"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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Friday, February 15, 2013

Gold loses Support

Gold bears have been salivating for nearly 5 weeks now over the prospect of setting off the avalanche of sell stops that had been building below the support region marked on the chart starting near $1640 and extending to $1630. They hit them and more today setting off a selling cascade that also nailed the sell stops just below $1620. That was enough, along with some brand new short selling, to take gold down towards the psychological support level at $1600. It then briefly penetrated that line but managed to claw its way back up as short term traders rang the cash register after this week's fall of $60+.

The pit session close was a good $10 off the intraday low but in the aftermarket gold continued to attract selling pressure and was pivoting around the $1606 level for most of the late afternoon. The last 30 minute or so of trading in the stock market saw that sector begin recovering off the Wal-Mart email fiasco news and as it did, gold began to drift higher. Prior to that it had moved back down towards $1604 again.

I mentioned earlier this week that a strong break of support on good volume would turn the trend indicator, the ADX, into a trend mode and that is what it did. Note on the indicator that the negative DMI (red line) has exceeded its previous peak and is now moving towards the next peak made near mid-December of last year. +DMI is also workly steadily lower confirming the move while the ADX line is now rising indicating that a short term trend lower is in effect.

Gold will need to recapture $1640 at a bare minimum to turn this indicator friendly and push out some weak-handed shorts but more than anything, $1665 - $1670 to get any serious large scale short covering started. The 200 day moving average comes in near $1664 and that will serve to attract selling for the time being.

Right now the story remains the same - the Central Banks of the West (Japan is included) have managed to pull off one helluva feat by corraling the hedge funds out of commodities (and gold) and into equities, the only game in town to capture any decent yield on investment in this pathetically low, near zero , interest rate environment that they have created.

As far as downside in gold goes, today's low will serve as the initial level of chart support as handle of "15" will serve to attract some value-based buying as it has been a while since we have seen that price. If the market cannot hold there, I see some light chart support near $1585 or so. Below that, $1560 and then $1545.

The HUI looks beyond pathetic. Barrick announced that they will be selling off some non-productive assets and properties, etc, to streamline their operations and reduce costs. That is a very good sign that some of these mining CEO's are getting the message from the market: "Get your financial house in order and get costs under control so that you can return value to stockholders or else...". It is a pity that it has taken a beating of this severity to wake some of these guys up. One last thing - be selective about which gold companies you want to own. Make sure that management is serious about running a tight ship.


  1. Dan, do you follow the physical market? I understand today's action was paper only and unsustainable.

    Also, do you follow the work of Eric De Groot on the positioning of traders?


    1. I've been following Eric's A-B transition and diffusion index, his work also ties in with Egon Von Greyerz stating that the current weakness only had 2 more weeks max to go two weeks ago.

  2. Great gold analysis as usual. Any commentary for us silver bulls. We took a beating as well. Nothing like 10's of thousands of contracts getting dumped all at once to get the ball rolling.


  3. Let them keep pushing the metals prices down. I will continue to accumulate. Make the miners suspend exploration and limit production reducing supply. Let the whole mining sector go into maintenance mode, while they further push down metal prices. In the mean time all the fundamental will continue to strengthen, like unsustainable spending and money printing. Then when the bottom occurs prices will rebound to levels in my opinion are that unimaginable also probably destroying the fiat currencies to boot!

  4. Hi Dan, Probably not useful info for a leveraged futures trader, but the default 14 period weekly ADX for gold (StockCharts.com) is well below 20 and shows minimal response to the current selloff, and the same ADX parameters for HUI are actually near levels that have occured toward the end of trending moves in that index during the last three years.

    1. Power Corrupts; Hi there.

      thanks for the comments. I am showing a different reading for the weekly ADX than your data on Stockcharts is yielding.

      The ADX has been stuck in a meandering motion pattern denoting a range trade but recently has begun turning higher on the weekly chart as well as the daily indicating a trending move is beginning.

      That does not mean that the market MUST continue to sink lower; it merely means that the intermediate term trend on gold is lower and that rallies are going to be sold unless a clear signal otherwise is generated.

      This market will need to get back at least above $1640 to give the bulls some wind at their back and above $1660 to spook out some hedge fund shorts.

      So much depends on the attitude of these hedgies towards the world of equities.

      Long term trend on gold (MONTHLY time frame) is still higher but even that chart reflects that consolidation between $1800 and $1550 - $1530 on the bottom


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