Last evening here in the US, while watching the gold price action, it was evident that the reports of strong physical buying spooked a fair number of weak-handed shorts. In watching the price climb, once gold poked its head above $1400, but especially $1402 or so, the stops got hit and up she went. Volume picked up as the stops were continuing to fire, until the market ran out of steam up near $1425 where it began to retreat.
That was the high point for the session. Once trading moved into New York and the PM Fix was over, with India and the rest of Asia now closed, bears were able to take the metal down below $1400 again before the pit session closed. However, in the after market it has been floating back above $1400 once again.
I would have liked to see this thing hold onto a handle of "14" but at least it closed firm even though it was down some $106 for the week.
We have some technical chart points now to work with on this market. Support is in the zone noted extending down from $1365 and below while resistance is last evening's high near $1425.
A couple of things can be said about this chart. First, the more ominous news - the chart is displaying a near picture perfect BEARISH FLAG FORMATION. (That formation is shown in BLUE). If this market were to somehow break support on the downside after showing a pattern like this, it would portend the possibility of another $200 drop before all is said and done. I shudder to think what that would portend however for the global economy because it would signal that the Central Banks and their money spigots have failed completely in the battle against deflation. If that were the case, the stock markets globally would implode.
Having said that, based on the type of solid demand mentioned this past week, I find it very hard to believe that this week's support zone will not hold. Again, if it does not, we are all in for a world of serious hurt.
The positive news from the chart is that the market has gone down to this support zone THREE TIMES this week and on each and every visit down there, it has encountered more buying than selling! Bears surely want to break it lower but they could not.
The other thing is that the HUI showed some signs of life this week after getting the snot beat out of it nearly nonstop over the last two week period. If this index can manage to somehow claw its way back above the 300 level, I would feel much more confident saying a long term bottom is in on that chart. That remains a good ways above the current level however with its close just shy of 270 this week.
Again, I strongly believe that since the mining stocks led this market lower on the way down, they should be the first to turn if this market is going to head back up. Why? Because it will signify the RETURN OF INVESTMENT MONEY into this gold market.
"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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