"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, January 11, 2013

Gold Chart - Update

Gold gave back a goodly portion of its torrid gains from yesterday in today's session. In spite of the weaker Dollar, it was hit with a fairly good wave of selling. Noteworthy however is that it did end the pit session ABOVE the 200 day moving average after having fallen being this level at one point during the trading session.

The price action continues to reflect the uncertainty abounding in the minds of many regarding gold's future. I will not be convinced that this market is going to undergo a sustained move higher until it clears that solid blue line near $1698 and preferably until it gains a handle of "17" in front of it. While the close, particularly to end the week, was at least NOT BELOW that 200 day moving average, it is not enough to turn the technicals friendly yet.

Clearly traders are selling rallies in this market as it works within a defined range trade although it is disappointing to see it unable to at least climb back above the $1690 level before moving back to the bottom side of the range. It was unable to even gain the $1680 level before the selling started.

One thing to note - the COT REPORT is telling me that there is a growing number of hedge fund short positions that were established in gold BELOW the $1650 level. Those positions are under water. The key for the bulls is to push price high enough to cause some pain to the shorts; enough to force them out. That is why it is imperative that the resistance level noted on the chart is conquered. Failure to do so will give these losing short positions a new lease on life.

Downside support remains intact from $1640 on down towards $1626.

Summary - more of the same boring price action in gold  but for at least this week, the bulls managed to eke out a minor victory. Whether they can build on that next week is anyone's guess right now as it seems for all practical purposes that the hot money is flowing into equities for the time being. The Commitment of Traders report indicates the loss of speculative interest in gold, and silver, for the time being. That will need to change if these markets are going to get anything sustainable to the upside.


  1. Dan, I appreciate your analysis as always and thank you for communicating your valuable insights (for free!) derived from your extensive experience.

    My question concerns moving averages - as I posted a couple of days ago. Here is the issue again:

    I do not understand why the 200-day or any other moving average has any predictive or other value. I have researched the topic extensively in the internet and read 2 books (Edwards & McGee 1948; Kirkpatrick & Dahlquist 2009).

    To paraphrase what I have found (which for me is intuitively correct): the 200 day (or any other) moving average only has significance because market participants use it/believe in it/may have found it to signal a trend change under some circumstances (which could mean: pure chance). This appears to be a circular argument devoid of statistical validation.

    Also, there are many ways of calculating moving averages (simple, exponential, geometric, linearly weighted...) which will all give different results.

    Even if the “xxx”-day moving average may have served as a trend indicator in the past for some stock or commodity, I have seen no statistical basis for its use in predicting future results. I have read blogs where the author swears by the "65 day" or "155 day" or some other MA, which hardly increases the credibility of the tool.

    I can understand support and resistance levels because they at least have a connection to actual trades.

    Best regards.

    1. Great question Jacques. I look forward to hearing Dan's response.

      And thanks Dan for your insight...as always.

    2. "I do not understand why the 200-day or any other moving average has any predictive or other value."

      I don't know about statsitics, but from years of empirical experience, some movering averages are sometimes good indicators.
      But what is TA, if not a sum of indicators?
      I mean, you could ask this for absolutely every TA indicator, from MACD though RSI, etc...
      And yet, I feel without "statistical" evidence that those indicators are helpful to mark potential inversion points, etc...
      - daily ema15 works a lot to indicate the end of a correction into a trend.
      - andrews forks are sometimes (in a range market mostly) quite useful
      - and what about the MACD 9 19 6 and the strategy of 123 MACD on its axis? We don't even talk about prices anymore here, but on a buy/sell signal given by an MACD crossing a line.
      And yet...those signals are helpful, I can tell you.
      So why pointing finger specifically at the ma200? (or any other). They are, as many other indicators, used differently in different market conditions (just as the golfer chooses the most appropriate tool at a given time, for a given place), to help the trader find the best entry / out points.

    3. The question is really what is the significance of the 200 day moving average or any other number? What is inherent in calculating that number that drives buying and selling other than mass psychology, i.e. everybody takes the same cues... This would make it somewhat of a self fulfilling prophesy even though it would be a valid indicator under that circumstance.

    4. Jacques, Hubert and all;

      Thanks for the comments on this.
      All I can tell you is that somewhere along the line, the 50 day moving average and the 200 day moving averages became useful measurements as to the longer term trend of a market.

      As far as predictive value, one can use 10 day, 20, 40, 50, 100 and 200. Some folks like other numbers to use but the simple truth about all of them, no matter which particular day moving average one looks at, they are merely gauges of whether a market is trending higher or trending lower.

      Over the years, once a market dips below the 200 day moving average, especially if the 50 day moving average crosses below that 200 day ma, traders have tended to sell rallies.

      Enough people have done this long enough that now the moving average has sort of taken on a life of its own. Did you all notice how the price action this past week or so tended to revolve around that particular moving average? I will grant you that it is sort of weird but it is what it so.

      Here is the deal for those of us who are traders and want to be successful at it. Whether or not we think something is goofy or has any merit to it, we have to look at things through the spectrum of how OTHERS are viewing things. Generally speaking, there are more of "them" and there are more of "us" and if "them" are using it to move money into or out of a market, then we need to understand that and act accordingly unless we are prepared to suffer losses in trading.

      Once the "thems" start buying dips then the "us's" can go along with them.

      In other words, don't fight the trend but learn to respect it.

      Hope this helps. Good trading to you all!

  2. http://www.zerohedge.com/news/2013-01-14/it-begins-bundesbank-commence-repatriating-gold-new-york-fed

    Maybe that will help kick start some physical demand!


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