"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


Friday, August 30, 2013

Gold Uptrend Pausing

Recent action in gold during the latter part of this week is suggesting a pause in the fledgling uptrend. The metal seems to have run into a heavy band of resistance near the $1440 level and is setting back.

Gains during the early part of this week, tied to concerns over the situation in Syria, have been fading as the refusal of the British Parliament to go along with the Obama administration's plan to lob cruise missiles into Syria took some of the safe haven bid away from gold. Traders/investors have read this to mean that an imminent strike was less likely.

Truth be told, the President has foolishly put himself into a box and has destroyed US credibility and prestige by his inept comments about a "red line" and his bellicose comments since then. This has introduced an element of uncertainty into both gold and crude oil prices which has recent buyers of both heading for the exits and booking some short term profits rather than risking losing them.

That has resulted in some short term sell signals in the metal with both indicators shown on the chart below suggesting a waning of upside momentum. Again, this does not mean that the longer term move higher in gold is finished; it does mean that unless the bulls are able to quickly reassert themselves and take control of the market by pushing price through this very stubborn band of overhead resistance, price will more than likely drift lower to see at what level dip buyers are interested in coming in. Losing psychological support at $1400 today and that "14" handle was not helpful to their cause.

Right now, without a strong catalyst from the situation in Syria, many are hesitant to chase the metal higher and are uncomfortable getting too aggressively long at current levels, especially with some reports circulating that physical offtake has slowed down a bit due to price sensitivity. Seasonal factors do still favor the bullish cause but it may take some further move lower in the metal to bring the physical market buyers back in larger numbers.

Keep in mind something I wrote earlier this week - gains in the price of gold due to geopolitical concerns do not tend to last long unless there is a worsening of the overall scenario. When news or rumors first surface about such things, the price of gold tends to quickly reflect the worse case scenario that traders envision based on that current set of information. Unless that changes for the worse, any lessening of concerns generally results in a very rapid retracement of price gains tied to the original story.

How much of gold's recent gains are tied to the Syria situation are not quite exact but it appears to me that the break out above $1360 can be attributed to it. This means we could see gold retreat back towards that level unless we do indeed see missiles flying very soon.

A concern that I do have about the gains made this week are also from a technical standpoint due to my reading of the Commitment of Traders report. We had a very sizeable amount of short covering in the "Managed Money" or Hedge Fund category, much more so than we did new buying from that same category. I cover this in detail in the Metals Wrap interview with Eric King over at King World News so be sure to listen in to that.

A quick point about this however - we need more than short covering to sustain this uptrend. Gains tied to short covering are very quick and very powerful at times. However, once that panic buying has finished, unless there is SUSTAINED NEW BUYING TO TAKE ITS PLACE, the market will run out of the thrust it needs to maintain those gains.

What this means is that Western investment demand for gold must not falter. That will be evident IF and ONLY IF overhead resistance above $1440 - $1450 is vanquished.