"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


Monday, February 18, 2013

Sterling Gold Consolidating

Sterling Gold, or Gold priced in terms of the British Pound, displays a chart pattern not unlike that which we have recently seen in US Dollar priced gold, prior to last Friday's sharp downside break.

It is in a consolidation pattern dating back to the summer of last year. Dips below the 1,000 Pound mark have been met with solid buying but the metal has not been able to overcome downtrending resistance. Note that the pattern is forming that same wedge pattern that we saw in US Dollar priced gold.

Note the Gold price in terms of the Swiss Franc, or Swissie Gold. The pattern also reveals a market in consolidation; however, it is now moving down towards the bottom of the channel that has confined price since last summer. Price near and below 1450 Franc has attracted buying consistently, so far.

See also this Euro Gold chart which displays a consolidation pattern much like the Swissie Gold chart above. Gold is probling the lower boundary of the channel noted and is moving towards the 1200 Euro region. Since last summer, buyers have surfaced in this area.

The reason I am noting these three charts above is because unlike the US Dollar priced gold chart, they have not yet broken down technically but remain in their consolidation patterns, although it is evident that they are currently weak.

The big question which many of us are asking is whether or not enough valued based buyers will surface in these countries/regions to stem any downside potential and put in place a floor of support. This is simply unclear at this point in time.

The European finance ministers are hoping that hedge funds will continue to move money into European equities as well as European area bonds. If they can herd them into these sectors, money flows into gold might be dented sufficiently to breach the downside support levels indicated on the charts. On the other hand, enough players might just be suspect enough of economic/finacial conditions in the Euro zone and in Britain to want to hedge their bets with the yellow metal. Again, it is unclear. If the gold bulls in terms of the Pound, Swiss FRanc and Euro are ever going to need to perform, it is right here and right now.

I would breathe a sigh of relief if they can push the Euro gold price back above 1270-1280.

I should also note here that while both the Yen and the British Pound have fallen rather sharply against the US Dollar, the Sterling gold chart is no where near as bullish as the Yen Gold chart. Yen Gold is evidencing a pause up at current levels whereas Sterling Gold is approaching the bottom of its range trade.

With gold currently experiencing weakness in US Dollar terms and having violated a strong downside support level, it behooves us to monitor its price closely in terms of some of these other major currencies to see whether this is merely a Dollar priced phenomenon or something a bit more widespread. If it is the former, the move lower in the price should find a footing sooner rather than later. If it is the latter, odds favor more downside in the US Dollar price of gold. Generally speaking, when the gold price is moving in sync against the majors, it is usually trending. When there is a divergence in its price action among the various majors, it normally tends to favor consolidation. Again, this is a general rule, not one carved in stone.

Time will of course make it clear to all of us.

One last thing - seeing that not much came out of this past weekend's G20 summit over in Moscow, we will have to look to the Eurozone to see what level the Euro must trade at in order to get all of them complaining at the same time. Right now it seems that any complaints about the Euro strength are confined to the Southern tier. Germany seems okay with it. If the Germans begin to make any noises then we will need to see how the Euro begins to react.


  1. Dan-
    Thanks as always. Appreciate your dispassionate approach. Oddly, I looked at these charts independently this AM--I think It was b/c of Gartman's reference to Yen - gold.

  2. Strangest times I have ever seen. To me, and I am but a layman, am dazzled.
    Stocks are almost at all time highs, yet, US GDP just shrank, and top line Corporate growth is non existent, and horrible news from top retailers from Feb?? Profitability HAS BEEN strong, but at the expense of capex, employee pay, benefits, new stores, etc.
    Europe is imploding, China and S. America seem to be doing ok (if you can believe their numbers), Japan is attempting to save itself through outright currency devalation. Everyone else is printing. How is this GREAT ROTATION supposed to occur? Currency devaluation and worldwide recession/depression yet they (Hedge Funds and Bank Trading Houses) keep shorting gold and gold stocks. Very Interesting Watson. I smell rats.

  3. Hi Dan,
    After selling when we broke the MLH inf of the daily Andrews Fork I drew (around 1650), I bought with a limit order on friday aat 1600.50 (I wasn't sure that "psychologicial round 1600 would be hit).
    Reasons why I bought : we may be at a convergence of several supports.
    1) Fibonacci 78% = 1597.
    2) target of the "balançoire" (in french) = 1600
    3) 1600 round number
    4) support of the red channel around 1590.

    We are below the Bollinger Bands.
    Everywhere I read analysis warning about a direct krach towards 1500 $ now that the lows have been broken.
    Ok, they were broken...so what?
    Is there a panic?
    No, sir.
    The trend is down, ok, but still in the red channel, i.e no panic, and the bears are meeting resistance and up corrections.
    So, my target is the previous Fibo around 1637.
    I hope the market can go up at least till that level.
    No reason to panic IMHO as long as the red channel is in place.
    Thanks for your daily updates, and 101% agreed about everything you wrote in your saturday's post about trading, futures, and road pizzas!!

    I do think though, that there is a place for trading gold on CFDs for those who don't want to be heavily leveraged on the futures markets, provided that they know how to trade, sell under resistance, buy on a support, manage their money and risk reward ratios, etc...else, forget it :)
    Best regards,


  4. As the pre-eminent trader/technician, Dan you always have my ear. Looking at the Psy-Ops play that is going on,
    I say NO FEAR, once you have taken proper precautions, is the way to go, hence this post on my blog.




  5. Ouch!!! I believe we are starting to reach a bottom in miners.Not a seller and I am looking to buy more. I started accumulating again in downward heading market. Not at all leveraged and yes have given some back to the 2009-2010 rally. With fundamentals in place and currency wars heating up I will continue letting the momo crowd fight it out. I dont have to sell for decade or two so this short term crushing will at some point be a distant well rewarded bad dream. At this point it is not a nightmare and hoping Dave in Denver has correctly estimated an approximate bottom.

  6. Dan,

    Based upon your knowlege of this market, given the existing fundamentals, how is the GDXJ:SPX defendable at all? Seems like all Juniors are currently on GOING OUT OF BUSINESS SALE!! They all must be violating every leverage covenant known to modern bankers. If the line does not stop soon it will go to zero, what does that mean? OR IS THE SPX FINALLY TOPPING? Something has to happen and soon, either a rebound or a huge consolidation period. Is there not a price for everything? Help very concerned.

  7. Here is an recent interesting analysis of Gold and Silver using Commitment of Traders reports (COT)


  8. Very concerned out forever..screw the masters of the universe, they will never ever get a penny all physical..screw JPM..and all others..forget it Dan..it no longer matters..Why should anyone invest in these markets..No ONe should,

  9. Silver reached its long term uptrend channel IMHO.
    Besides, its weekly MACD 9 19 6 is about to meet its propagation channel.
    Support zone on gold 1590-1600 is holding for the moment.
    Let's see if that's the end of it.
    Long now makes a risk / reward ratio interesting.
    Stop losses put as well :)

    1. woops...well, stop loss under last friday's lows activated. Better luck next time :)
      As we are piercing the red channel I'm following, maybe this means capitulation or at least, end of this down trend is soon?
      I'll wait for another occasion to enter the market down the road.

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