As those who have been regular readers of this site know quite well by now, I have been very cautious in regards to gold for some time now. When a market continues to violate one chart support level after another, it is never a bullish sign, no matter what all the self-proclaimed experts are pontificating whether it be some backwardation nonsense chatter or "bullish COT" reports.
I have said it before and will say it again, speculators, particularly the large ones, aka, hedge funds, are what drive markets nowadays. When they are selling, it is never bullish. The only time it is bullish is when they are loading up on the short side and a market is not breaking down through support levels.
We might have just reached that point. I want to emphasize, "might" because I need some further confirmation from the price action. What I am seeing however is a market that keeps entering a zone that I have marked, "STRONG BUYING ZONE" and every time that it does, it does not stay in that zone for more than three hours time.
Note the following 60 minute chart and you can see that the moves lower into this zone generate high volume buying in which price tends to spike off of the worst levels rather than closing each bar down on the lows. That is an indication of heavy buying by some very strong hands.
We have had three occasions now since the first of this month that this level has held rock solid. it is evident that the bears have been unable thus far to break the price down through the bottom of this zone.
What I want to see to feel more confident is an upside breach of the top of this trading range that REMAINS ABOVE this level for at least 4-6 hours, preferably a day. I believe that if this occurs, we will begin to see some of these hedge funds start to cover.
If gold can get back above $1600, it will suggest that a bottom is in. The flip side is of course if this support level gives way. Let's hope it does not.
One last thing, gold was VERY FIRM today in terms of nearly EVERY SINGLE MAJOR CURRENCY. Whether it was Yen gold, Euro gold, Sterling Gold, Swissie Gold and even Aussie Gold and Loonie Gold, the metal was higher even as the US Dollar was sharply higher. That is very noteworthy. In the past I have spoken to the idea that if gold is moving higher in terms of most of the other major currencies besides the Dollar, the chances of the bears breaking it down sharply in US Dollar terms is greatly diminished. The opposite of course holds true; if the metal is higher in US Dollar terms only while it is moving lower in terms of these other majors, the rally is not going to last much longer.
What today's move is signaling is that gold is trading as a currency again and not so much as a Dollar related issue. Again, I would like to see additional confirmation of this besides just in the Yen (Yen Gold is on a tear higher). It is still a fact that regardless of talk about early cessation of the QE3 and QE4 programs, many of the Western Central Banks, and I am including Japan here in that sense, are employing their own versions of QE or have adopted monetary easing policies. While speculators are busy being enamoured of stocks, it is not being lost on gold as to what these Central Bankers are all doing to their currencies. Never in the history of mankind has so much paper currency been created simultaneously. It is a wonder that we are already not using the stuff to heat our houses instead of wood!
Let's see what next week brings us. At least the HUI has stopped going down for now!
Dan: I'm really enjoying your very sober and balanced advice of late. Fair play to you. Regarding the thrust of this article, I think you've pitched it exactly right: there are lots of eager beavers waiting to go long, but also waiting for confirmation. Far better to let the situation resolve itself before retail jumps into a potential mess.
ReplyDeleteOne very open, straight question: do you ever short gold? You clearly read the charts very well, and you're a trader. But you never mention shorting (even in the short term). If you'd followed your own analysis recently and shorted, you'd be doing very well. So do you short 'in private' or are you opposed to doing so for other reasons?
JdA
Jeanne - thanks for the kind words. I try to be as objective as humanly possible regarding any market that I trade in. It is the only way that one can survive in this business. As a trader, you have to go in the direction of the trend to make any money. It does no good whatsoever to be a "Johnnie One note" if you are attempting to make a living. AFter all, the goal in trading is to make money consistently, not to necessarily only be on one side of the market.
DeleteIn regards to trading gold - I do short gold when I believe the technicals warrant such. I like to trade in the direction of the longer term trend which still remains higher based on the monthly charts but shorter term short plays can be profitable if one does not overstay his or her welcome on the short side.
If gold does become as volatile as some of us are expecting it to become in the not-too-distant future, I will certainly trade in much smaller size. SWings of the nature that we are expecting can unnerve even the most experienced of traders. Antacids are not good for your overall health and extreme price movements will get the stomach juices going overboard to the point where they will eat a hole in your stomach if you are not careful.
Leverage is a monster that needs to be respected!
Best wishes to you,
Dan
Thanks very much for the straight reply, Dan. And good luck for the trading (we all need it at the moment..!)
DeleteJdA
" Never in the history of mankind has so much paper currency been created simultaneously. It is a wonder that we are already not using the stuff to heat our houses instead of wood!"
ReplyDeleteBut, Dan, it is no longer paper currency and one can not burn digital product to heat one's house.
your surveillance on the market is greatly appreciated here Dan, especially your caution.
ReplyDeleteHi Dan
ReplyDeleteYou mention that its the speculators that drive price. Looking at the disaggregated COT report categories, I'm confused as to who's a speculator. There's a category "Producer/Merchant" for instance. What is a Producer? As I understand it, this Category includes "Commercials" (the big banks - mainly JP Morgan) - surely they are Speculators, while Producers may not be? I take it the "Managed Money" category is the large hedge funds?
A well known commentator noted that about 1000 tons of paper silver sold on the Comex, right after the NFP report, took the price down only 45 cents, and that the big spike up thereafter was the result of "physical" buying at a fraction of the 1000 tons of paper sold off.
ReplyDeleteDoes this physical buying take place in London? If so, then how then does it work its way so quickly into the Comex paper market?
@ JAS
ReplyDeleteGood question!
Maybe the 'well known commentator was wrong. Or perhaps just halucinating.
This chart, posted by Gene Arensberg of 'Got Gold' fame looks like COMEX short covering:
http://www.gotgoldreport.com/2013/03/march-8-knee-jerk-reaction-comex-silver-.html#more