The surge in money flows pushed gold and silver sharply higher with Silver leading the gains (as we have said repeatedly - Silver will outperform gold anytime the RISK trade is back on) as it is currently trading near $29.60, up some 6% to start out the New Year. It still remains below $30 however and until it does, stronger hands are going to look to sell silver rallies.
Gold is acting very impressively as it has been able to push through the $1600 level and maintain its footing over this psychological resistance. A good finish to the day (needs to stay over $1600) and it has a good shot at running to $1620 where stronger-handed shorts are going to be waiting for it. If the bulls can absorb that selling, then this thing has a real shot at pushing all the way back towards $1650, which will be the indicator whether or not we can get a trend higher to commence. A short term bottom is in however - now, we will need to see whether the metal can build enough buying momentum to kick it out of a range and into a trend.
There still remains enough of a contingent of traders who remain very leery of bad news out of Europe and until that number dwindles down further, some are not going to be convinced by one day's trading gains, even though those gains are strong.
Aiding the cause of both metals is the recovery in the HUI which has managed to get back into that year-long trading range bounded by 600 on the top and 500 on the bottom. It seems that some of the same funds that were accumulating the shares last year came back in late last week and continued buying this morning. That is a good sign that the bulls were able to thwart a huge bear raid and force some short covering by frustrated shorts as the flows into the sector did not disappear as they had been hoping. The price action is telling us that the same big buyers of the shares are still bullish and see value when these things move lower. The big question in my mind is whether or not they are going to be able to recruit sufficient allies to their cause to really enable a change in the trading range pattern which has defined this sector for more than a year now.
Part of the rally in the commodity sector is being fueled by a sharp rise in the crude oil price as Iran jawbones more nonsense about shutting down the Straits of Hormuz. Let them try as such an event, while it would disrupt world oil flows, would affect their economy far worse. What else are they going to export - pistachio nuts?
I might be a bit more nonplussed than some by all this chatter as I remain very skeptical that Iran would be able to sustain a closure of these straits for very long. My guess is that the Iranian leader needs to gin up local support to take the mind of the opressed Iranian citizens off of their pathetically lousy economy.
