Mining Shares Leading the Metals - Silver Strong

Silver is pulling gold higher today in a continuation of what the grey metal was doing late last week. It appears that the market is still keying in on the stronger-than-expected Chinese trade data from last week.

I should also note that the Goldman Sachs Commodity Index or GSCI has been higher the last two trading sessions with some short covering in the soybean market helping pull the grain complex a bit higher as traders attempt to balance today's USDA crop numbers with previous market expectations. It never hurts silver to see the broader commodity complex ( as a whole ) moving higher.

However, in the precious metals sector, what has my attention is the fact that the mining shares continue to lead the bullion higher. This is important as far as I am concerned because whether or not we like it or agree with it, the shares have been pretty accurate over the last two years in leading the metals lower. Now, if they are indeed reversing course and putting in some long term bottoms, then they should once more take the lead in the precious metals sector but this time to the upside.

Take a look at the following chart of the HUI. I am always fascinated by the price action of various markets that I track/trade but this HUI chart, especially that GAP REGION is incredibly interesting to me. So much of the price action over the last two months has revolved around this gap on the charts. It acted as a ceiling for the better part of a month beginning in late June until it was broken in the second half of July. Then it was giving a hint of something greater for the bulls but the miners promptly surrendered their gains leaving the index to plunge back through it to start this month.

Back up the index went into the gap last week on the Chinese news but it was unable to hold its gains into the bell Friday so that it closed within the gap. Today, it GAPPED ABOVE THE GAP - same exact thing it did back late last month.

Now the question is, will the bulls be able to finally drive the bears out of the shares cementing a solid, long-lasting bottom and the beginning of a sustained uptrend or will it run to the TOP of THE RANGE near the 260 level and sell off again signaling that the RANGE TRADE is alive and well? Who knows for certain but one has to be impressed thus far with the price action in that the last setback in price the first week of August uncovered willing buyers above the recent panic selling low down under 210. That tells us that buyers were more eager to get in than they previously had been...

Gold Futures' Spread Continue to Tighten

I wanted to provide a quick update for those who are following the "backwardation" talk out there.

I am currently showing the August, October and December gold futures contract all at the same exact bid. Also, the December has a mere $0.80 discount to the February. The futures market has still not entered a backwardation state but it is just about there. I will continue to monitor this and report on it should it occur.

Also, thus far I have not seen anything that would signal any problems with the delivery process for the August gold contract but one thing that does stand out is that J P Morgan continues to be the consistent, large stopper of gold for their "House" account. Morgan is acquiring a lot of gold.

It is going to be interesting to see whether they retender it before the month ends or at some point during another delivery month process but either way, they are acquiring it right now.

I am still watching that $1340 level in the December gold contract. So far it is proving to be formidable resistance. Strength in the gold shares is helping keep a very firm bid in gold but it is silver that is really proving a great degree of lift to the yellow metal.

That push through $20.50 is squeezing the shorts and it now looks as if the metal has a decent shot at testing $22.00.

Downside support for silver is first at $20.50 followed by $20.

Incidentally, gold is moving higher in spite of the fact that the US Dollar is stronger today.