"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


Thursday, December 19, 2013

Gold Mauled as Bears Growl

Yesterday's late session plunge in gold, during the Bernanke press conference, was a harbinger of things to come for the yellow metal. It dawned on investors that the Fed still had enough concern about deflationary pressures that they were willing to leave interest rates at extremely low levels for a long time. That reinforced the idea that the mild inflation which the Fed wishes to show up, has not yet made its appearance.

Were it not for the fact that crude oil prices rose sharply today, one would have to think that the fall in the gold price would have the Fed concerned. Crude took off however on ideas that the early tapering by the Fed was enough evidence that the economy is going to be on a steady mend next year and that will result in a pick up in crude demand as gasoline and heating oil prices rise to meet that.

Also helping crude rally was further confirmation that the pipeline from Cushing to Port Arthur will be moving oil down to refineries and alleviating any glut in supplies which had been weighing on the market of late.

With yesterday's FOMC actions and the subsequent Bernanke comments, investors seem to believe that they now have the best of all possible worlds - ultra low interest rates for the foreseeable future, no signs of inflation and an economy on the mend. Translation - buy stocks. That is the message of the market.

In this sort of environment, investors simply see no reason to own gold, which throws off no yield and depends solely on capital appreciation to return on investment. If inflation pressures remain muted, and if confidence is high, ( the VIX SANK EVEN FURTHER TODAY providing proof that it is), gold is a pariah at this point.

People can talk about Chinese demand for gold all they want but it makes no difference as far as Western sentiment goes. Here in the West - gold has few friends. Until this confidence in the Fed and the economy is shattered, gold is going to struggle against strong headwinds.  At some point it will get beaten up badly enough to move down into the cost of production and remain at those levels long enough to perhaps force some mine closures, etc,. Maybe then it will finally bottom out.

Keep in mind something I wrote last Friday when the Commitment of Traders report was released - there can be NO CAPITULATION in gold and thus no end to the selling as long as speculators REMAIN AS NET LONGS in the gold market. Too many keep pointing to the building hedge fund SHORT position as some sort of bizarre rationale that gold prices must now stage some sort of rally. I read this sort of thing and ask myself if those who advocate such nonsense have ever really traded anything besides baseball cards and comic books. When the trend is lower and speculators are making money by being short, they have no reason to buy unless upside resistance levels are taken out. If the price moves into those resistance levels and then fails to extend higher, it is a signal to every hedge fund on the short side of the market to sell even more, not buy and get out!

This is what happens when too many self-anointed "experts" give us one prediction after another based on their tea-leaf reading of the Commitment of Traders report without understanding market sentiment and price action.

That brings me back to gold - the failure to hold at what had been shaping up as a secondary bottom at $1220, followed by a primary bottom at $1210, was a huge technical failure. What is worse however is the market's inability at this point to even hold above psychological support at $1200. Losing the "12" handle is a big deal because it deals another psychological blow to the bulls and emboldens the bears even more who are now trying to press their advantage. Every bear on the planet now is salivating over the prospect of reaching that mountain of sell stops sitting just below the $1180 level. If they can reach it, and that is unclear at this point whether they can or not, we will see an avalanche of selling hit the gold market which will easily carry it down to $1150 for starters.

I have put up a Daily Chart to illustrate how tenuous gold's position is right now. It has effectively worked its way lower into a band of EXTREMELY CRITICAL CHART SUPPORT. I would say that this level has almost as much significance as did the $1530 level some time back. When gold fell through that level, we saw wave after wave of selling as hedge fund longs, and other speculative longs, bailed out in large numbers and fresh shorting was established. We would see the same thing occur in my view if this level were to give way and PRICE BE UNABLE TO CLIMB BACK ABOVE IT SWIFTLY.

If you look at the ADX indicator, that line is beginning to turn back up again, after having moved lower. That move lower indicated that the bearish trend was halting and that a range trade was forming. Now that gold has broken below the bottom of that range, the indicator is suggesting that a new leg lower in price could be forming. For that to be confirmed, this chart support level that I have noted would have to give way.

Bulls need some help from somewhere and fast. That the HUI is holding up a bit better than the actual metal today is some consolation. Bellwether Barrick is down nearly 2% as I type these comments but gold is down over 3% so that is a positive, although I will be the first to admit, not much of one on a day like this for the gold bulls. ABX is still holding above that chart gap it made Tuesday of last week; however, it had better not close that gap or it will more than likely retest its recent low.

With rising interest rates here in the US bolstering the Dollar, the precious metals need some Asian buying to keep things from getting even uglier. This rise in rates, which I think is being closely watched by the FOMC, in conjunction with POSITIVE REAL RATES  ( due to the official low rate of inflation ) is not helping gold demand here in the West. Remember, traders will view a strong currency as inhibiting inflation.

The question I still have in my mind is how the Fed is looking at this fall in the gold price and whether it is becoming a concern to them at this point. I do not think it is UNLESS it breaks chart support and REMAINS BELOW THAT SUPPORT for an extended period of time. Spikes below support followed by rebounds in price that occur quickly will not disturb them whatsoever as that can be rightly attributed to market volatility. Low prices however that remain are a more serious signal. Gold is signaling no fears of inflation currently exist. If it sinks further and will not pop back, it will be signaling the potential return of deflationary pressures. That will be a problem for the Fed.

Time will tell.

One last thing about crude oil and gasoline prices. There are two ways of looking at a sinking crude oil price and by consequence a sinking gasoline price. It could be interpreted as a deflationary signal, evidencing a sluggish economy in which demand for energy is weak as a result. It could also be interpreted as having a STIMULATIVE effect in the sense that it acts as a sort of "tax cut". It puts more money in the pocket of both consumers and business as their energy costs drop off. I personally think the Fed welcomes a lower crude oil price more in the latter sense although I am sure that were it to rise too much in their estimation, it could have a deleterious effect on the overall economy. What I am trying to say is that just reacting to a rising crude oil price by saying it is inflationary is not quite as easy as it might sound. It requires a bit more nuance to sort the implications out.


  1. Gold on the brink at $1,190.

    It could be a piece of cake to smash it in Asia during the overnight session, then maybe we finally get a $200 hit as millions of stops are taken out.

    Check out the charts of sugar and wheat, that looks a lot like where gold is eventually going. Just a slow grind back to all time lows from 2002, like Chinese Water Torture after the big support line breaks.

    Bernanke's Miracle: Room to easily double QE with no problem, with so many commodity prices getting "Amaranthed", there is no risk of inflation whatsoever.

    Except for the price of art, paintings, Hamptons and Park Ave. real estate, vintage cars, and U.S. consumer stock prices, due to the fantastic wealth being created, LOL....

    1. This comment has been removed by the author.

    2. Don't listen to Mark, he's just trying to shake everyone's gold out and ride it up to 10K when it turns next hour.

    3. This comment has been removed by the author.

    4. Mark.... You seriously need to get a life. You keep posting the same rant over and over and over and clearly no one agrees with you or cares. Did you make money in the increase in equities? If so, congratulations for you. Not everyone here is golf perma-bulls. We are all looking at the same charts. Most here are concerned about the long-term implications of the current policy. Short-term is just that, short term. One post in each topic is more than sufficient to get your point across.

  2. Hi Dan & everyone,

    As posted in last line, I'm following the scenario where we don't see yet sub 1190 $ this week, because it is the red median of the weekly pitchfork going down, and because 1180 $ will be the convergence of 3 main supports next week.
    I think since 1220 were broken, prices were and are being sucked towards 1180, because the market is demanding a test of this year's lows.
    Prices are so close, that everyone, bulls and bears, want the answer to their question : is 1180 still a support or not?
    Only way to know is to let prices drift there and see what happens.

    Maybe we'll see a small bounce next week after hitting 1180.
    My feeling is once we hit 1180, absolutely everyone will be watching if there is a bounce and how high it goes, with what kind of volumes.
    If there is no bounce, if bulls are screaming by their absence, then it will be an invitation for the slaughter.
    I don't imagine a cunning and skillful huuuge long actor there, surreptitiously buying and buying all the sell orders happening at 1180.
    I'm sorry, but I'm simply not buying this possibility.
    Which means I am bracing more and more for the impact with 1180 and the more and more likely of a sudden break through this support level and possible waterfall decline most readers here have been expecting.
    (which would also mean that a 100% free blog from a real trader is Worth much more than a 20.000 $ per year from a BoPolny super analyst claiming he reads in his charts the time and prices at which level gold can bottom before it even happened, but let's wait that 1180 gives way before putting the nail in the coffin, which I will have no joy of doing).
    I didn't think I'd be short in my paper positions this year.
    But here I am now, not only hedged on put options, but also moderately short on paper, following an unbelievable yet real, absolutely real, and real is the only thing that counts, trend.
    Wishing you a nice evening,

  3. Mark.
    Give it a rest mate. You're boring us all now. I've been short since c.$1440, big deal, who cares? I don't go on and on about the same old shite like yourself. Move on son.

  4. All Mark wants for xmas is a $200 one day drop in gold.

    We were all told this is where it was going before it could start to rise again.
    No surprise really.
    It would be a great buy at those levels.

  5. In case you missed this:

    That would be about a $400 drop from here.

    I wonder how many would throw in the towel by then?

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  7. Mark,

    Go fornicate yourself. And have a Merry Christmas. POS


  8. Great blog - glad I found it! Thanks Dan

  9. Mark has made a nuisance of himself here. He should cool it but he can't.

    1. I told Mark to go over to The News UNIT and rant all he wants to if he needs to get it out of his system. I actually agree with him and expect much lower in GOLD and SILVER.

  10. C'mon now guys, I think some of Mark's comments are tongue in cheek.

    Besides…I know who Mark really is…he is..wait for it….JON NADLER ! (horror soundtrack background music)

  11. Its ironic that you fall into the trap of using the cabal's artificial technical selling created to justify the "paper" price of bullion as if there was no dumping of naked shorts in a thinly traded overnite session to crash the price.......you maintain this dialogue of two sides in this paper market.......there's just one side Dan.......surely you can't ignore that forever

    1. kliguy38:

      The facts never seems to matter to some folks such as yourself no matter how many times one painstakingly lays out them out in plain sight.

      JP Morgan, is standing for delivery of gold this month and thus far has taken 4,944 contracts out of the total 5,238 that have been offered. Yet somehow, in spite of THIS FACT, ( that they have been large buyers of physical gold) , you still maintain that it is this nasty cabal that is causing all the havoc in the gold market. So - let's get this straight - according to you - JP Morgan is doing all the selling to drive the price of gold down but at the same time they are doing all the buying. That is a neat trick!

      The CoT reports shows HEDGE FUNDS doing the selling (both dumping longs and adding new shorts) and yet once again, according to you, it is the nasty cabal doing all the selling.

      This is why it is quite easy for me to "ignore that forever". Your view is simply not taken seriously among those who are students of the markets. It really is that simple.

      I am sorry for you if you have lost a lot of your net wealth because gold has fallen in price. I sincerely mean that. What is so tragic is that it did not need to happen to you if you had simply learned to read what the market was telling you.

      Merry Christmas

    2. "So - let's get this straight - according to you - JP Morgan is doing all the selling to drive the price of gold down but at the same time they are doing all the buying. That is a neat trick!"

      Dan, you are turning into a disinformation blogger.
      As a trader myself I know that you know better than what you are writing here.
      I find it especially interesting, that a trader mostly following technicals, is argueing that way.

      Ofcourse you know the importance of support and resistance, don't you?
      And you know that it's possible with a small amount of contracts to create big moves, if certain levels are breached.

      So why do you ridicule the argumentation, that it would be not possible to create a chart movement in the futures market while at the same time buying these contracts, or GLD, at lower prices GENTLY?

      And as a futures trader I'm stunned that you obviously intentionally ignore the fact, that futures markets do NOT reflect the physical market over supply and demand of the physical product but by price discovery mechanism.

      I can sell as much Silver or Gold as my margin account allows. My broker doesn't even allow physical delivery.

      I'm wondering why you are hiding these aspects of the futures markets and instead you are trying to suggest, that the price action in GC and SI were free of manipulation when price goes down.

      I find it also strange, that you ignore completely that JAPAN is bancrupt. The Yen is probably the third most important currency for the financial markets and Japan is about to INCREASE money printing.
      Why are you suggesting more and more, that central banks do not fear gold now?
      At least Japan's CB has to fear a rise in Gold tremendously, because it's currency is already very weak and the economy is showing signs that the devaluation of the currency is not having the desired effect!

      A rapid rise of the price of Gold when the BOJ prints even more money WOULD signal danger to the markets.

      On one hand you argue that the futures markets were reflecting supply and demand and therefore JPM couldn't supress the price while buying physical, and on the other hand you argue that the exploding physical demand in Asia had no impact, because the western financial markets were dictating the price!

      You should decide!

      I'm somehow stunned that these things must be mentioned on YOUR blog.

      I'm short myself and as I have said it already: it's one thing not to fight the market, but it's another thing to claim that CBs were no longer interested in Gold and suggesting that the crisis was solved.

      NOTHING HAS BEEN SOLVED and Bernanke and Draghi and Abe know that very well.
      It's sad that you have turned into a promotor of the forces that be.

      What I also find strange is your completely turned view of inflation. Once you were sarcastic about the "markets" and about the MSM how they were confusing liquidity with solvency, and now you are in the same camp.
      You ridicule those who say that inflation was not the fact of rising prices, but inflation was the creatin of money units faster than growth of the economy and the rising prices are only a CONSEQUENCE of inflation.

      You have turned completely silent on that. Doesn't fit anymore to the propaganda of free and unmanipulated gold markets, i guess.

      "The CoT reports shows HEDGE FUNDS doing the selling (both dumping longs and adding new shorts) and yet once again, according to you, it is the nasty cabal doing all the selling."

      And because central banks do not have their own category in the COT they are not manipulating the market, correct?

  12. I would like to understand the OIL price much better.
    I bought some UCO a while back. Then sold it when - you guessed it - when it bottomed. Just wanted it originally as a "long term" holding that I would add more to when it goes significantly lower. But all the deflation scare got ahold of me and I sold out. So ... is deflation going to get ahold of oil as well?

  13. Yep, some people like TF Metals Report seem to be wrong about most everything that he writes about..... like, ummm in 2012, THE PRICE OF SILVER IS ABOUT TO EXPLODE. I can not count how many times this goof-ball was wrong ,never mind the COT Report. Oh well, we have you Dan! Keep up the great work!

  14. Mark and his onanistic screeds really don't bother me in the least. What bothers me is the knowledge that after the metals eventually resume their inevitable march higher (however long that takes) he will be nowhere to be found. And so I challenge him to standby his cocksuredness even after his bubble bursts and he has nowhere to go.

  15. Dan,
    People who are grateful to you for all you do, have gotten hurt as investors as well. We believed that ten years of a easy money created a strong bull market. We never believed it possible that QE3 would not drive gold. We did not see no inflation and the velocity of money standing still so that the bull market in gold actually could be over. We had been right for over ten years and followed the gold gurus who served as our guides and then something happened they who saw the bull market start and predicted like oracles each stage right got it all wrong and starting being wrong over and over.
    That is why people are so spooked and can't shake it, I have sold since before the drop through 1530 but so many of us were so overweighted in these things that we ignored diversification and your good advice and kept holding a good chunk of the pm's we had. Gold bulls for ten years die hard. And while I believe that a V bottom at some price will come. I will never be sure again about the dreams of two, three and four thousand dollar gold again.

    You have told it like it is but gold investors have been so brainwashed as to gold. Its almost like the metal represents truth in a corrupt world because it is real. So we continue to hold parts of it. Yesterday I sold more of it and feel like I am a contrary indicator so we may get a bounce soon. Playing it as a trader was and is the only way, and long term gold bulls like me got greedy and lazy and thought we would be bailed out again and again. The music stopped in April and our gurus who had been right over and over became predictively as bad as they were good before. I wish I could have listened to you entirely but those ten years made us easy targets. I am so grateful to read you and hope I have learned something with the money I have left.

    1. Concord;

      I think you have written perhaps one of the best explanations behind market sentiment towards gold. It really is quite an astute observation on your part and very well articulated.
      I understand completely. I was among those who believed that the QE programs would unleash rampant inflation and undercut the Dollar. For a couple of years that is what we did get. Something changed however and that something was that apparently all this money printing was not creating the inflation we were looking for on account of the fact that the money did not make it into the broader economy ( outside of Wall STreet). The reasons were too much debt and a stagnant labor market in which wages were flat and people were SCARED to take on any more debt. Thus, no inflation. When investors started coming around to that conclusion, they began to sell gold and the rest is now history.

      Bullish attitudes do die hard and that is what we are dealing with it. It was difficult to admit that things were not going the way many of us expected them to go. The market however never lies and that is the lesson that we all need to constantly learn even if we know it already.

      I too believe gold is honest money but I am also realistic enough to understand now that until the herd panics or loses confidence in the US fiscal condition and money managers, gold is not going to be a good investment because money flows are going into stocks and out of the metal.

      We will need to see when those flows will return and then gold will bottom out and stop moving lower.

      AT some point in the future, and I honestly do not know when ( Nor does anyone else for that matter no matter what they might profess), the enormous indebtedness of the US is going to become a major issue.

      What will have to happen is that the US can either grow its way out of the debt ( which is very difficult to fathom seeing the enormous sums involved ) or the US dollar will have to be debased. The problem for investors is that waiting for either of these events ties up precious capital that might be put to better use in other sectors.

      This is part of the reason why we should never go "all in" as some suggest when it comes to any investment, including gold. It is a recipe for either mind-boggling gains or more commonly, big losses, which can take years to recover from.

      Thanks for your comments and your kind words as well. I sincerely do wish you the very best of success in the months and years ahead.

    2. Thanks Dan I feel snakebit but I will be fine. By the way the people who I will not name but know were brilliant for ten years in their views of the gold market. People need to remember how this particular person was like an oracle. Just shows nothing is forever.

      Merry Christmas to you and your family.

    3. "The market however never lies "

      Then bubbles could not exist.

    4. endzeit;

      It is now obvious that you have decided to ignore my advice to you to actually honor the words that come out of your mouth. You said you were not going to come to this website and read it anymore because you disagreed with so much of what was written here. Yet here you are, again.

      I am not going to waste my precious time responding to your gold is manipulated because it does not go up when I think it should guys. You are beyond the reach of logic and facts.

      Now, either honor your word to stop reading this site or send us all an apology for contradicting yourself and continuing to come here and annoy the rest of us with your wild theories.

  16. Concord don't make it so hard on yourself man in my opinion this bear market was manufactured at key moments. What happened in April was the mother of all manipulations, what came after that it's pretty irrelevant. Sell off Friday with a continuation on Monday.... That's my issue, sure, we have had other sell offs but I don't have so much of a problem with those, hedge funds, taking advantage of the blood in the streets. In April right after abn amro run out of gold and the Germans asked for their gold to have a 300 usd drop? Dan is a great trader prob the best out there but not even him could have predicted such a move. Bull markets don't end like this, they drop like a stone to its mean or below in a couple of weeks. I really hope one day we find out who was behind such a move. if you think about it after April not many things have changed we have been up and down but the damage was made right there right then. You are right we only have ourselves to blame for thinking that markets are transparent and a regulator is looking after us the small investors. Wishful thinking I say. All this does at the end wether it's gold copper the nasdaq Dow or cotton is it creates mistrust. Bubbles are happening more and more. It's becoming a minefield out there and if you are not almost professional you shouldn't touch it at all. After all not all of us can be a Dan Norcini. Good luck never the less, hope it works out for you

  17. Good luck to you Anon. Gold will be back, just don't know when.

    1. Yes all we know for certain is what happened yesterday the rest is all noise -

  18. Hi
    Thank you so much for giving us such kind of handy content which will be most useful to me as well.... I will follow your blog always. Thanks!!!dave burke

  19. Fellas we all know who is in control the Western Central Banks.

    The Central Bankers realized after QE2 that in order to stay in control they have to control the price of Gold and Silver.

    If the Central Banks loose control of Gold and Silver they will loose control!

    So after QE3 and QE4EVA was announced the Central Banks have manipulated the price of the Gold and Silver Lower and have created this bull run in equities.

    We are now at a point where my neighbours and co-workers are telling me stock picks.

    Sooner or later this manipulation will end. As the manipulation ended in 1999 (internet stock) and 2008 (Housing Bubble).

    Take the opposite trade of the manipulation, because when the music stops, there will be no chairs left to sit on, except the GOLDEN CHAIR.

  20. Ah yes, blame the manipulation. Always a good fallback for lack of reason.


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