“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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Friday, August 30, 2013

Gold Uptrend Pausing

Recent action in gold during the latter part of this week is suggesting a pause in the fledgling uptrend. The metal seems to have run into a heavy band of resistance near the $1440 level and is setting back.

Gains during the early part of this week, tied to concerns over the situation in Syria, have been fading as the refusal of the British Parliament to go along with the Obama administration's plan to lob cruise missiles into Syria took some of the safe haven bid away from gold. Traders/investors have read this to mean that an imminent strike was less likely.

Truth be told, the President has foolishly put himself into a box and has destroyed US credibility and prestige by his inept comments about a "red line" and his bellicose comments since then. This has introduced an element of uncertainty into both gold and crude oil prices which has recent buyers of both heading for the exits and booking some short term profits rather than risking losing them.

That has resulted in some short term sell signals in the metal with both indicators shown on the chart below suggesting a waning of upside momentum. Again, this does not mean that the longer term move higher in gold is finished; it does mean that unless the bulls are able to quickly reassert themselves and take control of the market by pushing price through this very stubborn band of overhead resistance, price will more than likely drift lower to see at what level dip buyers are interested in coming in. Losing psychological support at $1400 today and that "14" handle was not helpful to their cause.

Right now, without a strong catalyst from the situation in Syria, many are hesitant to chase the metal higher and are uncomfortable getting too aggressively long at current levels, especially with some reports circulating that physical offtake has slowed down a bit due to price sensitivity. Seasonal factors do still favor the bullish cause but it may take some further move lower in the metal to bring the physical market buyers back in larger numbers.

Keep in mind something I wrote earlier this week - gains in the price of gold due to geopolitical concerns do not tend to last long unless there is a worsening of the overall scenario. When news or rumors first surface about such things, the price of gold tends to quickly reflect the worse case scenario that traders envision based on that current set of information. Unless that changes for the worse, any lessening of concerns generally results in a very rapid retracement of price gains tied to the original story.

How much of gold's recent gains are tied to the Syria situation are not quite exact but it appears to me that the break out above $1360 can be attributed to it. This means we could see gold retreat back towards that level unless we do indeed see missiles flying very soon.


A concern that I do have about the gains made this week are also from a technical standpoint due to my reading of the Commitment of Traders report. We had a very sizeable amount of short covering in the "Managed Money" or Hedge Fund category, much more so than we did new buying from that same category. I cover this in detail in the Metals Wrap interview with Eric King over at King World News so be sure to listen in to that.

A quick point about this however - we need more than short covering to sustain this uptrend. Gains tied to short covering are very quick and very powerful at times. However, once that panic buying has finished, unless there is SUSTAINED NEW BUYING TO TAKE ITS PLACE, the market will run out of the thrust it needs to maintain those gains.

What this means is that Western investment demand for gold must not falter. That will be evident IF and ONLY IF overhead resistance above $1440 - $1450 is vanquished.



13 comments:

  1. Thank you Dan. If you have time could you please take a look at the silver chart too? The weekly shooting star looks very negative for the metal.

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  2. I suspect over the next month or two it will be a bit of a lottery with taper yes or no and US debt ceiling, Syria and Egypt for good measure. No doubt big moves in metals and all markets stock and fx likely. Opportunity for trading with a restricted pool of funds to be safe.

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  3. i still think that gold hovering around 1390/1405 is pretty decent, i thought it would test lower levels on friday, but yeah i think it could do so next week if theres no attack on syria (the UKs withdrawal and a G20 meeting in russia next week could postpone this)...i wonder how low it can go though before it goes back up and tests and possibly breaches 1440/1450...im hoping 1370/85 area is the lowest it goes and i really hope it doesnt go lower than 1350...anyhow, about to listen to Dans KWN chat, ..i just heard art cashin's and i swear that was the best art cashin interview ive ever heard...

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  4. Damn good letter and thought process, Dan. BTW, as you alluded, in early Sept '80, and Iraq invaded Iran over the weekend, gold topped Monday at $725, a secondary failure top from the Jan highs of $850. Have a good Labor Day weekend; steve in sparks

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    1. The more I read you Steve I see what you say is backed up with knowledge from watching gold for over thirty years. What will it take for gold to become bullish? Those of us who held gold for the last years have had a comeuppance. We are not overconfident(at least I am not). Anything but, yet we see the system collapsing around us and cannot grasp that gold will not be stronger than all other currencies. The problem is gold taking centerstage could be awhile.

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  5. I guess from the comments it could be expected that without a syrian bombing gold could be lower. Although why anyone would have to sell gold because a country is not going to be bombed is beyond comprehension. However, if the expectation is extremely bearish, and gold is not lower, it could be a defining moment and a monster up day. However, below 1540 is still the main problem for the bull, and will have to be overcome.

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  6. For one thing Concord, gold needs TIME to get itself sorted out; have a good Labor Day wknd! steve in sparks

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  7. Thank you for this very good post for investment market. keep sharing.

    http://www.avapartner.com

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  8. "That has resulted in some short term sell signals in the metal with both indicators shown on the chart below suggesting a waning of upside momentum. Again, this does not mean that the longer term move higher in gold is finished; it does mean that unless the bulls are able to quickly reassert themselves and take control of the market by pushing price through this very stubborn band of overhead resistance, price will more than likely drift lower to see at what level dip buyers are interested in coming in. Losing psychological support at $1400 today and that "14" handle was not helpful to their cause."

    So, Dan, I am paging back through the posts to review the lessons on this indicator. I find Aug 2. And I find July 31.
    The latter has this, "This particular indicator, which I detailed a while back on the site here is showing that the downtrend has definitely stopped. That is evidenced by the continued downward progress of the ADX line (dark purple) which is heading lower from a lofty 47 reading. Remember, a rising ADX indicates the presence of a trending market, either up or down is immaterial.

    As far as the two directional indicators go, the red line or -DMI remains above the blue line or +DXI using this particular time frame for reference. This tells me that for right now the bears are still in control of this market and the downtrend has the potential to resume if any downside support levels give way.

    If however the bulls can power through that overhead resistance, this indicator would more than likely generate a buy signal."

    So, I bought what for me is speculative but able to be held for a long time if it goes sour: some as the downtrend ceased (according to ADX), some more as the blue line crossed above the red line (a "buy signal") and some more as the ADX confirmed a reasonable uptrend. Also, unfortunately bought a little bit as we got above the 1400 handle. I did not have a plan to sell at some major resistance - which is what we hit. Now it appears that I should be looking to sell a bit on a bounce JUST IN CASE THE ADX says the trend dies. I had rather thought that hedge fund short covering would make this a no-brainer win for me for quite a while. But I misunderstood. But as I said, I can hold through whatever.

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    1. For those interested in these indicators, see also July 13 which, I believe, is the original Norcini post on these indicators as a way to TRADE (not invest) based on trends rather than on reports of massive physical buying in Asia and especially not on the COT reports.

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  9. Peter; take care when silver/gold ratio blows out one way or the other, especially over a 3 day end of month deal; stand aside is my choice; steve in sparks

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  10. How much do you believe South African labour issues (strikes and/or companies locking out workers scheduled for tomorrow at the earliest) will affect prices for gold and platinum ?

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  11. Re: Ag.

    Tuesday's ( post Labor day) sharp up move in Ag ( not resoundingly confirmed by Gold), based on media hype about a coming WW GDP and Industrial turnaround, was in my humble opinion ( wise or stupid , the jury is out) a trap laid by the bears to suck in unwary. I feel strongly that a big drop in Silver prices is in store for Sep/Oct period. Last week's DSI numbers confirm the opposite of what they read in June/July time frame before the big move up in Silver . I am stocking up ( averaging in) on ZSL in the 6 handle ( Reposted from comments on previous blog)

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