"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


Friday, June 21, 2013

Gold Bounces off Overnight Lows, but no Conviction

Gold is putting in a "dead cat bounce" in today's session after setting a fresh low of $1268 in early Asian trading last evening. For those of you new to our trader's lexicon  - even a dead cat will bounce if it is dropped to the ground from a high enough point.

Look at the volume on the bounce higher however - it is miniscule. There is simply no conviction among the bulls to come wading in feet first and buying with both fists. A market that plunges $100+ in a single day is not normally going to see an abrupt "bout face" unless there are some unusual fundamental occurrences that negate the horrendous technical damage done to the gold chart.

I do not know how to say it other than this - the gold chart stinks to high heaven right now. We are getting some short covering due to shorts booking some profits before the weekend after a nice week's work but other than a few bottom fishers, there is no strong interest in owning gold right now among the institutional crowd and certainly not among most of the large hedge funds. They are short and getting shorter.

Same goes for silver although it did manage to claw its way back above the $20 level; barely, if only for a brief period.

We will have to see if any of this short covering and bottom fishing can take the price of either metal high enough to reach some important technical chart resistance levels above the market to trigger some further buying. Frankly I would be surprised if it does.

I do think that the selling we have seen hit the entirety of the financial markets is a bit overdone as I am not expecting the Fed to pull the plug on their QE program as some seem to have read into the FOMC statement and Bernanke's comments.  When markets are this highly leveraged, lopsidedly so, the carnage being inflicting on trading accounts and the subsequent margin calls always result in an amplification of price movement.  The bulk of the crowd is all on one side of equities and that can be seen in the extent of the downside movement in the S&P for example.

It looks however as if we are getting some two-sided trade in the Emini S&P futures in today's session so maybe the worst of the reaction in stocks is over. Once the bleeding stems, traders will then have some time to actually think about and reflect more on the comments of the FOMC instead of just reacting to every price tick.

The close today in the S&P will be critical but perhaps the response of traders come Monday will be more telling. If we see the S&P moving higher again and getting back above Thursday's high early in the week, that will be a sign that the "buy the dip" crowd is back. If however the index falters, especially if it violates this week's low, that would portend a deeper retracement. Every bit of this depends on just exactly how the majority interpret the latest round of Fed-speak when it comes to their QE.

Sad isn't it that the once proud US financial market system, which actually traded fundamentals has been reduced to a quivering hulk of jelly begging sustenance from its masters as the Fed.

The US Dollar seems to be the King of the World again although from a technical chart perspective it is stuck in a broad trading range of some 4 full points on the USDX; 84.50 on the top and 80.50 on the bottom.


  1. The US deflation monster is awakening with even the hint the printing spigots will be touched!

    Forget about jobs, Bernanke is outsourcing inflation, check Brazil!

    Loans, loans, loans need to start soon in the US

  2. Garry,
    Loans? Loans? The Fed is not going to start lending money. Currently they are funding Wall Street and the Bad News Bankers. You know, the ones that got bailed out and continue to steal all the money. The Velocity of money is non existent. Just stuffed in Jamie Dimons, Blanfein, and many other Wall Street thief's underwear. These guys won't part with any money to feed small business'. All they want to do is run up the Matrix Stock market. Good news is that the implosion may occur soon. Zero Hedge ran a great article on liquidity and how bad the implosion may get especially on the T yield which are starting to worry everyone. If they are not going to let anyone have a break then I hope that they get what they sewed. I know I am supposed to love my enemies more, but these guys are unbelievable. You would think as they took taxpayers money they would at least part with some of it, but clams they are. Having a real hard time accepting this phoney baloney bs. Sorry if I sound like I want to join Jim S. army and take the Fed.

  3. Hi Dan, i remember a long term chart (10 years) where the actual support line sits around $1260. From that perspective this drop (finally) to this area doesn't surprise me. But it should hold. Do you have a copy of this multi-year chart for your readers? Thanks.

  4. "Sad isn't it that the once proud US financial market system, which actually traded fundamentals has been reduced to a quivering hulk of jelly begging sustenance from its masters as the Fed."

    so true Dan, it says in the Tao Te Ching, written 2500 years ago, in a section on advice to rulers.... 'Force is followed by loss of strength... never take advantage of power'

    True then, true now, seems we never learn

  5. Marc Faber thinks gold is oversold short term, and would rather be in gold than in equities right now according to his latest interview on Bloomberg. He mentions also that he bought at 1300 and would buy more if it went down to 1200 and again at 1100 if it goes there.

  6. Dan,
    Like Jeremy, I too think you are at your best with your "quips" that cut deeper than any meat cutting knife. I had a long discussion with my dad, who is well read and has a Masters and a PHD. He advised me this: This economy is a modern day depression. Gold is being manipulated by the big bullion banks with the help of the Hedge funds. The banks are acting for Government similar to FDR's 6102 in 1933. In the meltdown, the Banks have become the enforcement arm for the Government. The Comex will fail at some point as all the gold gets liquidated and moves to wealthier countries. Bernanke has unleashed something that Joe Six Pack does not understand quite yet. As we see across the world inflation destroys countries (inflation, unemploymnent,civil strife). It is coming to America but they (Banks,Government,Military) will beat us to a pulp and like India (import regs, Central Banks not selling bullion to public) France, and others. The mining companies will consolidate and be taken over. This is the future. The only way out is if civil strife is joined by the military. Highly unlikely. So, that is his outlook. How do we combat this? It is plausible. The black market may hold the last key. Bernake along with the Big banks were allowed to destroy the country's small business. I know, I used to lend to them. READERS how do we stop the madness? How can we overcome them?

  7. Completely agreed.
    I am living far off the states, bit this is exactly what I am hearing here when I speak to people NOT being: *in the banking business, *extremely rich, or *involved in some internet-hype.
    all the others (i.e. 90% of thinking population) say they see - in contrast to what is written in the headlines - business dying and poverty creeping in to poeple being self-employed.
    God bless the banks.

  8. Jim, yes Faber, Rogers and other multi-millionaires with multi-properties around the world, multi bank accounts, multi safes and warehouses, companies, bullions, fields and farms can afford to average down gold every 100$ without caring too much wether or not they maximize their money on the short term.
    Is it your case?
    Of course, it's better to buy low and sell high.
    Yet, I'd advocate that price is less important than the trend, except if you are a very long term investor with deep pockets.

    Just buy the real phyz and stay "out of the system" with some of your assets and wait a few years without worrying about it anymore.
    With the rest of your assets or trading position, well, be dynamic and don't catch a falling knife too early. Gold is a colateral which can be sold when liquidity becomes rare and some must find cash. Who knows short-term exactly why gold is going down? This world is too complex and manipulated (including statistics themselves) for anyone to say that they know the reason why gold goes this way and where it will be headed the next month. Only long-term makes some sense in terms of Fundamentals. So, short-term...long live technical analysis.

    Updated chart :

    problem is that we broke down the median of the andrew's fork.
    So it aims at the mlh inf.
    If 1285 $ area breaks (support of black channel), I think we are headed towards the 1140-1200 $ area this summer (blue circle). Besides the MACD failed to cross which could be an additional bearish indication.

    Conclusion : on my radar, if 1285 $ fail to hold next week, gold is headed towards 1140-1200 zone short term (2 months) where it should meet strong support once more, at least enough for a good bounce. After that, if 1150 $ doesn't hold, as a long-term phyz investor, I'll start being depressed for good :)

    Have a nice weekend,

    1. Hubert - very sound comments there my friend.

      Trading gold in the futures market versus buying the physical metal as insurance are too entirely different things.

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