"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, February 14, 2014

More Dollar Weakness - More Strength in Gold

Dollar weakness continues to be the theme this week as it continues to work lower nearing a chart support level near the 80.00-79.50 zone. If it does breach that support, gold should respond higher. If it holds, look for pressure on gold to emerge in the form of profit taking.

There is no definitive trend yet in the Dollar as it continues to work back and forth in a broader range. The ADX reveals the sideways pattern but the bears are currently in control. Whether the support level will hold and bulls will be able to mount a counter-attack remains unclear at this point. Time will tell.

I have noted the 50 day moving average on the chart but quite frankly, in a market that is trendless, moving averages are generally useless. They are notorious for resulting in whipsaw trades during such times.

I did want to note that the gold shares, as evidenced by the HUI remain very strong and continue to lead the metal higher as they outperform it on the way up. They did the exact same thing as the market was headed lower so the relationship is quite intact.

Note that the index powered through the 200 day moving average which is a big deal in technical analysis circles. Also note that the ADX, on the daily chart, is showing a very strong uptrend in place with the bulls currently in control. The index however is now closing in on what should be considered a pretty good level of resistance on the charts. If it can clear that, 260 is the next test, Expect fierce resistance to surface at this level barring a sharp break in the US Dollar.

Incidentally, I do want to comment on something - while gold was moving lower, we here were noting the breakdown on the technical price charts and noting the bearish posture of the market. I lost count of the number of emails I received from the rabid gold bugs who went out of their way to mock or rail against the entire concept of Technical analysis when it comes to gold. Their view was that since the gold market is obviously manipulated all the time ( their view - not mine ) they stated the utterly uselessness of applying these concepts to the market since the "market was clearly manipulated". Now suddenly, LO! - It's a MIRACLE - we see a plethora of technical analysis "experts" in the same camp noting the bullish chart pattern as they breathlessly drool over the 200 day moving averages, this oscillator, that indicator, etc.

I can be kind and chalk this up to a sudden case of enlightenment but my more cynical nature tells me that this is what is a rampant case of hypocrisy on full display. Apparently technical analysis is only valid when it confirms that gold is moving higher!

I will leave the fair and open-minded reader to draw their own conclusions about this but I already have mine. One of these days I might just put up some of the emails I have received from these rabid dogs to show you just how hateful they can be towards those who dare to speak poorly of their yellow metal god.

As I have said before, I have had some dealings with those trapped in religious cults and I can tell you that the attitude of some of these gold bugs has convinced me even more deeply that in some parts of the honest money camp ( of which I consider myself a member) there is indeed a cultic mentality at work. It is quite scary to be honest. The one thing about being involved in a cult is that it clouds your mind and negates reason and sound judgment. It can be very difficult, if not downright impossible for many trapped in such things to ever come to their senses and realize just how deceived and misled they have become.

I honestly do not harbor any ill will towards them - I actually pity them. They have no earthly idea of how foolish they appear to clear thinking individuals.

I said all that to say this - it is one thing to have strong convictions about a market. It is another thing not to recognize the present reality, or perhaps deliberately close your eyes to the obvious. Any trader that wishes to be successful MUST, MUST, MUST avoid falling into this trap. Stay OBJECTIVE! Do not let your emotions control your reason and your mind. Learn to recognize when you are wrong about a particular market and either get out of its way or at the very least, cut back your exposure to it. This is the only way to survive in a business that has changed so dramatically over the years.

Computer algorithms are heartless automatons which do not care one whit about the size of your hard-earned trading dollars. They will rip it away from you faster than you can spit if you are not careful. The old adage " learn to run away and play another day" should be plastered all over the monitors at your trading desk until you get it!

One last look at the HUI weekly chart to get a better sense of the intermediate picture in the mining sector.

Notice that the ADX line is still moving lower, indicating the absence of a discernible trend at this time frame. The +DMI is now above the -DMI revealing that the bulls have control of the market for now. They have not yet managed to start a strong trend but they have halted the downtrend. I would like to see this index close above the resistance zone noted to be more comfortable with the possibility of a trending move. Such a thing, if it occurs on a weekly closing basis should turn the ADX higher but it will still take a push through the next resistance levels noted on the chart to suggest a powerful uptrend is underway.

Look at the big gap on this chart. If the miners manage to make it that far, they will have to have some sort of powerful tailwind to take them through this gap and up through the 300 level.

Here is a chart of the GSCI again. Note how the commodity sector is moving higher as it approaches a level of chart resistance that it has been unable to clear successfully since early October of last year. If the sector is going to come to life and convince more of the bears to go back into hibernation for a while, the index will need to clear this zone on a weekly basis. If it does, silver should stay firm.

Note by the way how silver is doing what we suggested it would do WHEN COMMODITY PRICES start rising. Silver will not perform well, ( I do not care one whit for all the BS about chronic silver shortages parroted by those who have a vested interest in higher metal prices ) during any such time when DEFLATION is in ascendancy. Silver must have an inflationary environment to propel it higher. The weakness in the US Dollar is therefore even more noteworthy than for gold as currency weakness has tended to attract hot money flows into the commodity sector in general. This is the reason that silver is currently outperforming gold. It will do so as long as the deflation fears are taking a back seat to Dollar weakness.

I will try to get something up a bit later detailing the COT stuff. Speculators are on the long side with commercial interests/swap dealers on the short side once again so all is pretty much back to normal. Short covering among the big specs has been the dominant feature of the silver market. Then again, so has it been among many individual commodity futures markets. Bears are getting pushed out across the entire sector. Gold has finally seen more fresh buying than short covering, an encouraging feature for the bulls as this is a bit more enduring in nature ( as long as chart support levels do not give way). More on that later...


  1. " I’m not selling my gold but I’m also not buying any at the moment. There are still lots of passionate believers in gold and until they sell their gold, I do not think it will have a bottom."" Thats what rogers wrote last month. I think the passionate believers are still with us.

  2. Jasper
    How would you ever know when the passionate are out?
    For all we know the soothsayers may have sold at $1900.
    These people are not stupid.
    There will be no flashing lights and alarm bells when the passionate bail.
    Maybe Jim Rogers knows, if he does he won't tell you.
    Never forget the difference between trading and investing.

    1. I trust rogers knows a bottom after it happens and he says the bottom is not in.

      I used to be heavily invested in trx and listen to sinclair. I have learned my lesson on investing and bottoms.

      Dud you know trx is going into production this summer?


      I am done buying bridges.

  3. Funny : gold chose to stop at its top today at 1322 $.
    I remember this was exactly the low of 16th april 2013.

    I still hope 1337 somewhere next week, though we are quite quite above the bollinger sup now...same for silver, ouch, some bears are having trouble, aren't they :)
    For silver, 19 $ = 78% fibonacci retracement level of the 9-50 $ up wave, is interesting because silver did the same the first time, when moving up from 5 to 22 and corrected back to...9 $....after that, it shot up to 50 $.

    Maybe that's how John Embry brought his forecast.
    Yes, silver went up from 9 $ to 50 $ during the last bullish phase.
    So...multiply everything by a factor of 2 and you have the potential next target for silver.... 100 $! See you up there, right?

  4. This comment has been removed by the author.

  5. I lost count of the number of emails I received from the rabid gold bugs who went out of their way to mock or rail against the entire concept of Technical analysis when it comes to gold.

    Please, please post the emails..... I need a good laugh ! People today are so goofy. Enough said.

  6. Dan -

    I have to believe this breakout in commodities is very temporary. Remember how commodities had a late surge in 2007. That did not end well. The fed will put an end to a weak dollar before it sucks the life out of the economy

    1. It is dangerous to use the past as a tool for forecasting the future imho.
      2014 and 2007 are two different eras.

  7. Dan,

    What happened to your segment on KWN? I really miss that!

    1. SG Prepper;

      No one who reads that site regularly wants to hear me when I am bearish on gold or silver. When those markets clearly are in intermediate up trends, I will be loved and adored once more.

      I wouldn't sweat it - You can find the same thing here in written form rather than in verbal form. Besides, with the chart being up in the posts that I write, it is actually easier seeing the chart pattern than trying to understand it as I was talking about it.

      I am glad that you enjoyed it while it lasted. My goal there was to help others hear the other side of the perma-bull argument at times as well as to help them understand the movement of the markets.

    2. I always enjoyed the Weekly Metals Wrap but as your posting today illustrates this is better.

      Enjoy the holiday.

    3. "No one who reads that site regularly wants to hear me when I am bearish on gold or silver."
      This is a statement I was afraid to read.

      I'd replace "no one" by "many", though.
      It's sad for the few who could catch your voice in the "noise" of the other believers and their single mantra ("we are at the brink of a huuuge move up in gold, silver...buy buy buy"), and revise their policy towards their PM paper trading account accordingly.
      Let's hope the bear market is over for all KWM readers.

    4. Rubbish Dan!

      The KWN Metals Wrap was always about your comments, bearish or bullish, which I now obviously read here.

      Thank you very much for your insights!

    5. Dan:

      Instead of getting on there anymore why not just do a YOU TUBE channel and get some Adsense for yourself? You can do screenshots of charts and stuff and talk about the markets.

      Many of us who aren't into that segment would subscribe and a refreshing new sector of reality would ensue.

      My YOU TUBE channel "newsunit" is slowing coming to life but I don't have the experience you have. And you could embed your videos here too which makes it easy.

      Forget the metals wrap. You don't need them. They need you.


    6. News Unit;

      My problem with doing that is not a lack of interest but rather a lack of time. My main profession is trading and I spend many long hours at that. Plus I have a family to be a part of which is why my main priority lies and thus I honestly cannot squeeze anything else of that nature into my schedule.

      If I was to try something like that I would want to do it well and that means it would probably burden me to the point of too much stress. Hey - the last thing I need in my life right now is MORE STRESS! :o)

      But I really do thank you for your kind encouragement. It is very much appreciated. Maybe somehow something will develop which will allow me to do something like that - I am thinking more along the line of a sustained move higher in long term interest rates during which I could be massively short the bond market and then retire to my own private island near Fiji!

    7. Hey Dan, what you are doing right now - as it is - is great. So many appreciate it. I've found some excellent software that you could use to record your screen. You'd just need a mic to record your voice as you moved the curser about. I'm not very computer literate but this is pretty simple and powerful software. http://kickass.to/apowersoft-streaming-video-recorder-4-6-key-t8042861.html

      this is a torrent (you need to install this software first: www.utorrent.com/‎) with a working registration code. i suggest that you use it to try the software and purchase it ($30 l think) if you like it.

      Whether you decide to do something like this or not, thanks again for all the time you put into teaching us noobs.

  8. The fed will put an end to the weak dollar because (A) the TPTB manipulate everything EXCEPT for gold, and (B) This is a good thing.

    Two great axioms for all to abide in The Orwellian States of America.

  9. Dan thank you for your always sobering analysis.

    Time will tell if gold tops out again and we head for a third and final leg down in this bear phase, or if the bottom is truly in this time.

    Many were burned badly chasing the last big rally near the end, therefore many may be sitting out this time.

    As far as the stock market goes, many indexes and leading stocks have had 7 or 8 green days in a row, so we might be due for a little rest right now. How gold performs when equities pull back in a little will tell us a lot.

    1. Mark;

      You are welcome... yes indeed - time sure makes us a lot wiser when it comes to these markets!

      I am going to be especially interested in seeing what we get in the way of economic data once we get past this extremely frigid weather pattern and things revert to more seasonal norms. That sort of inclement weather is going to have a big impact on consumer shopping patterns. As we move into March, we should see more normal weather patterns emerge and then the economic data we get will paint a better picture of how things do actually stand.

      Many are looking at the retail sales number, the job numbers,manufacturing etc. and seeing signs of slowdowns and thus that has revived more tapering on hold talk.

      Those consumer stocks however should be a good bellwether of how things are shaping up on the spending side when the weather moderates. If we start getting stronger numbers again, watch for interest rates to rise towards that 3.0% level on the Ten Year. That should prop up the Dollar again.

      Hard to say right now - that emerging market thing also has to be watched. Lots of variables... glad for the holiday Monday to rest my brain!

  10. http://i60.tinypic.com/2w70faa.jpg

    The EUR is the largest component of the USDIndex.
    My sentiment is that, even if US managed to "sustain" the dollar on the USDIndex thanks to the other components (Abe's policy, etc...), the red german judges of Karlsruhe restrained the ECB from doing as crazy a QE as everywhere else.
    And if we look at the EUR USD chart, now EUR seems to be climbing the several fibonacci levels of the previous move down once more.
    We are in a range between 2 levels : 1,3480 and 1,3830, so I'm watching those levels carefully, because a break of 1,3830 is likely to send the eur towards 1,4250, the 78% Fibo retracement of the down move which exactly coincides with 2 previous tops of the currency.
    At 1,4250, I think the USDIndex would have some chances to be lower than 80, and gold higher than now.

  11. http://i58.tinypic.com/2ni43g1.jpg

    Regarding SP500, I'm zooming on the daily and weekly time units.
    One can see that in both cases, SP500 is within a clear uptrend channel (blue one, strongest slope in daily, black one in weekly).
    The upper resistances of those two channels will meet soon in the 1890-1900 area.
    So...if prices levitate again like crazy and reach that area at that time, I'll watch it closely in order to try a short once again :)
    I was out only 1/3 of my previous short trade at 1740 and was keeping the other 2/3 for lower prices. It didn't happen, and one may call me too greedy.
    But the point is, given the whole last 3 years of pushing higher without any kind of strong correction, I want to be positioned for the day we really have the big one. That day I don't want to be short and get out with all my profits after a mere 30 points down. More importantly, I'm not monitoring often enough the markets (only a few times a day at best, sometimes once), to play bounces efficiently on shorter time units than the daily. That being said, I probably should have gone out of a second 1/3 at 1740 when I saw that prices wouldn't break the support after the second day :)

    Last, I'm taking into consideration that if SP500 doesn't break above 1857 this time but reverses down, the market will start looking like it's making lower lows and lower highs...which should be an alarm bell as well.
    So, way before 1890, I'm watching closely the 1857 area in order to see if there is an opportunity to short and anticipate a real beginning of the SP500 bear market on that level. Bulls must push above the last highs to convince me that they are back in control. I am a patient bear.

  12. Gold BREAKOUT? Real of Fake ?
    Picture worth a 1000 words


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