“Woe to the land whose king is a child and whose leaders are already drunk in the morning. Happy the land whose king is a nobleman, and whose leaders work hard before they feast and drink, and then only to strengthen themselves for the tasks ahead”. (Eccl 10: 16-17)


"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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Saturday, June 9, 2012

Gold Chart and Comments

I have provided an 8 hour gold chart today as it provides a very good glimpse into the technical composition of that market's recent price action.

Note that you can clearly see the solid zone of buying support extending from just slightly above the $1550 level on down towards $1520. It has been at these levels that strong buying has continued to emerge over the last month. I suspect that it is in this zone that Asian Central Banks are gobbling up the metal. Remember, they will not chase the metal higher - only the hedge fund managers buy high and hope to buy even higher before selling. By keeping an eye on this chart we can therefore get a sense of at just what level these buyers believe gold has "value". It is this sort of buying that provides a base for a market upon which it will eventually launch a rally.




For gold, that spark is not there just yet as the absence of an "immediate or forthcoming" QE event means that we lack the ingredient to make the dough rise. However, the continued ultra low interest rate environment, in many instances resulting in negative REAL rates of return, is strongly friendly towards gold as there is little opportunity cost in holding the metal with yields this low. Also, this feeds into the concerns of those who fear continued currency turmoil.

You can also see on this chart that band of congestion or range trade that was bounded by $1700 on the top and checked by $1620 or so on the bottom. Gold had been in that range beginning back in late February/early March with the top of the range retreating down towards $1680 as Europe worsened.

If you notice, this recent rally off the lows near and under $1550 ran right back into this former congestion range before encountering selling pressure from the bullion banks forcing a retreat.

It will take news of a QE launch to take gold up through the top of that former congestion zone and send this market into a strong uptrend.

4 comments:

  1. if the bullion banks and the fed are willing to execute naked short selling on a massive scale, how can we ever hope to see the price of gold rise higher than the upper level just mentioned. there clearly is a strategy in place by the anti-gold entities to keep gold in its place. if they have the power to perform naked shorts to whatever level is necessary to achieve their objective, what hope is there that the market could ever overwhelm that pressure that sits on the sidelines always ready to pitch in when they need to?

    ReplyDelete
  2. James,

    My opinion is that the bullion banks and fed need the COMEX as a vehicle to suppress price. Your logic is correct -- using infinite paper gold contracts, the price of gold could be driven below the true market value, however at a certain point, the market will realize that the COMEX has lost integrity and the market, instead of buying paper contracts will buy up all of the physical gold available. Once the physical gold is exhausted, the COMEX will no longer serve the purpose necessary to contain the price of gold. Under such a scenario, the COMEX would stop functioning as the price discovery mechanism, and to regain that position it would have to allow the paper price of gold to go higher.

    So the bullion banks/Fed have a choice -- allow the COMEX to become irrelevant or allow the price of gold to go higher. In all cases during this bull market, they have chosen the latter.

    This does not mean there will not be violent price swings.

    The bigger concern in my opinion is some type of price control if/when the price becomes disorderly to the upside. For example, governments could form an alliance to cap the price of gold or confiscate gold from private entities "for the greater good". Presumably, such a scenario would occur before repricing gold or before a major global financial restructuring.

    In the mean time, I think the COMEX is healthy. The problem now is genuine deflation because of the continued global economic crisis which requires more and more money printing to prevent collapse.

    Joe

    ReplyDelete
    Replies
    1. "In all cases during this bull market, they have chosen the latter."

      That is true, except in the last year. Gold should be a lot higher, and would be if not for the massive naked shorting taking place, always at critical moments. what hedge fund, or individual speculator would want to go up against that kind of firepower arrayed against it? all this is doing is allowing china to buy up all the physical metal at 20-30% below where the market ought to
      be.

      Delete
    2. In my opinion, I do not think so. Gold got as high as it could go before it ran out of buyers and exhausted a major up cycle. Remember that retail buyers like you and me do not move the market. Physical gold buying by China does not move the market. The market is moved by big hedge funds. When the continuity of thought is bullish, gold rises. In 2011, gold peaked after a very steep three year rise. Perhaps gold should be higher based on some fundamental measurement like a return to the gold standard, but based on the cost to dig it out of the ground, refine it, and bring it to market it was way, way overvalued in 2011.

      All bull markets need to cool off and consolidate after a major up cycle. The commercial hedgers did what they had to do, and the price fall is natural and healthy for the gold market.

      I am very much bullish on silver and gold, and I do not mean to sound like a bear or anti gold. I very much am on the side of buying gold, but once it stretches too far above its 200 simple DMA, it will usually correct and allow for buying opportunities.

      China has not bought all of the physical gold, and there is sufficient gold to keep COMEX open. When the physical supply starts to thin, like now, then a new up cycle will begin.

      Yes there is manipulation and the price growth is impeded, but the bull market is doing what bull markets do. A bull market draws in long speculators near the top and bucks those speculators off its back.

      Delete

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