"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


Wednesday, January 9, 2013

Gold Stymied at the 200 Day Moving Average

Yesterday gold bounced off its support level; today it bounced off its resistance level, which is the 200 day moving average. As you can clearly see on the chart, that line is holding the market quite firmly for the time being.

Hedge funds are using this level against which to sell rallies while large physical offtake is providing the base of support from $1640 on down.

The market is stuck in a range for the time being with neither the bull nor the bear camp gaining a decided short term advantage for now, although the chart suggests that the bears have the intermediate term advantage.

Unless or until the bulls can take out the 200 day moving average and then get the price back above last week's high, the support level is going to be in danger if physical demand slacks off one iota. Once again it will be up to that side of the gold equation to try to put a firm bottom in this thing especially with speculators in a selling mood.

One of the things that is happening is that the recent price action has gotten the large investment banks, which issue regular analysis for their clients as to future price direction for many markets, have definitely changed their tune in regards to gold. Many of them are now lowering their previous price forecasts for this year.  That in turn has led to money outflows from gold and from the gold ETF. As a matter of fact, bearish option bets in the gold ETF are now outnumbering bullish bets based on the put to call ratio.

That goes to prove that price action makes market commentary.

Incidentally, this is one of the main proofs, let's call it exhibit A, that all traders/investors should make their investment decisions based on their own analysis of the technical price charts. These guys are always their most bullish when prices are soaring and their most bearish when prices are falling. In other words, they prophesy AFTER THE FACT. By learning how to properly read a price chart, you can be out well BEFORE they come out with their prognostications or IN before they switch to the other side and begin raising projections once again.

If you want to have another reason why gold is struggling some right now, as is silver, take a look at the following chart of the overall commodity sector. Notice that it too has failed to take out and remain above its 200 day moving average and is now sitting precariously right above a major support level.

While we wait for the inevitable inflationary consequences for all this Central Bank liquidity injection, for the time being, inflation scares are non-existent. Whether the monetary base is falling or the velocity of money still remains low, it is difficult to make a CURRENT CASE for inflation as long as this key index is so weak on the chart.

While interest rates on the Ten Year had recently risen to over 1.95%, they have now fallen back towards 1.85%. We will have to keep an eye on that key indicator or potential inflation concerns, as well as the long bond which has popped lately and recovered somewhat from its beginning-of-the-year selling avalanche. I mentioned previously and want to reiterate - the monetary masters will not tolerate rising interest rates and will do what it takes to prevent that.


  1. Apologies for offence caused, I say the stupidest things sometimes, I respect your views on owning Gold and I'd happily talk about technical price action with all of you. I am not invested in any assets so I can hardly say I know what I'm talking about, but I'm a good observer and a good learner.

    Anyways, once the Treasury bond bull market ends, how much money would be freed up to go into commodities or equities, and out of these two assets, which of the two would fare better and why?

    1. I'd humbly say that gold should overperform, given hystoric cycles such as Dow/Gold ratio. As long as Dow/Gold ratio is on a long term downdtrend, I think gold would overperform.
      The last low in Dow/Gold ratio show we still have a fair margin.
      Now it's only T.A, so id doesn't mean it WILL happen, simply it's an indicator I'm also following, and as long as it's in a long-term downtrend, it makes the probability likely.

      On short term gold trend, I'm watching the possible faling wedge (in black attached) on gold, and the andrew's fork attached for silver (also valid for gold)...as long as we hold the recent lows (62% Fibo = 1637 and 29.71 on my charts) and the MLH inf of Andrew's forks, I'm optimistic.
      Of course it's my very personal analysis of things, which I'm sharing without lecturing anyone about what will / should happen.



    2. PJAdams;

      Thank you for your gracious apology. It is a rare thing nowadays to run into anyone who can publicly do such a thing. It shows character.

      On the bond bull market - it is really difficult trying to call an end to this thing in the sense of having an immediate reversal - every time it looks as if we are going to see the embarkment of an actual bear market, the bonds find support and bounce higher, just as they did this week.

      That being said, with interest rates practically at zero now, it is a pretty easy call to say that they are not going to go any lower.

      With the Fed basically supporting the bond market by spending $40 billion each month to buy Treasuries, it is more than likely that bonds will tend to gradually move lower but with a lot of range trading in the process.

      Both commodities and equities will benefit as a result. This is partly behind the current move higher in both as traders look to move out of low yielding bonds and into the higher yielding potential of equities and commodities. The key to this continuing is the mind set of an expected recovery in the global economy. If that mindset shifts, money will flow back into bonds.

  2. I fail to understand why the 200-day (or any other) moving average has any value. All I hear is that it only has significance because other market participants use it /believe in it, which is a circular argument with no vestige of statistical validation. Quite apart from the fact that their are several ways of calculating moveing averages (linear, exponential...) which will give different results. Even if the xxx-day moving average may have served as a trend change indicator in the past there is no statistical basis for its use in predicting future prices.

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