"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


Monday, January 27, 2014

Gold Rally stalls at $1280

Strong buying overnight in the early part of the Asian trading session took gold into a region of formidable chart resistance near the $1,280 level. At that point sellers entered sensing that the bulls were booking profits and prices needed a breather.

With the nervousness surrounding last week's emerging markets currency/credit crisis subsiding somewhat, gold ran out of reasons to keep moving vertical. If you notice, the Japanese Yen and Swiss Franc, the beneficiaries of last week's rush to safety plays, are weaker today. Also, the S&P 500 is trading higher while the US Dollar has managed to obtain a firm bid. With the VIX moving lower as well, it appears that for the moment, the market is less concerned about the emerging market issues that plagued it last week. How long this lasts is anyone's guess but for the immediate moment, gold is being sold and stocks are being bought once again.

If anything, last week's price action in response to the emerging markets reinforces in my mind the notion that gold MUST HAVE SOME SORT OF CONFIDENCE SHATTERING event(s) to push it into a sustained uptrend. The recent move up has consisted of a great deal of short covering and while there has indeed been some fresh buying, that has been largely outnumbered by speculative short covering.

As I have written many times here at this site, short covering rallies can be quite ferocious and oftentimes spectacular, but by their very nature, they tend to fizzle out as quickly as they start. Markets require the application of THRUST/FORCE to escape the downward pull of gravity and that necessitates SUSTAINED money flows ( new buying ). If that new buying is lacking, gravity will win out and price will back down.

When it comes to gold that means any sort of credit/currency crisis must be one which escalates in the minds of traders/investors. Such escalation fans more fear and nervousness and that will drive money into gold. Given the current state of low inflationary expectations, it will take this sort of strong emotion to keep those flows active. At the first sign of stability or easing of tensions, gold will tend to surrender its gains with the more recent pattern of buying stocks/selling commodities coming to the ascendancy once again.

What this translates to when it comes to technical price action is selling at resistance zones. Gold thus far has managed to plow through several layers of overhead chart resistance and in the process turned the daily chart positive ( the weekly remains decidedly bearish however). With traders looking for reasons to sell rallies, these resistance zones on the daily chart will take on more importance. Any hesitation by the bulls to extend the rally at these zones will bring in selling as very short term bulls bail out with any paper profits that they might have while longer term oriented bears look to re-enter on the short side.

It is always interesting to watch the battle lines being formed on the charts. Right now dips are being bought in gold based on the improving daily chart picture while rallies tend to stall - at least temporarily - at these resistance zones. Translating to numbers - resistance is the zone near $1280 with support being provided by the zone near $1260-$1258.

I am watching to see what gold does if equities start moving lower once again and particularly if the Dollar cannot hold any gains. I will provide an update later in the session as the direction towards the pit close becomes evident.


  1. Thanks again for your daily comments Dan. Always interesting (refreshing) to know what's going on on the battlefield for gold.

    I can't help but notice that Sugar continues its downward trend to the abyss. Soybean oil as well. Corn, wheat nowhere. Coffee lost. Medium/long term, i definitely see more value in commodities than in stocks, IMHO.

    Keep up the good work Dan.


    1. homunculus;

      Thanks for the comments and pointing that out to the readers. There is simply a lack of strong upward price pressure on the overall commodity sector at this time.

  2. Will you have a look at those miners. It seems that it's all positioning for FED's confirmation of taper on Wednesday. They would still have lots of time to renege on it later on before the end of the first quarter.

  3. Well anybody who bought gold during this temporary panic got smoked.

    Stocks appear to be v-bottoming once again off the lows as the economic rebound continues.

    GDX getting utterly smoked as the GDX/GLD ratio plunges once again down to .19, which is within a hairsbreadth of world record, all-time lows.

    Stay in the System.

    1. Stay in the System.
      Gold is pain. Stocks are bliss.
      Mark, Ministry of Truth

      The Ministry of Truth is open 24/7 as long as gold prices go down and stock prices go up. The Ministry of Truth is on holiday during the other periods of time.

    2. Mark you are so full of shit. The S&P closed down -.49% today.

      "Stay in the system" holy cow is your name Joseph Goebbels or something?

  4. 1250 is the first support area.
    If gold holds its ground there and bounces, it will be actually another good sign for the bulls. Future will tell.

    1. Hubert,
      I am kind of hoping that there will be a bounce from 1250, but I just can't see it happening so close to the FOMC meeting (which I think is major driver of ALL markets in a sense that their job is PR and to maintain the confidence in the system). that is unless they pull out of the taper talk completely, which would be a shocker for this meeting (but not completely excluded). Oh yeah, and I hope I'm wrong here!

  5. The Ministry of Peace confirms that the devaluation of Argentinian, Venezuelian, and now Turkish fiat curencies, are rumors at best.
    There is nothing there except a small group of financial terrorists manipulating markets for their own profits.
    The System is fine.
    Stay in the System.
    Oh, and, most important : don't ever, never, buy gold. It is radioactive. Even the paper one. Actually even speaking the word is poisonous to your body and can decrease your life expectancy.
    Remember : Family. Work. Happiness. SP500. Dollar.
    Now, go.

    1. Exactly, and long term (40+ years) exposure to gold can cause loss of hair, increase in weight and even impotency.

    2. Abraxas;

      I heard from a reliable source that they manufacture a "Viagra Gold" just for that condition.....

    3. Mark is needling you guys to death and you all have rabbit ears and fall prey to his smack talking. LMAO. Truth of the matter is though, that stks to me do not look like a top, nor does gold look like it has made bottom, and as far as the Bondolas go, well, they just will not fall apart, will they? I guess Gross does not have all the answers after all, huh? Take care and stay short Yen, pm's, beans and it might not be a bad idea to probe the short side of the energy complex and cattle, but take care and be disciplined; that is all from sparks

    4. Dan,

      Question for you. Forget commodities for a minute. When does our $17 trillion + in debt start to scare people in the stock market? Heck, I know it has only doubled in the last 6 years. Exponential is probably a lot more interesting with today's markets :).

    5. jmsvett;

      I thought that it was going to scare people when it first hit $10 trillion but the equity crowd scarcely missed a beat. I honestly do not know when it will become an issue. When it does, it will do so quite suddenly in my view.

      I look at the market reaction to Greece, Spain, Portugal.etc as study cases. Everyone knew and still knows even today that they are carrying massive debt loads yet the big banks still loaned them money and still took their bonds. One day, it was like a switch got flipped on and suddenly everyone started looking around wondering how they were going to service their debt or even find buyers for their new debt without paying outrageous amounts of interest that would effectively cripple their economy.

      I think it will be the same here although I have no earthly idea when the sleeping investing community will start worrying about it.

    6. Dan,

      "Viagra Gold" LOL
      Do they maufacture extra-potent kind just for the people exposed to the miners? I think I'll stock up on that just in case.

    7. It (the trillion debt issue, or the Greek debt crisis) will hit people when some big banks WANT people to re-discover it.
      for this to happen, they (the banks) will publish some articles about the "awful truth".
      before that this banks will have established short positions in the marktes.
      it is a switch on / switch off game to "trade" the markets.
      (google 'Draghi')

  6. SP500 at 1780. For me, a key level, because both horizontal support daily and an upwards support linking the lows on the weekly timeframe.
    If we small bounce as a dead cat bounce towards 1810ish and then down, imho good chance to break 1780 and then probable that we'll accelerate down on the longer time units, with a real nice big correction (100 points or more?)...same if we don't bounce :)
    So I'm watching SP500 a lot, in case volatility would increase even more and that 1780 is taken at the daily close.


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