"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


Friday, November 2, 2012

Gold Chart and Comments

Gold was on the receiving end of a bloody bear mauling in today's session as the downside breach of what had been a rock-solid level of chart support (courtesy of Far-Eastern buying) gave way in a tremendous avalanche of sell stops. Apparently the physical market buyers decided to step back and pick up their gold cheaper as they have come full well to know what happens to hedge fund long positions whenever a large contingent of stale longs meet up with the usual monthly payrolls number.

Suffice it to say, gold has now experienced a technical break to the downside and has some chart damage to repair. Just how far and how deep this correction will go depends on the willingness of those big physical market buyers to absorb the metal coming onto the market.

The level of chart support that provided an initial downside target once $1700 gave way was the $1680 level. It failed to stem the selling acting as an upside cap to gold during the aftermarket trading once the pit session closed for the day.

My analysis suggests we have a strong band of support beginning near the $1665 region and extending towards $1658. That will need to hold to prevent another drop this time to $1640.

ON the daily chart, gold is now trading firmly below all of the major shorter term moving averages (10, 20, 50 day) with both the 10 day and the 20 day having made bearish downside crosses below the 50 day. That means the posture of the market is now bearish. The metal is closing in on the longer dated moving averages. The 100 day comes in just below today's low at $1670 and should provide a temporary respite from the selling. If it does not however, the all important 200 day moving average comes into play. That currently is at $1666.

I wish to point out that the 50% Fibonacci retracement level of the entire rally from off the May low, at the $1664 level, is in very close proximity to the 200 day moving average noted above. That will tend to reinforce this level as an expected strong buying level.

As also noted above, if this level fails to hold the metal, then it will drop towards $1640 and just below. You can see both a horizontal support level that I have drawn going back to late May. Interestingly enough, the next important Fibonacci retracement level, the 61.8% retracement, comes in very near there at $1633. That zone, as far as I can see things currently, is the absolute bottom of this correction barring any change in monetary accomodation, something which seems highly unlikely given the tenuous nature of the economy.

I must repeat something I wrote earlier this week, namely, the US election could ultimately prove to be very influential on gold. I am of the firm opinion that should Governor Romney win, given his statement that he would not reappoint Ben Bernanke to the Chairmanship of the Fed, some traders might have an initial knee-jerk response to such an event by selling gold out of fear that he would appoint more of a hawk than the dovish Bernanke to that position. That being said, while the Chairman wields tremendous influence, his vote is just one of many on the FOMC. There yet remains many dovish voices on that committee and last I checked, the majority of them still seemed to be of the opinion that accomodative monetary policy, namely ultra low interest rates on out through 2014 and further QE3, will continue a change in the chairmanship notwithstanding.

One last thing about this market - taking a look at the intermediate term weekly chart shows the third failure of gold to best the formidable $1800 level going back into fall of last year. Taking out that price and holding it is the key to a fresh leg upwards to match the all time high. Once gold failed to clear this level yet again, down it went. While today is disheartening to many bulls ( to longer term oriented buyers of the physical metal it is an absolute delight) the fact is that gold is still in a RANGE TRADE and has been for well more than a solid year now. The top of this range is $1800 and the bottom of this range is $1530. It is just now approaching the middle of the range. It just so happens that the MIDDLE OF THIS RANGE IS $1665. Savvy readers will immediately catch the significance of that number when taking another look at the daily chart shown above and the support levels noted there.

Nothing has changed in regards to the longer term trend in the yellow metal; it is just marking time and meandering in a wide range for now awaiting a fresh catalyst to take it higher. I am of the firm opinion that we are going to need to see a CONFIRMED BREAKDOWN in the US long bond market before we get such a catalyst.

IN looking at the chart of the long bond you can see that is remains mired in a Range trade of its own. It has given a bit of a hint that the next big move will be lower, based on the series of lower highs (see the declining blue downtrend line) but so far support from 145^10 down towards 144 has not been tested. I maintain that once that level gives way, and I believe it will if Romney is elected (probably sometime into his second year in office) then gold will go on to make new all time highs. That is a good way's off however and a lot can change in the interim so we will continue to monitor economic and fiscal developments and hopefully react accordingly.

If Obama were to somehow dupe enough idiots to put him back into office so that he can finish his task of destroying and remaking the nation, then my thinking is that the economy will continue to sputter along with both gold and the bonds remaining in a wide range trade. I would see nothing coming from that quarter that would lead me to believe the economic activity will pick up sufficiently to generate a real fear of inflation amongst investors/traders. QE would then continue ad infinitum, ad nauseum, with periodic bouts of optimism giving way to periods of economic despair. In short, the insane volatility would continue wreaking further havoc to traders and investors as the nation plunges ever deeper into debt. At some point a currency crisis would then occur which would boost gold but oh my, at what dreadful cost!


  1. Dan,
    do you believe, that Rmoney could stop QE? The interest rates on US debt would rise - the Chinese are no longer dumb enough to buy it and have learned their lesson. Who should buy the debt at low interest rates without QE?
    And secondly: was Bush bad for gold? No. Financial repression began 2001 and it can't be allowed to end, because it would mean, that interest rates would begin to reflect the debt of the debtor. Growth is much to weak, consumers way too much indebted, to create another credit expansion boom that could blow the several decades old bubble up again.
    This is only possible with the FED.

    Im not US-american, but maybe the distance sometimes gives a more neutral picture: IMO it's the Republicans mantra, to be against more debt. But was Bush or Reagan reducing the debt?

    Therefore i also don't see how things should change, if this or that actor would be elected:
    if Obama wins, the parasites down would be treated better, if Rmoney wins, the parasites above, but both of them would continue to destroy the ants, the ones, who REALLY keep everything going: the middle class (the part of the lower middle class becoming bigger).

    Neither Obummer nor Rmoney will - and are allowed - to touch the REAL problem: money as debt based on the exponential growth of compound interest. That's the REAL mechanism to transfer all wealth from the laborious people to the money masters.

    I want to emphsize that i do NOT use the BS from wealth transfer from the poor to the rich. This is marxistic propaganda. Why should someone who doesn't work, become more prosperous?
    There are parasites up AND down (something leftist people don't seem to grasp):


    As long as the labarious ants do not recognize this, they will fall victim to the charade of the money masters and support one of the two sides of the same coin, while the fruits of their hard labour is taken away to the parasites.

    1. Just wondering if you are familiar with the concept of "the working poor"?

  2. don't you mean industrious and not laborious.
    a job can be laborious but the people that do that
    job are industrious.

  3. Thank you for everything you do Dan. I feel much better after reading your conments.

  4. With Obama showing consistent leads in the state polls in swing states Virginia, Pennsylvania, Ohio, Wisconsin I just cannot see Romney winning the Electoral College count. Can someone show me a way how Romney can win if the doesn't win some of those states? Even if Romney win Florida and Colorado.

  5. Hi Dan, re your comments "It just so happens that the MIDDLE OF THIS RANGE IS $1665. Savvy readers will immediately catch the significance of that number when taking another look at the daily chart" what are you eluding to?

    Apologies if I'm being dumb, but is it any more than the support at $1664.3 on the daily chart?

    Also do you see this move as a failure of three taps and out at the $1800 level, if so what does that mean next?

    All the best & thanks for your hard work.


Note: Only a member of this blog may post a comment.