"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, July 26, 2013

Gold showing more signs of Resiliency

Gold was under pressure for most of the session today as the weakness in crude oil and most of the commodity sector - some of which was related to news out of China that their authorities were forcing curtailed manufacturing production - tended to undercut any inflation fears.

After the close of the pit session when the only thing that was open was the screen trade, the metal slowly garnered additional strength and began pushing higher. As I type this, it is now $4.00 higher on the day, a push of some $11 off the pit session close.

That, plus the fact that the HUI managed to claw its way back higher also towards the end of the session, is certainly constructive price action as it takes away any downside momentum edge that the bears had worked so hard to obtain here on Friday. It does seem that the usual Friday selling is appearing but enough players are willing to wait for this selling to make its appearance and then move in and ambush the shorts. That is certainly a change of pace from what we have been accustomed to seeing.

I am of the view that it is going to be difficult for the gold bears to take the metal down and keep it down UNLESS THE DOLLAR COOPERATES with them by moving higher once again. Today, was another day that saw a strong wave of dollar selling - this time accompanied by lower interest rates in the US Treasury market.

At this moment, for whatever reason, the Dollar seems to be running out of friends. Keep in mind that the recent strength in the Dollar was due to a couple of factors.

First was the rising US stock market in a low interest rate environment. Foreign money has been flooding into the US in search of yield and the US markets were the best game in town as far as many were concerned. All that foreign currency must be exchanged for US Dollars with which stocks can be bought and that has contributed to upward pressure on the greenback.

Second was the rising interest rate environment here in the US. Again, in a global economy in which many investors are starving for yield, the thinking has been that out of all the major economies globally, the US was perhaps the only one in which interest rates could be expected to move higher. The others were stagnant. That translates to more foreign inflows and more currency exchanges this time to be used to purchase US debt.

This week something seemed to change in that regards. My own suspicions are that traders are coming back to focusing on the upcoming circus of watching the US argue whether it should increase the size of its national debt faster or slower. Notice, I am not even talking about trying to reduce the damned thing.

This same impasse is what we went through late last year when the government was running up against the federal debt limit. Here we are right back there once again. I believe this is spooking those who might otherwise want to buy Dollars to invest in US Dollar based assets.

As long as this sentiment continues, and the Dollar moves lower, gold will garner dip buying support. If the Dollar were to somehow re-embark on its upward journey, gold would see more selling pressure.

As you can see on the gold chart, the price is oscillating around the zone created by the 40 day and 50 day moving averages. Bulls cannot take it out of the top of that zone yet but neither can the bears break it down. However, with the 10 day moving average turning higher and the 20 day as well, the technical momentum is beginning to shift more firmly in favor of the bulls.

Next week will be important then. If the bears cannot break it down early in the week, there is a good chance that the metal is going to break overhead resistance as some of these more stubborn shorts are going to begin looking to exit. We have already seen quite a bit of hedge fund short covering in this market based on the recent COT reports but there is still a fairly large contingent of them hanging in there and selling into rallies.  That crowd is a pure technical analysis based one and if their computerized black boxes tell them to start buying, that is exactly what they are going to do.

I would say that as long as this week's low near $1297 does not give way, the bulls have short term control of the market.

I also want to note here that gold is back to knocking on the door of that very same level from which it plummeted $180 back in June when Chairman Bernanke started pretending he was suddenly a hawk and was boldly proclaiming his Tapering talk. Of course we all are keenly aware of his morphing back into the supreme dove of the Fed with his now famous "for the foreseeable future" comments in regards to the length of the current bond buying program.

Either way, the $1360 level is that level from which gold collapsed and here it is, a month or so later, and gold is right back up there as if nothing happened. That is why this upcoming week's Fed watch will be a key for this market.

One last thing to watch for next week, and I stated this in an earlier post, is the delivery process for the August gold contract and its subsequent price action. We will be watching to see whether it runs higher in price than the deferred contracts but even more importantly, whether the front of the board takes on a backwardation structure or not. If it does, $1350 should give way easily to confirm that and then $1360. If not, then we can put that to rest for a while again.

The mining shares are tracking the movement in gold quite closely this time around. The HUI is not breaking down but is holding steady and is trying to build up some steam to see if it can press higher. The key to a trending move in the HUI lies above the 290 level. Until then the shares are moving higher off a bottom that appears to be very solid and progressing into a range or consolidative type trade. I am sure that those long term holders of the shares are relieved to see some of their net worth recovering!


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  2. Dan, thanks for you balanced insights as always. Would you agree with some of the explanations put forward here (sorry I am a novice trying to get to grips with it all)?:


    1. Mr. Sunshine;

      Thanks for the post - no, I do not agree with the article because I do not agree with their definition of backwardation. I explained that last evening in my post about that topic. These guys continue to confuse the basis with backwardation, which is a futures board structure that has no relation to the spot market.

      The spot market is the cash price and the relation of the cash price to the futures price is THE BASIS, not backwardation. Basis can be positive or it be can be negative.

      Then again, we live in an era in which the meaning of words is so damned twisted that truth more often than not has to go begging looking for friends.

      The GOFO rates are important; however,that has nothing to do with backwardation as it is a function of the physical market.

      Like I keep saying over and over again, the price action on the futures board will confirm any tightness of available supply or not. If it does, fine... if it does not, that too is fine. Either way, it makes no difference to me as a trader. Supply and demand will always be reflected in the futures price.

      It is ironic to note however that the Comex is only rigged according to so many gold bugs when the price of gold goes up, even if it is hedge funds selling and not bullion banks, who always get the blame even if they are the ones buying! Never do you hear a peep out of many of these when the price of gold is soaring higher.

      Look, the Comex is what it is - those who buy the physical metal should care less what it is doing, especially if they believe it is always rigged no matter what gold does. Traders such as myself however, have no such luxury. We have to play the cards that are dealt us and complaining about it does not put one cent in our pocket.

      And yes, for the record, I do believe the feds have a vested interest in keeping the price of gold under wraps because gold is the direct competitor of the US Dollar. That being said, the barrage of selling that knocked gold down from $1600 to under $1200 was hedge funds! How pray tell can it be hedge funds who are manipulating the market when the price goes down but not manipulating the market when the price goes up!?

      Hopefully this makes some sense to you.


    2. Mr. Sunshine;

      My apologies.... in typing my response to your post I made a typo in my haste to get these things done...

      here is what I wrote...It is ironic to note however that the Comex is only rigged according to so many gold bugs when the price of gold goes up, even if it is hedge funds selling and not bullion banks, who always get the blame even if they are the ones buying! Never do you hear a peep out of many of these when the price of gold is soaring higher.

      Here is what I meant to say in that first sentence...

      It is ironic to note however that the Comex is only rigged according to so many gold bugs when the PRICE OF GOLD GOES DOWN , even if it is hedge funds selling and not bullion banks, who always get the blame even if they are the ones buying! Never do you hear a peep out of many of these when the price of gold is soaring higher.

    3. Hi Dan,

      Thank you very much for taking the time to respond to my question and you have explained it perfectly and again add balance to the overall picture. It's important for non-traders like to me to hear balanced opinions on the gold market. It seems to be a highly polarized debate with people on one side who call gold investors idiots (and every other name under the sun) and those who seem overly evangelical in relation to the metal and its virtues. For me it's a protection of my wealth against the destructive forces of an unsustainable & global debt bubble led by a political structure that just wants a continuation of the status quo, one which is corrupt to the teeth (never mind clueless).

      My avg buy-in price is around 1400, so watching the price action over the last few months has been unnerving to say the least. What worries me the most, was the action back in April and May where the price plummeted at such an alarming pace. That was hard to stomach and seems counter-intuitive to the events in the back-drop, like Cyprus and the 7-yr German repatriation, it easy in that scenario to side with the tinfoil hat brigade, something just smelled very wrong with the gold price (and still smells wrong).

      Please keep up the great work, its a really brilliant website and I enjoy reading it every week despite the fact I am not a trader.

  3. Hi Dan,

    I almost wish you had a "Donate" link but i know you seek no remuneration and i understand why.

    This is just to say thanks for the Noble effort.
    It's the good fight and i'm very appreciative.

  4. Well, one thing is indeed for sure..next week won't be boring, with the FOMC, GDP, and latest jobs data.

    What would really spice things up is if the metals can gap right above the old broken (mid June) support at the Monday open.

    The daily charts look like a 5 day bull flag...so if its going to break higher..it'd make things a lot easier for the Gold/Silver/Miner bulls, if its done Sunday night in Asia.

    Have a good weekend :)

  5. Dan I will be forever grateful for finding your site. I hung onto gold since Nov 2013 at 1720 by following the so called experts, getting out at 1590 early 2013. Had I only known of you then and not just for the last 3 months. I am actually quite stunned by the realization that most of them were talking their book. One would expect honesty from those who want honest money.

    I predict your site will grow exponentially as many come to realize it's a place to go for the unvarnished truth about precious metals.

    Thank you for your considerable efforts to educate about the workings of commodity markets, and the PM's in particular.

  6. Dear all,

    daily gold chart :

    - last time we met résistances (1490 $, then 1420 $), the bears stubborny held them for many days until we stalled. This advocates for caution as long as 1450 $ is not breached.

    - yet, some factors are different! Last times, the Bollinger Bands were not both going up as they do now( bullish). Also, the ma20 was not going up as it does now (bullish). So, if we still have a heavy zone of resistance above our heads, I'd say that the bulls are attacking it with better conditions and better technical environment than the two previous times.

    Conclusion : prices are still vulnerable under this resistance of 1350 $, especially under the median (red) of the Andrew's fork. BUT they are Inside a short term upward channel, above the ema15 going up, above the ma20 going up, so it is anslo an environment where bulls can defend the 1300 $ area and add up to their long positions without taking much of a risk (stop loss under ma20?). I don't see a guarantee that prices are in an uptrend yet, but at least, bulls have now a card to play with some supports in immediate vicinity. Should those supports break though, and we will be back into trouble.

    And to repeat what I think about this blog once more :
    1) a 100% free blog
    2) an expert trader giving very relevant information
    3) an interactive blog where members can answer
    4) a trader who is interested in both technicals and Fundamentals.

    I know but a few websites such as this one. Congratulations!

    Don't be angry with the fundamental expert investors who recommended to buy gold at 1750 $ and above. They were right to warn us about the possible consequences of a systemic event such as dollar collapse and hyperinflation. They are right to keep warning about the possibility of such an event, right about recommending you to own some physical gold as a safety and insurance against the worst. The only websites to be criticized are the ones which are always long gold based only on T.A criteria. I'd recommend haing a regular look at jsmineset for example in terms of fundamentals regarding the economy.

    Have a nice weekend,

    1. Edit : sorry, at first sentence, replace 1450 by 1350 of course.
      "This advocates for caution as long as 1350 $ is not breached."

    2. I second the kudos above: #1) --> #4)

  7. "The bullion banks are still massively short of physical gold."
    Egon Von Greyez, KWN.

    Is that right?

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  9. Dan,

    You noted on KWN that spec/hedge fund guys are starting to be willing to buy the dips, which wasn't certain to be the case. Well, I suspect one of the big factors behind this is that faaaaaaar more hedge fund managers understand the blatant BS and massive manipulation that has been going on than they admit in public or even privately, to colleagues. Sure, the lion's share of hedge fund money is algo driven. Nevertheless, the global macro guys and others, at this point, can't help but see the contradiction between fundamentals that remain screamingly bullish (other than price trend itself for a period of time in the past few months). They saw that the bullion banks switched to net long. They're smart enough to know what unprecedented negative GOFO 15 days running means. They recognize that Indian policy makers are freaking out not just because of high current account deficits but because their central banker counterparts in the west are telling them, "do something" because the West doesn't have the gold to meet Indian demand at the margin.

    I could go on, but you get the point. THAT's why, counter to what would normally happen after a waterfall crash, where one would normally expect a longer period of technical repair and constant selling into rallies by those burned, we are in fact seeing the opposite. How fitting. The fundamentals never changed. This entire period since Oct. 2012 was nothing more than a facilitated down draft, culminating in the April 12-15 drive-by shooting by central banks, and punctuated by the June 20th attack onward.

    While it's true that the precious metals markets are not under total cartel control, and not all downdrafts are caused by the cartel. It's most certainly true that like a good conductor over an orchestra, the central bankers hang out on the side, attacking to generate key technical signals in order to move greater near-term monies controlled by hedge funds to play to the cartel's tune. Never mind "don't fight the Fed." In the gold and silver space, the hedge fund guys (both algo-driven and global macro) play by a "don't fight the cartel" mantra, whether they realize it or not.

    Been following your work for years. Thanks for all the wonderful insights!

    Eric Dubin
    Independent buy-side analyst

  10. KWN is at it again with predictions of epic short squeezes and rocket rides in gold price and the DOW collapsing ...I mean really...it is embarrassing. I used to recommend that website.


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