About this time of the year, many market participants who trade professionally begin to scale back and lighten up on positions as they look to take some time off from the day to day warfare in the pits. Typically, that means lower trading volumes on certain days oftentimes resulting in some pretty wild swings in price as the liquidity dries up. Floor locals look forward to this time of year as many of them can make some very big gains as they play in the sandbox while some of the larger bullies are no longer present. Stop hunting becomes a favorite pastime.
Do not be surprised therefore if we manage to see some strange, sometimes inexplicable price action. Deciphering some of this can be challenging at times as the thin volume makes price movement somewhat dubious due to the exaggerated nature of the swings.
Gold has moved higher over the last two days bouncing from $1225, which is a bit higher than where I had pegged support ( $1220 - $1215). After spiking as high as $1257.80, it quickly encountered a round of selling which knocked it well off of that level. As I type these comments, it is up $1.00 from yesterday's pit session close.
Meanwhile, silver clawed back over the $20 level and did what we expected it to do, namely elicit more selling. Copper also moved lower. Both metals continue to be sold on rallies.
I have already written some comments on the mining shares ( HUI ) but suffice it to say, expecting gold or silver to mount any strong rally on a day in which the mining shares are further getting beaten with an ugly stick is foolhardy. Another near 3% drop in the HUI puts it just a hairbreadth away from psychological support at the 200 level.
Since the shares have been prescient when foretelling the decline in the gold price, odds favor further weakness in gold to end the week. Much depends on how active the physical market is. Don't forget that gold deliveries for the December Comex Gold contract will begin shortly.
In looking at the price chart I still do not see anything at this point that would be considered to be the least bit bullish. Momentum continues moving lower with many indicators still not at extreme oversold levels. The ten day moving average ( noted on the price chart ) has tended to hold gold rallies for last month or so meaning that we are reaching a potential inflection point once again.
Also I have noticed that the rallies in gold continue to be driven mostly by short covering which means that they will be limited in duration. You get a spike higher on some decent volume which measures the urgency to exit shorts whereupon the market then proceeds to drop down and begin a leg lower all over again.
What I can say at this point is that this week's low near $1225 had better hold or gold is going to test that support level I have noted above. If that fails, I can see it moving below $1200. At that point we will have to wait to see where more bargain based buying surfaces in sufficient quantity to absorb what is surely going to be momentum based selling by hedge funds and other large speculators.
Pressure in crude oil, even in the face of stronger products, weakness in the grains and bean markets today, was offset by a bit of strength in some of the softs and livestock markets with the result that the commodity complex was a mixed affair today. That is why gold did not do all that much nor did silver. Outside cues were mixed as well.
"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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