Is there a Change in Gold sentiment occuring?

When you sit here with nothing better to do with your life than watch numbers blipping on a computer screen, sometimes you observe some things that stick out because they are out of line with what you have been accustomed to witnessing. Such was the case with gold, at least for today's session.

As expected, the market moved lower after failing to take out overhead resistance in the zone noted on the chart ( $1,255 - $1,260). It then fell through chart support near $1,240 - $1,244 as follow through selling pressured prices lower. Further aiding its fall was strength in the US Dollar as the market reacted to the BETTER than expected December retail sales data.

That was on the heels of comments that the market regarded as Hawkish from two Fed officials in regards to the Tapering campaign.

I figured we were going to see steady selling coming into the market for the remainder of the session, especially when interest rates started moving higher again but then we got the Crude Oil stocks number. The EIA released data this AM showing a whopping 7.7 MILLION BARREL decline in oil stockpiles when the market was expecting 800,000! Talk about a missed expectation!

There are a couple of ways of looking at this. The first is that demand for crude oil is so strong that the economy is definitely on the mend and upward price pressures are now becoming a real possibility. The other is that the recent large refinery runs have filled the pipeline with gobs of product that now needs to be moved. The latter seem confirmed as refinery utilization rates fell to 90% of capacity. That was down from 92.3% last week. If refiners are cutting back on their runs, then one could argue that stockpiles of the refined products must be building. That could be construed as a sign of weakening demand or perhaps better, a supply that is exceeding the current demand level.

What caught my attention was the manner in which gold reacted following the EIA release. Crude vaulted higher on the news and as it did, it seemed to me that gold began moving off its worst levels pushing back up into the area of broken support which was now offering resistance at $1,240.  It was a modest reaction but it did look out of place because it was unusual. It looked as if Gold was looking at the big draw and the surge higher in crude as perhaps the incipient signs of upward price pressures. I noted that this occurred even as the Dollar was strengthening.

Then after a good half hour elapsed, it began to weaken a bit but thus far it has not revisited the region from which it moved higher when the crude oil data first came out.

Maybe gold is looking at the high crude oil draw and the better than expected retails sales as signs that the latest jobs number was a one off? I don't know but it popped higher for some reason. Someone wanted to buy it along with the mining shares I might add. I have slowly come around to the opinion that without a real concern over inflation, gold is going to run into selling on rallies. Instead of cheering for a lousy economy, the friends of gold might want to consider that as long as deflation concerns trump inflation concerns, the yellow metal is going to flounder.

What needs to occur, in my opinion, is that more of this funny money that has been created by the Fed ( along with the rest of the Central Banks of the West) needs to make it out of the stock market casinos and into their respective economies. Then that money needs to start changing hands more rapidly. In other words, we need to see the Velocity of Money begin to rise. AT the very least, we need to see the officially sanctioned rate of inflation as relayed to us by the feds, (you know  - that bogus one from the CPI) exceed the rate of return on 1 year money. Translation -gold needs NEGATIVE real interest rates to rise sharply. Either that, or some sort of strong selling wave to engulf the US Dollar. I do not see how we get either or those ( or both) without a shift away from the deflation theme to the inflation theme.

Confidence - that the Dollar will hold its "value" against the other majors needs to take a hit for gold to respond upwards. That is how I see it for now. Of course, the one luxury that we traders get to have ( we don't get many any more thanks to the advent of the computer algorithm and its ruinous effect on the stability and integrity of our financial markets ) is that we reserve the right to change our minds/opinions as often as we change our socks!