLLAR PRICED STORY - as much as its detractors would love to make it fade from the minds of men, it is ultimately a currency - a currency which is immune from Central Bank and monetary officials' debauchery efforts.

Overnight we learned that the Bank of Japan announced additional liquidity measures in another attempt to derail the money flows that have been coming the way of the Yen during periods of safe haven trades. The stronger yen is becoming a serious political issue there in Japan and exporters continue to put pressure on the monetary authorities to do something about it. That is exactly what they did as they attempt to meet the Federal Reserve's dovishness with that of their own.

Look at what has been happening to gold when priced in terms of the Yen as a result of all this. As the yen sinks in value on the foreign exchange market the gold price in terms of that currency is steadily moving higher. While certainly not as impressive as the Euro gold chart shown beneath it, one can see that the price action today is thus far signaling that BOJ efforts to debauch their currency might just be working. It is certainly losing value against gold.

Keep in mind that gold strength, in terms of these other major currencies, is going to prevent any deep sell offs in the US Dollar priced gold. As long as this continues, dip buyers will keep showing up on any bouts of price weakness here in the US. It is this occurence that is the Achilles' heel of the bullion banks - they can absorb paper bids here in the US but attempting to prevent gold from rising in terms of the other major currencies is simply out of their ability. World wide liquidity efforts by the Central Banks of the West have consequences that cannot be avoided, no matter how many games are played on the Comex Exchange.

Crude Oil back above $100 - Again

Crude oil simply refuses to break down and is once again trading back above the $100 mark. What is perhaps even more concerning is that gasoline prices are now trading above the $3.00 point at the wholesale futures markets, and this is during the time of year in which gasoline demand is generally quite tame compared to the onset of the busy driving season later this spring and summer.

Should gasoline bulls be able to push price through the chart levels shown, it will portend a move back to the late summer highs of last year. As said in a previous post from last week - PAIN at the gasoline pump is now unavoidable.

Gold holding at initial support thus far

Gold has dropped into the first zone of support noted on the price chart near the $1720 level and has thus far held as dip buyers surfaced. That buying was fostered by a weaker Dollar which was lower in today's session but has not broken down decisively yet below the critical 79 level.

Surging crude oil and gasoline prices did help gold today as some traders are concerned that the rise in energy costs will eventually feed through and impact the price of other goods and services  in the broader economy. Transportation costs can only be absorbed for so long.

Mining company stock owners - note well

Most of you who read this site are well aware of my political leanings - I happen to believe that the current administration is perhaps the most inept, reckless and endangering to liberty in the history of this nation and needs to be replaced at the ballot box this coming November.

Those of you who own mining company stocks should take note that as part of the budget submitted by the Obama administration, all hardrock mining companies would be required to pay  annual rents and royalty fees of no less than 5% of gross proceeds.

Currently a law that is 140 years old, exempts them from paying royalties to the US government.

Environmentalists have been after this law for years and have found their champion in the current occupant of the White House.

The rental portion of this budget would impose a fee on for both public and private lands with the funds supposedly being used to clean up abandoned mines. Coal companies are currently under a similiar plan.

Don't worry however - I am completely assured that every bit of the monies raised from this targetted plundering will be put to good use for the American citizenry  with absolutely none of it going to cronies of Obama such as Solyndra.

Were it not for the fact that most political analysts expect the Obama budget to be DOA in the Congress, the mining shares would have been sharply lower today. Those of you who own these things are well advised to pay close attention to this. Senator Harry Reid, who has long ago sold his soul to the left's agenda and who hails from a swing state, will probably be getting an earful from mining company executives with any connection to the state of Nevada. I will be surprised to see him actually coming out in support of this proposal if he wishes to run for re-election next time around. Then again, he might be ready to retire by 2016.

Trader Dan on King World News Weekly Metals Wrap

Please click on the following link to listen in to my regular weekly radio interview with Eric King on the KWN Weekly Metals Wrap.

http://tinyurl.com/87ukomd

Gold Continuing to Fail at $1750

Gold has now spiked through the $1750 level several times since the end of last month but has not been able to CLOSE THROUGH this level. Until it does, the market will not be able to start a new leg higher in the uptrend.

Generally speaking, markets tend to pause at resistance levels until they can gather enough of a spark to take them strongly through those or they retreat and consolidate leading to some basing action. During the latter, some of the shorter term oriented bulls will liquidate longs out of frustration or out of a desire to cash in some profits and bank them. That selling then paves the way for some opportunistic short selling to emerge.

We had a combination of both today leading to a pull back in price. Support on the downside remains near $1725 - $1720 with stronger support down closer to $1710 - $1705.

Silver needs to get above $34 and stay there to allow it a chance to test major resistance near $35.00 - $35.25.

CME Group LOWERING margin requirements for Gold and Silver Contracts

                        Current Initial           New Initial             Current Maintenance           New Maintenance

GOLD                       $11,475              $8,500                        $10,125                            $7,500

SILVER                    $24,975               $18,500                      $21,600                           $16,000  

FOMC impact on the Yen

Note the following chart of the Japanese Yen and you can see the points at which the Bank of Japan intervened into the Foreign Exchange markets to knock it down and lower its value for the sake of their export market. One would be hard pressed to find a reason for the Yen to rally when the Japanese economy is so weak and its official interest rate environment is about as low as that of the US.

Still, the Yen has rallied on "Safe Haven" trades. Whenever traders were feeling risk averse, they would buy the Yen on the crosses along with the Dollar and sell everything else. To put a stop to that the Bank of Japan has twice intervened with rather dramatic results. Unfortunately for them, traders have simply used the intervention to come right back in and bid the Yen back higher basically negating the gargantuan effort required to derail it.

Now comes along the FOMC with its ZERO INTEREST RATE POLICY and it has basically the same impact on the Yen as did the BOJ intervention - it moves LOWER. The reason for this is that the liquidity party is a green light for the risk trades (why else would copper be at a nonsensical $4.00 pound?). In that environment, no one wants to buy the Yen so down it goes.

One has to suspect that the FED and the BOJ are closely communicating these days as the impact of monetary policy is working nicely for both of them as neither one particularly wants to see a strong rally in their respective currency.

Coming Soon - More PAIN at the Gasoline Pump

Unleaded Gasoline prices rallied off their lows with the inception of tensions in the Straits of Hormuz but that has now taken a back seat to the LIQUIDITY PARTY being thrown by the Federal Reserve.

Can we say, "DEJA VU!".

Get used to further pain at the gasoline pump once again thanks to our illustrious money masters who continue to throw both senior citizens and the average citizen under the bus in the name of jamming the stock market higher to supposedly bolster consumer confidence. Yeah, I feel extremely confident - confident that food and energy prices are going to resume their upward march once again thanks to these bozos.

Wait until you see beef and pork prices later this spring and summer. You ain't seen nuthin' yet!