Extreme volatility was the name of the game (ONCE AGAIN) in the gold market in today's session as it was reacting to all manner of crosscurrents.
First there was the payrolls or "jobs" report which took the market lower only to be met with news of the rating agency Fitch's downgrade of Greece to "restricted default" which seem to send the shorts into quite a frenzy in their efforts to cover and get out. Their buying took the market up off the lows bringing it back to unchanged on the session at which point fresh money came into the market keeping the price in the plus column for the remainder of trading. The result was that gold ended the day higher by nearly $13.
What is more significant is that the bulls were able to close out the week on a positive note after what amounted to a horrendous start to the week. Not only that, but price managed to recapture the psychologically significant "17" handle once again. All in all, a very good performance for the metal.
Take a look at the following chart and you can see that gold bounced precisely from the level it needed to on the technical chart, namely the $1680 level. Price spiked down through this level earlier in the week but the selling seemed to dry up, or at the very least was met with strong buying which appears to have been more of the case.
I would not be the least bit suprised to learn in next week's Commitment of Traders report that a rather sizeable block of bullion bank short positions were lifted this week. Now those traders will no doubt be selling back into this latest rally once again so we will need to see what we get early next week in Monday and Tuesday's price action to surmise the extent of their activity in the gold market Wednesday through Friday of this week.
The level near $1720 is the next resistance region on the chart. That is what stands between gold and another test of $1740. The latter zone is what held the price in check on the way higher earlier this month so before this market can hope to get another shot at $1750 or higher, the bulls will have to dispatch with that.
So far the downside support in gold seems to be very solid. Very active buying was seen at this week's lows. Should gold return to near this region next week for any reason, we will have to watch to see whether the same buyers become active once again. As long as they do, the market will hold. The longer it does so, the more the odds favor another period of sideways trade rather than any steeper selloffs or a more extended period of price weakness.
I should point out here the massive rally in the Dollar that took place today sent it on a close through the 80 level basis the USDX. It is pretty difficult to argue with the price chart which looks very strong right now. If the Dollar can continue to push through the resistance level shown, it stands a very good chance of making another run back towards 82 where it should encounter a decent test of its strength. A push past 82 that can be sustained for more than one session, will be very noteworthy.
Technicians will note that it managed to stay above the 50 day moving average; a bullish sign.
By the way, something that should not go unnoticed in today's session is the fact that with the Dollar up over 1%, gold was higher. What that means is that it moved higher in terms of the most if not all of the major world currencies. Euro gold pushed back above the 1300 level notching solid gains on the day as did Yen gold as well. This kind of strength in the gold market is indicative of a lack of confidence in paper currencies nearly worldwide. And why shouldn't there be any confidence when Central Bankers are all beating each other to death in terms of seeing who can keep interest rates lower than the next guy.
Even Brazil has had to join in this "debauch thy currency" movement with many of the opinion that the Chinese are preparing for the same with theirs.
The HUI managed to once again close out the week ABOVE the 500 level after trading down below it earlier in the week. Apparently the same buyers in the gold shares who have been doing so for the last year and a half, are still accumulating various gold shares on these bouts of weakness. The gold shares, while attracting good buying down here, have not been able however to extend their recent rallies. They are acting as if they are still looking for a catalyst but one thing is becoming more clear - those who are buying them are very strong hands.
It would take a weekly close below that support line shown to indicate that this band of powerful buyers has had a change of sentiment.
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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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