"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, November 15, 2013

Gold Knocking on the Door of Overhead Resistance

Take a look at the chart below and you can see that gold is trying to clear chart resistance near $1290 but thus far has been unable to do so. Incoming Fed Chairperson Janet Yellen's testimony has put to rest any fears of bond tapering in the immediate future and this has spurred a round of short covering once again in the gold market.

It seems as if every single time the Fed either seems to shift gears and become more dovish or economic data comes in worse than expected and dispels Tapering fears, we experience a round of short covering in gold. However, these rallies have tended to be fleeting at best as they are viewed as just another opportunity to establish fresh short positions by some of the larger speculators. In other words, the bearish chart posture in gold has traders selling rallies and not looking to buy dips at the present time.

Notice how gold tends to spike higher, followed by a period of a narrowing range only to then drop down and form a fresh new leg lower.

Bulls need at the very minimum to push past $1290 and reclaim a "13" handle in front of the metal or bears will quickly reassert themselves and press for another leg lower. 

Note the sentiment among the large hedge funds when it comes to gold of late. Can you see the rapid build in short positions? In the last two weeks alone, hedge funds have added a massive 34,800 brand new short positions while they have dumped or liquidated 10,450 long positions. That is a sizeable swing no matter how one measures it and reflects the increasing bearishness that is gripping the gold market.

If support at this week's low does give way for any reason, look for additional fund long liquidation and even more momentum based selling to take hold.

The flip side to this is that any breach of overhead chart resistance will have some fuel to run as short positions will be vulnerable.

Frankly, QE expectations/lack of tapering seems to me to be losing its impact on the price of gold. My own view is that it is not proving to be inflationary in the least bit ( the money is not making its way into the broader economy) and therefore gold is beginning to have only fleeting responses to talk of uninterrupted continuance of the bond buying program. I continue to maintain that until CONFIDENCE is lost that gold is going to struggle, QE or no QE.

Look at the VIX, or Volatility Index. I prefer to call it the Complacency Index. It remains parked down near multi-year lows indicating a near complete absence of any fear or concern in the marketplace when it comes to stocks. The very concept of "RISK" has literally been rendered obsolete as Wall Street gorges itself on the liquidity being provided by the Fed. The addiction is hopelessly incurable in my opinion as the Yellen-led Fed will undoubtedly do nothing to upset this new normal.