"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


Thursday, February 23, 2012

$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.


  1. DN,

    Many Markets Approaching
    Short Term Highs
    and sell signals.

    Looking for 1805 Apr Gold Tuesday

  2. Hot money came pouring back in, but - at least for silver - the move has not been confirmed higher by Dr. C or the CCI (even though the CCI closed above 600). Gold has underperformed, so any rally there is to be expected.

    I think today's action is a few things:

    1) Hot money rotating back into PM's

    2) The cartel were simply overrun by today's action and caught off guard.

    3) The pathetic DXY is cratering, and EUR/USD keeps moving up in an attempt to goose the equity markets.

    4) Asia was bidding up the action again.

    5) The cartel had no cover for an all out bear read.

    The real test will be what happens after the next bear raid or two. Does the hot money head for the hills, or do they keep bidding it up? You know damn well the cartel is going to shake the silver tree hard in the next few days, the first chance they have cover to do so. Let's see what happens after that.

    1. Hi Willydog,
      Silver has not broken out yet, as Dan posted above - got to get above 35.50 and stay there. Sure the cartel will try at some point to make these markets behave - and that's just the point - the bulls are so brow beaten that they don't dare step out of line. I think we are seeing something else - a withering market where judging by open interest on Comex the paper markets are slowly shrinking. A kind of "musical chairs" with alot of people getting very nervous when the music starts playing. I think the perma-bears are the ones reviewing strategy. That was some blip after the Minutes from the Bank of England! These guys are on an ice floe in springtime and they know it.
      Jim Sinclair makes an excellent point in his last interview. HUI (although he did not mention by name) or products like it did not exist before. Yesterday I looked up the list of stocks composing HUI. If "these guys" can short at will an index, think about what that does to the underlieing stocks! At some point these guys are going to be surrounded by a proverbial Burning ring of Fire. "What goes around comes around."

  3. Dan, thanks as always for sharing.

  4. Dan, you are truly a gentleman and a commodity scholar. We really appreciate it. Have to admit. I was so tempted a few schekels went gold stock ways a few days ago. Really hate to be late for a good party, always better to go early rather than chase premo returns late. Anyhow, oil is now at $108, so heck might as well start to hedge a bit. Have to admit, after this post, I am very tempted to now getting a bit more aggressive. The Cartel and their covered shorts are starting become running scared. We will see.

  5. I would love to see another run towards 18 handle, then, pull a bit, let it cool, then head for new high by Mid march. Political winds have to begin to shift if gas prices continue to climb. Wow, it is happening and by election day, enought calamity will begin to show itself.

  6. Dan, upbeat and go get'em bulls. I like the change of weather, sounds good.

    "Gold bears have their work cut out for them."


  7. Round and round we go. Sometimes I feel I am in the play "Waiting for Godot" - and he never comes. Or as I just listened to the lyrics of "Should I stay or should I go?" Tease, tease, tease. Or watching DXY "Sailing into the mystic" - why isn't gold kicking in? Maybe I should never look at the markets on a Friday. Do you really think "they" would allow a bad print for the weekend paper? It is very nice of Jim Sinclair to think that "they" just want to keep gold from going up too quickly, for the Common Good.
    Will the First Notice Day for March Silver change something?
    So many unanswered questions, yet the outcome seems so clear.
    Better start building my Ark with gold for ballast. Perhaps not well known to many, after the Last Supper, Exodus 12, the Israelites demanded from the Egyptians (you can fill in here the example of your choice) objects of gold, silver, and clothing - verse 35. Did I say the Last Supper? Obviously this meal was from a different era.

  8. Gold will explode past $2,100 this year and silver past $50. You can also buy other hard assets like oil or farmland investments.


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