WOW! What a day in the precious metals complex! The entire sector was firing on all cylinders in today's session with the HUI breaking out above the recent swing high and generating solid buy signals across a wide number of the individual shares. If that was not enough, silver, which is the KING of the precious metals complex of late, smashed through $22, then $22.50 and then $23 before it set back. Meanwhile, the yellow metal took out a serious band of overhead resistance on its price chart as well.
Early in the session, gold was lower as the unemployment number brought on the talk of tapering once again. However, around mid morning here, it reversed course with many citing the rapidly deteriorating situation occurring over in Egypt as the catalyst. I agree with that assessment as events in the Middle East seem to be going from bad to worse. Brent Crude has certainly taken notice!
It also seems as if the unrest in that region has been an excuse for some to take some profits out of the equity markets as well. Incidentally, the US Dollar, instead of seeing a safe haven flow on a day like this, especially with the rising yield on the Ten Year which is now near 2.78%, ended up being the whipping boy today against a host of majors. The Swiss Franc definitely saw some safe haven buying.
I keep wondering if forex traders are beginning to grow concerned over the upcoming US budget battle and burgeoning debt levels once again.
When you get a day like this, with so many huge moves taking place ( even in the grains - more on that later), it is a sign that money managers are reallocating some investment funds and moving into and out of various sectors. With all the short positions we have seen in the gold market in particular, there is not a lot of exposure to the precious metals by this group compared to what we have seen at some points in the past. The technical showing has them not only covering shorts, but some are moving onto the long side of the market. THAT is exactly what this market has been missing for a very long time now. I will say it again and again - it is not the bullion banks that bother me all that much (they have been buying of late anyway and yes I do believe that they work to cap rallies) - it is what the large speculators are doing or not doing as has been the case for the metals of late and what they have not been doing is buying. It now seems that they are.
It is perhaps ironic that the big move higher in the metals has come just after news was released that famous hedge fund manager Paulson had cut this holdings in the ETF significantly. OUCH!
I want to mention here just in passing that this sharp move higher in gold has not changed the futures market structure as far as that backwardation/contango situation goes. The spreads remain tight with the August bid at the same level as the December and the October exactly 10 cents above the December. A friendly structure but not a full bore backwardation either. December remains at a 90 cent discount to the February 2014 contract and about a $3.00 discount to the June 2014.
Let's start with the star of the complex of late, and that is silver. One look at the chart says it all. Silver can now be officially labeled as having rallied over 20% off its recent low. For definition purposes, that is considered a bull market. It does not mean it is going to the moon; it does mean that the bear market is over barring any subsequent sharp price collapse in the metal. You will also notice that on the Directional Movement Indicator the ADX is now beginning to turn higher. It was rising strongly since early February indicating the presence of a sustained DOWNTREND. The line then turned down for good in late JUne/early July indicating that the downtrend was halted. That was followed by a period of sideways trade or consolidation. Now the ADX line is rising indicating that silver is in the incipient stages of a trending move, this time however, to the upside. As you can also see that is confirmed by the fact that the +DI (blue line) has now crossed solidly above the -DI ( red line) which is moving lower.
Downside support in this market remains near $20.50 which is also not far from the 50 day moving average of $20.25 and is also beginning to rise, albeit slightly.
More later - markets beckoning...
"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
Trader Dan's Work is NOW AVAILABLE AT WWW.TRADERDAN.NET