"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


Wednesday, October 9, 2013

Gold Stuck in Limbo

It cannot get into heaven and it does not yet appear to be headed down into hell. So it goes nowhere bouncing up and down, without any apparent rhyme or reason. In short, trading gold right now is a complete waste of time unless you are a glutton for punishment or have the absolute shortest of time spans before pulling the trigger on an ultra short term trade. Translation - unless you want to scalp this market, leave it be until it makes some sense.

I still feel that the intermediate and even the short term trend is down but with the sort of wild intraday price swings it is currently experiencing, there are better opportunities elsewhere to trade.

It does seem as if there is a large enough contingent of dip buyers who are trying to keep it levitated above $1300 to make it tough for the market to actually break and stay below that psychological support level. Based on the current action in the mining shares however, odds favor a breakdown of that level sooner rather than later in my view. While the HUI did manage to close near the high end of today's session ( some of the individual stocks that comprise this index actually closed in the green), the chart pattern on the HUI still looks atrocious. I would want to see some improvement in the miners before feeling any positive vibes toward the actual metal.

It was rather comical reading the comments today from those who were foolish enough to try offering reasons for the inexplicable. First was the news that Yellen - Ms. Dove of Doves, will be heading the Fed. That was viewed as friendly towards stocks and somewhat towards gold. Then the market seemed to focus back on the partial government shutdown and upcoming debt ceiling battle and that brought out the forces of deflation. Then we got some employment numbers from private firm ADP. "Go this way and that way and this way and that way".

When the FOMC news hit the wire gold was all over the place as traders tried to make sense of the oracles who sit on that committee.

Some FOMC governors wanted to taper; some did not; some were concerned about the Fed's credibility; some were concerned about this and some were concerned about that. Some wanted to taper before year's end. All of this is moot in my view because what some may or may not want is rather immaterial in my view. What is not immaterial and what will ultimately have the final say is the economic data coming our way. I repeat, it is difficult for me to see them tapering anytime soon based on the anemic, miserable state of the US economy.

Back to the charts only briefly for the reasons explained above ( it is stuck in a range trade).

Price remains stuck in a very broad range between $1280 or so on the bottom and $1340 or so on the top. Within that broad range is a secondary range with $1300 or so on the bottom and $1320 or so on the top. Bulls have no chance of getting anything going until they clear $1340 and keep the price from falling back below that level. Bears have no chance of getting anything sustained to the downside until they push through $1280 and prevent price from recapturing that level.

The current bias is negative based on the indicators presented with those favoring the bears. Additionally, volume on up bars is lackluster reflecting the lack of bullish enthusiasm.

Simply put, I am not sure how much longer this will continue but until one side or the other grabs the ball and runs with it, we appear to be stuck in limbo. Hopefully something will change soon and we can get some sort of decent trend, even if it is down to at least escape this nauseating go-nowhere - do nothing market.

What I am watching is the slide in crude oil prices along with lower gasoline prices. That is certainly not contributing any upward pressure on the overall commodity complex in general which continues to slide lower. It is difficult to see gold managing any sort of lasting rally as long as this index drifts to the downside.


  1. Screw the charts. The U.S. Fed is using everything (million$ and million$ of taxpayer $'s) in it's power to suppress the metals and prop up the fatally ill US dollar. It's just a matter of time until it all falls apart. I'm really surprised you never ever discuss manipulation Dan. Its getting old. It's so dirty it's sickening to those who want to protect themselves by investing in real money.

  2. twippers;

    what is the point of discussing the manipulation of the gold price? The facts are that it is not bullion bank selling of gold right now that is leaning on the gold market but rather it is hedge fund selling. I do not know why that is so hard for those who blame every single move lower in gold on the bullion banks to understand.

    The bullion banks sell rallies; right now, based on the last COT reports that we had, the hedge funds were selling while the bullion banks were buying.

    For we traders, anyone saying "screw the charts" has a death wish for themselves. You cannot ply a trading profession unless you know how to read a price chart. Why do you think I spend my valuable time trying to teach these things for free?

    Answer - so those like you can understand what is happening and why and can protect yourselves.

    1. Dan,
      could you please explain to me, how on earth a hedge-fund would dump 8000 gold contracts in one minute in illiquid trade before the US opens?
      This doesn't make sense. Such a trader would be fired immediately.

      Or why should a hedge-fund have the interest to destroy the chart technicals?

      This behaviour cannot be explained with trading for profit.
      This trading is clearly aimed to destroy trust into Gold. And it's not only practized on the downside. They also push the price with gigantic market orders of a few thousand contracts up in a minute and the next day or two days later, these contracts are sold the same way creating ridiculous rectangle charts.

      You say yourself that trading this is ridiculous. Everyone else sees it that way. But strangly the big banks, meeting with the US president, are absolutely convinced, that gold must go down, while the US is printing money faster and more than ever before?

      It's so obvious what is going on here: the US-Dollar is losing his hegemony and they are doing everything to hide that!

      But claiming that profit oriented trading would be behind such a ridiculous trading in illiquid trade, is not logical. If this would be profitable, we would see this kind of "trading" in other asset classes, too.
      So easy to smash down the e-mini in asian trade, but nobody does that.

      Two years ago the central banks of the bankrupt nations clearly began to manipulate Gold:
      More QE - Gold crashes.
      Devaluation of the Swiss Franc - Gold crashes.
      Yellen nominated and says that MORE can be done by the Fed - Gold crashes.
      The EZB creates 1 trillion for the banks - Gold crashes.
      Private deposits in Cyprus are seized as a model - Gold crashes.

      If you say that this was free market behaviour, then you should explain, how in the world anyone can make money by doing the OPPOSITE of the market forces. We increase the dollar supply - Gold drops! We destroy the last international safe heaven currency teh CHF, Gold drops!
      A record harvest in corn - Corn soars! Ofcourse, because hedge funds are buying...

    2. Dan , I dont know what to think anymore , if it was manipulated it wouldnt be this obvious , if we are missing something , and i m going nuts trying to figure out what the hell is it . Perhaps Goldman call ? their CEO met with Obama a week ago ... I dont know , if they dump it now after taking into account

      the bad economic data
      the no taper in september
      the no taper in october
      the Janet Yellen for president
      the fact that this situation in congress + warnings from China would grant gold at least 1320 !
      the fact that the USD has been dumped in the last for the last 3 years
      the fact that the DOW has lost 7% in the last 7 sessions

      then we must be missing something ... I know the charts looks awful , but hell ! what do you expect we just had the mother of all bear markets for two years now ... are charts that important ?? , is gold discounting massive deflation around the corner ?? , and if so , why is the stock market rallying ??!!

  3. Dan - absolutely. When faced with reality, i'm surprised how few want to smell the roses.

    I thought silver had broken out two days when it strongly moved above $22.10. Managed to place a long order right at the top! Going to keep the order as it is small. l hope that prices fall strongly so l can buy aggressively at lower prices to average out my price.

  4. Dan,

    Thanks for the great blog. I have never missed your articles ever since I found you.

    I have a question regarding volume. When gold was falling the first half of this year, futures volume was quite high, but then it suddenly dropped. In July and August for example volume was much lower and you attributed this to short covering. There was little fresh buying.

    In late August, gold turned around again and started falling but ever since then, volume has stayed the same. It did not rise like how it was the first six months. What do you make of this stable-but-low volume?

    Thanks in advance.

    1. Whiskers;

      Trending markets tend to have stronger volume than range bound markets. The reason has to do mainly with the nature of hedge fund buying or selling which takes advantage of a trend to PUSH in the direction of the trend. The hedgies and their computers are good at making money in trending markets and thus feel confident and that shows in the volume. They suck however at sideways markets and get chopped to shreds. Many of their computers actually take them to the sidelines in markets with no trends and thus you will see that show up by the decline in volume.

      The more recent pattern of lower to stable volume has more to do with UNCERTAINTY and confusion over Federal Reserve policy and decisions. Many are simply hesitant to get overly aggressive because of the fickle nature of the FOMC of late and thus the reason for the caution or lack of Strong Conviction....


  5. I don't believe this can go on much longer , the bombing of the gold throughout the year has been ridiculous , the fundamentals are there . Nevertheless , and as Dan says , charts are important , if you look at them long enough you start seeing a lot of things . IMHO , all this drifting is getting old , we cannot forget how very tough for a gold bug has been since April , the MSM has massacred us , it was all about gold not going anywhere . Well , now mid October , the trade has gotten mega crowded ( just see the squeeze on the 17th sept ) If I was short gold I d be at least as nervous as if I was long , this is new if you think about it . Shorts have been making easy money non stop for 7 months now ... things are more balanced now , the upside risk is getting bigger , seasonally speaking shorting gold here is not wise to say the least , then we have all this shenanigans in Washington that everyone has discounted is going to be alright , and if they agree anyway , so what ? raise the debt ceiling ?? that's suppose to be bullish for gold right ? and finally the FOMC , October taper , yes , no ? well does it really matter , we have Yellen coming strong in January ready to do anything it takes . Gentlemen , this is not June , and gold is not trading at 1700 bucks . You can listen to Goldman , or you can listen to your common sense , before shorting gold here , I would short a hundred other things such as any biotech name you can think of , or many names in Nasdaq that have multiplied by 100 in the past few months ... I am not saying you should short the market because I believe it could easily go higher , but if you are looking for downside risk , I can find many places other than gold at this point . I read something very true in this blog before , the problem with gold are the people who got burnt , and now are trying to trade it , short it , well good luck . I look at the chart , and what I see is a huge fat bear about to go to sleep for a looong winter , well , be careful with the bear , but look out behind , because a massive bull may be about hit you and when you realise you probably find yourself in the hospital trying to figure out whats left and whats right .

    1. I am not sure if gold is going to rise much unless some major currency eg USD or Euro is in trouble. For now USD is looking quite strong relative to most world currencies.

      And there is little inflation in the US. So why would anyone want PMs!?

    2. Instead of endlessly speculating on "nothing" (because what you think about is just your opinion and doesn't make the market move), remember :
      1) volatility is ebbing in a market, which is driven by cycles of high (trend) and low (range, squeeze) volatility. Now on the short time units, we are in low volatility. The market is coiling. The market is accumulating energy for a move. The longer we remain in this no man's land, the higher the probability of a strong move afterwards. So why speculate? Just have a break and wait for the market to show you the way it chose, be it down or up, and follow the trend when it starts. Right now, there is no trend.

    3. the problem to that is that one day you realise the trade is on , and you have missed the first third of the upside , you hesitate , wait , and then you ve missed half of the upside , then you decide thats it , this is the one , you must be in , and it makes a 30 to 40 % retracement , and stops you out ... you need to have the pulse of the market , and for that , to pay attention , you need to be in , thats my opinion .

  6. The USD is soaring out of it's bottom range, so gold will continue to go down from here and find a new lower trading range. That's what's always tricky about these things.
    No gold bull until sentiment changes, and right now sentiment is at all time lows, if not lower - if that's possible. Gold won't move back up until every last gold bull is wrung out, shaken and stirred. That will happen at $1000 or less.

  7. prophet , there is not such a thing as a gold bull , we are called gold bugs , very different , gold bugs never go away , trust me . If what you refer is bullish sentiment sentiment , you can look it up , there are a couple of charts out there you should take a look at .

  8. As Dan has made clear, all the back and forth doesn't matter: "what will ultimately have the final say is the economic data coming our way. I repeat, it is difficult for me to see them tapering anytime soon based on the anemic, miserable state of the US economy." You've summed it brilliantly, Dan!
    Just listened to a video of Dr. Paul Craig Roberts and it provides very clear and succinct wisdom. Other nations dropping bond purchase will not do anything as the Fed will just print another trillion$ or two and buy the bonds.....but once other nations lose faith and confidence in the US$, the game is over. This is a very credible source and he feels the Fed can't win and just a matter of time. A long 46 minute interview but worth the time to view IMHO. This guy was near the top of the treasury group under Ronald Regan and seems to be on top of the issue. view at:

    1. Chuck;

      Yes, that is so true what Dr. Roberts has stated. The Fed will continue to enlarge their balance sheet as long as they need to. Remember when we were all marveling that it was approaching $ 3 trillion. Now it is well over that number and continues to rise. What is to stop it from going to $4 Trillion or even $5 Trillion. Quite frankly, nothing! The only thing that will stop it is when confidence is lost in the US Dollar. Then the party stops. Trust me, I do not wish to see that day come because of how painful it will be should it happen. Our way of life here in the US as we know it will come to an end.

      We have fools running our nation. The Fed should have ended the funny money party a long time ago and let the stock market sink and take the medicine that the economy needs to ultimately heal itself. They refuse to do that however thinking that by propping up the overinflated stock market they can keep consumer confidence high and that will eventually filter through to the actual economy. That is a pip dream as even the most stalwart fans of the QE and the Fed are beginning to realize.

    2. I find it hard to separate the idea of US bonds with USD $ being different.
      (Your lungs stop breathing, but your heart stops a little later, then your brain...)
      If the oxygen is sucked out of one, the other follows. Unless it is a weekend at Uncle (Ben) Bernies.

  9. Dan,

    Thanks again for the great blog, you have been very helpful in deciphering technicals and other fundamental market trends. I wanted to point out that the majority of the public is becoming too preoccupied with the Fed and its monetary policy leading to inflation. This may be true in the long run, however, the money printed by the Fed does not make its way into the economy unless the banks lend it, or govt spends it (measured by velocity).
    Fiscal policy is being overlooked right now as the government drastically cut the budget deficit or spending from last year. This is like turning down the pressure on the water hose and is highly DEFLATIONARY bc our economy now relies so much on govt. spending. Europe did the same thing last year with austerity and they went into recession 6-8 months after the spending cuts took place with stocks crashing to 2009 lows. Our spending cuts (sequestration) took place @ 6-8 months ago. Since sequestration, stocks have blown off. The writing is on the wall.
    That being said, I am the biggest gold bug of them all! But like Jim Rogers said the price will probably fall from here until it makes a final bottom as will most commodities due to margin calls. The tricky part part here is whether the U.S. will default on its debt. Deflation increases defaults and a default would crash the dollar. If there is no default, fiscal and monetary stimulus will most likely follow sending gold & commodities higher. Now is a good time to hold cash for further buying opportunities. I, as with Jim Rogers am not selling gold but not buying either. Looking for further weakness.

  10. Also Dan,

    I want to thank you for saving my ass on a large gold purchase the night before it dropped to 1180. Thank God I checked the blog!

  11. What strikes me day in and day out is the constant drumbeat of negativity regarding the $. Not that I am a big fan of what is going on here in the Fascist States of America, but WHAT, pray tell, is there to admire about the ECB, BOE, BOJ? That is what I thought. It is all relative and that is all from sparks, swb


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