“Woe to the land whose king is a child and whose leaders are already drunk in the morning. Happy the land whose king is a nobleman, and whose leaders work hard before they feast and drink, and then only to strengthen themselves for the tasks ahead”. (Eccl 10: 16-17)


"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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Wednesday, May 15, 2013

Sell Stops Cascade Gold Down Below $1400

Bears have been salivating at reaching downside sell stops for a while now but had been stymied by strong physical buying of the metal which had kept prices supported. With the US Dollar continuing to strengthen, and with commodities in general seeing strong selling pressure, they finally got their wish in today's trading session.

Price fell through some initial support near the $1420 level which had held the market for the last few sessions but once that gave way, downside pressure intensified until bears took it down to near $1410. Just below that they hit their jackpot and reached the sell stops. It was those stops going off that knocked price through the psychological floor at $1400. That allowed another $10+ fall in the price of gold where some short covering and bottom hunting surfaced right below $1390.

I have noted the next level of chart support for gold. It is currently just beneath today's session low of $1389 coming in closer to the $1385 level. If that does not attract sufficient buying, price will fall down into the rectangle I have noted on the chart somewhere in the vicinity of $1375 - $1365.

I want to note here yet again how volume continues to increase during these downdrafts. This is not a bullish pattern. Bears are firmly in control until we see the volume shift along with the price action.




With the mining shares completely collapsing, there is really no other catalyst for bears to aggressively cover their positions right now other than booking a few profits. Like it or not, approve of it or not, the US Dollar is the strongest game in town right now as investors globally see the US as the best place to stash money. It is a pity that the Treasury International Capital Flows data is so dated by the time we get it but I would wager good money that the component breaking out the foreign money inflows into equities is soaring.

Either way, the strong Dollar is keeping gold buying in check. One thing I might note here - that same strong dollar is now beginning to impact US exports of agricultural goods.

It's funny in a perverse sort of way that the Bank of Japan, which is printing about $74 billion each month in an effort to stave off deflation is seeing that extra supply of Yen drop its currency into an abyss while at the same time, the Federal Reserve is printing an equivalent value of some $85 billion each and every month while its currency soars blissfully into the upper levels of the atmosphere. You tell me how to mentally wrap ones mind around this sort of perverseness. All I know is that Bernanke and Friends have concocted a new elixir and discovered the Holy Grail of Permanent, Pain Free, Prosperity. We really are seeing the very concept of "MONEY" redefined right before our eyes!

Incidentally, LUMBER made a FRESH SEVEN MONTH LOW today.... Homebuilding must be gangbusters right now... (note the sarcasm here).

11 comments:

  1. Thanks for the insight Dan.
    I have a good short position in to try and weather this downdraft.
    Hopefully this is the final washout...who knows how low it will go? Hard to handle but hopefully we are right in the longer term.

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  2. I have to admit..today I sold a position in a physical gold etf that I had bought back in mid 2010. This is something I thought I would never do.
    The price dropped to what I bought it for ...when you can get your money back in this market..I'm taking it. I will live to invest another day.
    So here is an investing lesson that I have learned the hard way, at one point I was up over 30%...did I take anything off the table? NO! When they say fear and greed rules the market they weren't kidding!
    I'm not worried about selling gold, after this washout there will be plenty of time to buy back in...probably at much lower prices.

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  3. Good Luck Dean,

    My fear was always that when the dollar starts to decline, it will be very, very, fast. Like the two day decent below the 1530 support, it did not take long to go to 1380 (two days). So I applaud you selling and breaking even. I am down, but this thing is so volatile. I may to just take a loss and wait. Currency devaluation by all the major sovereign currencies are both decreasing rates as well as devaluation market options so when sentiment finally wakes up and says "why are we holding US dollars" they are worthless especially when the bond market starts failing, then get in fast.

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  4. Through 2007 into early 2008 there was solid resistance for gold at about $700. After the price hit $1,000 in 2008 it fell back to $681 which is consistent with resistance turning into support. So it's clear that before the big run up in price the support was around $700 - specifically $681. The blow-off top in 2011 was $1923. [(1923-681)/2]+681 = 1302. It would make sense if we saw solid support at the 50% retracement of the big rise, followed by a sideways channel of (say) $1300 to $1500 for a year or two. That would give an opportunity to recoup losses by trading the channel. Of course if $1302 breaks then we need to consider the 61.8% retracement, which is $1077 or just above the resistance we saw in 2008. I have been trying to find an interview I read a couple of years ago where the CEO of one of the most profitable middle-rank goldminers said that he thought he would be OK because his gold was costing him $800 but he thought that anyone who was mining gold at a cost much above $1,000 would be in trouble. I can't find that interview - I wish I could.

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  5. Unbelievable !!

    Take a look at the charts on some of these
    XLY, HOG, DIA....need I go on?
    All of them almost vertical...anybody out there have a theory on why consumer descretionary is going parabolic?

    Any wild guesses how high the DOW will actually go?

    I have this feeling that we are seeing just the beginning!
    Am I missing out on a generational buy on the DOW or am I missing out on eventual pain and misery?
    My head is spinning!

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  6. Dan - glad you tell it like it is. Any fool can see gold is trading very badly now. It underperforms oil on both up and down days. It absolutely annoys me to hear Andrew McGuire and that crowd over-hype the physical story. Yes, it's important, but only a piece of the equation.

    Gold is trading like a commodity. We'll have to see if there is any follow through for physical demand. I suspect people will wait until it goes on sale again. Next real test is 1325. I'll be buying then. See you there!

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  7. The way HUI and Silver have traded, this bounce never really felt very strong. There won't be much interest in the metals until the equity market stops rallying. Great time for BRIC to load at the low.

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  8. The big bullion bs robber baron banks have slowly gotten to a even position in gold (shorts equal longs). They will soon start fleecing all the shorts (esp small investors). This is a thieves game. They own the media and all the punk writers trying to fleece the public. I cant wait until these bankers have to give up their bullion till their vaults run dry. Don't think it will not happen because it will. Nothing last forever, especially the large hedge shorties. Everyone who had certificates witn ABNro should run into their buildin with guns, rifles and demand bullion NOW. This corrupt system must fall. If it does not we will continue to get this type of bs governemnt. IRS/Bengazi where we leave our state employees to certain death and have progressive liberals like Hillary screaming why does it matter. Because it is honor. That is why. Hillary you miserable ____. fill in the blank from the days of SNL. That is what she is. Her husband is much worse as a fornicator, abusive child molestor, and other things. Why is this way, the country has no moral compass. Physcians cuttint the spinal cords. Hang the SOB

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  9. Soon the sickness will bring a true rebellion on people like the patriots of pur past. Give me liberty and a free society not bent on control, taxation and complete and utter incompetence. How did we get here. I am sick and tired of it. ihave written to th DOJ, the white house and expect a visit soon. REally, I dont give a shi... anymore.

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  10. "Bears are firmly in control until we see the volume shift along with the price action."

    One signal to stay out of the railroad while the bear train stays on course...and also one signal to re-enter the market at the right time.
    Thanks for reminding it.

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  11. Let us now focus on the packaging of the 100 gram bars. Since the 100 gram bars are mostly quite larger than their counterparts, packaging is an important aspect of it which also brings in the very important matter of protecting gold.

    ReplyDelete