Gold has been reacting down since about mid-morning on Monday as word spread about the extent of the sanctions that the US was imposing to ostensibly punish Russia for its "invasion" ( US view) of the Crimea region.
I have made no secret of my view that the people of that region consider themselves as part of Russia and wished to remain that way. Why we are meddling in that matter escapes my comprehension as the turnout among the voters was spectacular and the vote was overwhelmingly lopsided in favor of that region becoming a part of the Russian Federation.
To express US displeasure the sanctions were so limited and so puny that one of the Russian ministers or deputies mocked them openly.
Gold wasted no time in properly interpreting them - much ado about nothing and promptly sold off.
Remember, a market that is being news driven especially when that news is geopolitical in nature, requires a constant barrage of bullish events or an escalation to propel it higher. Markets tend to factor in the worst possible outcome - if they get it fine - if they do not get such an outcome, they usually sell off. That is what gold is currently doing.
At this point, gold is going to require a further deterioration on the ground over there to keep driving higher. This is the reason why buying any market on geopolitical events requires one to be extremely fast and nimble on their trading. Everyone who bought the market on expectation of the worst is now in the process of taking profits while they can.
Let's see at what level the dip buyers show up again but for now, gold has failed to extend to psychological resistance at the $1400 level. It made it close but that move higher was met with plenty of profit taking by longs who realized the end of the world did not occur Sunday evening here in the West and new selling by opportunistic shorts who sold against what they believed was a $1400 ceiling.
Interestingly enough, the US Dollar still seems to have few friends. That should tend to keep gold supported on this retracement lower.There looks to me to be some resistance among Forex traders to take the Euro to 1.40 for now and that is keeping the greenback from moving lower. The currency markets are so volatile right now that trying to read where they are going next is relatively fruitless. All I can say is if the Euro can power through 1.40 then gold should respond positively and move higher. If it cannot and the Dollar remains stable, some of the "war" premium is going to be bled out of the yellow metal.
I am observing the ADX line beginning to flatten and possibly turn lower. If it does, that would signal that the current trending move higher is going to take a break. As long as the Blue Line, the +DMI, remains ABOVE the red line, the -DMI, the bulls are in control of the market and the setback in price is just that, a setback in a trending move higher. If it does not however, in conjunction with a turn lower in the ADX and a downside cross of +DMI below -DMI occurs, then I would look for some long liquidation to begin occurring. While not excessively large, we have seen a fairly decent build in long positions although I remind you that the bulk of this move higher in gold has consisted of SHORT COVERING, as I have noted repeatedly. If the shorts are done running for a while, the bulls are going to be in trouble as they are going to need to recruit some new converts to their cause quickly if they want to keep control of this market.
I have two support zones noted here...the first is the zone that was formerly resistance and extends from near $1352 to just below $1350 near $1348 or so. I would look for any dip buyers to first show up here. If they do not appear in sufficient size, then expect a drop back to stronger support centered near the $1330 region.
Let's see what we get...
Thanks for all of your time and effort to contribute to this wonderful blog!,
ReplyDeletejmsvett;
DeleteYou are welcome!
Thanks for the post as always Dan. I was wondering what chart time frame you typically use to evaluate the DMI and ADX indicators. It looks like you've got the 1 year chart posted here in this post - do you find that time frame when evaluating technical indicators to provide the most 'holistic' perspective of where an underlying security/market is trading?
ReplyDeleteSyncubate;
DeleteI use the standard 14 but one can "tweak" it or optimize it to get more exact signals. I use this indicator as one among others ( some I have are proprietary that I have created myself and prefer to keep private ) .
I have found that using just a few indicators but getting thoroughly familiar with how they respond to changes in price and understanding their unique qualities helps me more than using every single oscillator, indicator under the sun.
Too many results in the paralysis that comes from overanalysis in my view.
In using charts, I start with the long term chart, the monthly, and then work my way down the weekly or intermediate time frame, and then to the daily. During trading I will use 15 minute, 30 minute, one hour, 2 hour and 4 hour charts. It all depends on what commodity I am trading and what my time frame for the trade might happen to be.
Some of this is more of an art form to be honest than an exact science but if you mess around with this stuff long enough, you tend to get a sixth sense of when a chart looks like an opportunity is presenting itself. You have to be mindful of these infernal hedge funds however because they can take a chart of beauty and completely wreck it within minutes!
Hope this helps some...
Thanks Dan for the prompt response! Yes I've been trading off and on since college, mainly stocks, and have found that using too many technical indicators can confound one's perspective. Knowing a few indicators well is indeed an art to get a feeling for - the DMI and ADX are favorites of mine too, and you've explained them very well. If only we could find a way to get a "sixth sense" indicator to flash on the screen - then we'd all be raking it in.
DeleteThanks again for all your writing. Its really inspiring - I've pointed many friends to your blog to get educated on how the commodity markets work specifically. As a side note, I was wondering if you have a contact form on the site? Can't seem to find one - wanted to ask you a question if you could be reached by email whenever you're free.
This comment has been removed by the author.
DeleteThat email address is going to be picked up by every spam robot in the Galaxy.
DeleteI suggest using image-based emails. It gets the info across, but without the Viagra ads.
Cop Watcher;
DeleteThanks much for that head's up. I guess I will have to delete these posts.. .hopefully Syncubate picked it up in time...
Dan
Hey Dan,
DeleteSorry about that - I hate bots too, but I was able to save your email (FYI- its also listed on other sites you've written articles for). Just sent you a message. Look forward to your feedback whenever you get a chance.
Dan are you 'Twerking' your numbers ? :-)
DeleteI tried a web search on this thread to test the Google robot, and Google answered -
"Did you mean: I use the standard 14 but one can "twerk" it or optimize it to get more exact signals".
Spam robots are generally not as sophisticated as search engine robots, but, it's worth noting that Google picked up this thread in less than 24 hours.
Cop Watcher;
Deleteso much for any future political career I might have had in mind!
Seriously, that is rather scary... no wonder misinformation can also spread so quickly nowadays...
Thanks Dan for the important ADX explanation.
ReplyDeleteWould u agree that the MACD & RSI are way more important indicators than the ADX? If u agree then on monthly chart the macd is turning up from a historic oversold position on its 20 yr chart. Its like a hurricane gathering steam.
Also after Yellen speaks tomorrow Gold is poised to confirm a Golden Cross on its Daily Chart.
If tapering has no effect in propping the $ index then it is seriously ill?
Shark;
DeleteNo, I would not agree with your assessment that those two other indicators are "way more important". Why in the world would I spend so much time detailing one of the indicators I prefer if I believed the others had more value?
Do I think both the MACD and the RSI have value? Of course I do. But do I think they are some HOly Grail equivalent? No more so than I do think of the DMI as that. They are just tools. Nothing more, nothing less.
Until gold clears $1525-$1530 it is in a bear market in my view. Once it can clear that, then my tune will change because it will have regained a major chart technical level.
A Golden Cross is nice if you are bullish just like a Death Cross is nice if you are bearish. If gold takes out overhead resistance near $1425, then you have the potential for a more significant rally. In the meantime, this is a rally in an ongoing bear market. That does not mean gold cannot or will not move higher but it means that based on the long term chart, the market has a lot more work to do to change the sentiment towards it.
How do I know, or you for that matter, what tomorrow will bring? If the Dollar weakens from here and breaks down, gold will move higher, If the Dollar strengthens from here and interest rates move higher, then gold is going to struggle. that is all I know and that is all I care about. Anything else is just speculation and guesses. You can flip a coin and have the same odds of getting it right as guessing.
I am content to let the charts tell me what the REST OF THE MARKET is thinking. You would be wise to do the same and check your opinion at the door. Being flexible and able to respond to changes in sentiment is the hallmark of successful trading - not sitting there doing nothing especially if the market is going in the other direction that you think it ought to be going. There is only one opinion that really matters - not mine; not yours, but the market's.
Dan - many thanks for your blog - and your wise words. Regarding your last comment - about listening to the market (and about which I, of course, agree) - what effect does the manipulation that GATA (and many others) believe is occurring, have upon the market - like the hedge-fund-effect you refer to earlier? Thanks once again for everything - much appreciated.
DeleteTks always for your replies and feedback. Will track ADX from now onwards.
ReplyDeleteIMHO best way to make money is to take a maximum of 2x or 3x leverage position and hold it for months and years. I do no believe in short term trading. One can ride the volatility as leverage is low.
My simple reasoning is that Gold rose post 2009 due to expectations of hyperinflation which did not materialize. So it fell 2011-2013. But most are not realizing that its the failure of reflation and monetary policy which is at play. Hyperinflation is not a monetary event and does not occur due to excess money printing. Hyperinflation occurs after a deflationary collapse where-after confidence completely fails and people dump cash for tangible assets. Deflationary collapse has been averted temporarily via Astonomical QE. But A Balloon with multiple holes if reflated with excessive pressure will blast. If the balloon is not reflated with excessive pressure (Tapering) it deflates to naught.
CCI/GCSI breakout is attributed to Agri commodities and Precious metals rising. But Industrials (copper/crude/zinc/etc) are on the verge of a breakdown due to a second global economic collapse. This further confirms the failure of reflation (QE), whether its in china or usa or europe.
After 1540$, everyone will be buying GOLD. No one will be able to catch its accelerating rise.
Yuan Drops 3rd straight day. 6.05 to 6.19
ReplyDeleteNatural Gas Completes H&S Top
Dax Completes H&S Top.
Copper has brokendown from decending triangle.
Aren't these signals of a major global economic collapse?
Does anyone have any idea what the cost of production is for silver? Someone thinks that Rumplestilskin has turned his attention from turning straw into gold into turning straw into silver!!
ReplyDeleteForgot the number but check the HL reports. Add back the revinue from by products.
DeleteArnie- Tough question always, right.
DeleteFirst, it's a byproduct metal (world's largest silver mine Cannington in Oz is lead-silver-also cost leader). According to Silver Institute, only ~28% of Silver is mined by primary silver miners. So I'd guess companies look at mine profitability vs. metal.
2nd 'all in' costs are way over current levels (there's a poster on Seeking Alph called Hebba Investments--this is not an endorsement-who has done a yeoman's digging through cost to extract for silver & gold miners).
3rd I suspect that Pan American's headline making hedges at an average of $20.43 in 2013 would give you an idea of what it would take to make a profit.
It varies from mine to mine.
DeleteFirst time I looked it up, it was in the range $21 to $22.
Second time, I found a wider range, $15 at some mines, lower, e.g. near $10, at others.
One note though - there is a lot of engineering & economic assumptions that go into calculating the numbers, because of silver's "by-product" status at a lot of mines.
US Dollar ( slowly but surely ) losing Reserve Currency Status ?
ReplyDeleteChina’s Yuan to Start Direct Trading With Kiwi From Tomorrow
By Fion Li Mar 18, 2014 7:28 AM
China will start direct trading between the yuan and New Zealand’s dollar from tomorrow as the world’s second-largest economy promotes usage of its currency in global trade and finance.
http://www.bloomberg.com/news/2014-03-18/yuan-to-start-direct-trading-with-kiwi-from-tomorrow-pboc-says.html
This could drive the next up leg in Gold (after the correction which has started )
Hilarious.
ReplyDeleteStaggering event that is occurring now is the complete collapse in gold prices. Down nearly $40 after all the "experts" were swinging from the chandeliers talking about outrageous upward price targets.
Once again, Dan was spot on, pointing out that this was merely short covering.
Whilst stock futures are soaring, led by financials and technology.
Man, you could see this moving coming a mile away.
Buy all dips and Stay in the System.
The consumer has never been stronger. Ever.
ReplyDeleteCheck out the airline stocks like SAVE and ALK, going parabolic.
And then the usual suspects: Nike, Under Armor, Chipotle, Buffalo Wild Wings.
Poor Gerald Celente must be having a coronary.
Instead of "Gold, Guns, and a Getaway Plan",
It's Retro Nike Air Jordans, Burritos, and Barbecue Chicken with 100 flat screen TV's, LOL!!!!
Flat out, the U.S. Consumer has never been stronger.
This is the Guilded Age.
Ok , I am back in MUX with one third of my position … Thinking what to do with LSG , or perhaps , look for a different name … its too close to 1 . Any suggestions ? I think I will be all in in MUX by Friday .
ReplyDeleteIf the US does a tit-for-tat with Russia (Crimea) then look for Syria to soon succumb to renewed Western efforts to topple Assad while poking a stick back in Putin's eye.
ReplyDeleteIt will be in Syria where the US/Russia start to indirectly fight against each other.
If Putin eventually takes Odessa in Ukraine it means Russia has it's eye on Moldova. I think it likely.
A war of wills and plenty of thinly veiled sarcastic comments by each side has diplomatic ties close to being interrupted on some level between US/Russia at some point soon.
The volitility play in gold and oil might just get rejuvenated from any of the above scenario's if they come to fruition.
Gold and GDX rolling over again, I'm sure we'll get our fill of the normal and usual excuses about "desparate central planners" and "manipulation", and "the powers that be".
ReplyDeleteWhen in reality its just institutional money choosing between gold, bonds, and common stocks, and right now stocks is hands down the best performing asset class right now.
I gotta be honest with you. You are just as annoying as the always manipulated crowd.
DeleteGrow up ook
I see Zero Hedge has a recent piece and chart on how a significant amount of US Treasuries are being purchased by Belgium and why that might be so.
ReplyDeleteAnyone recall SWIFT? Consider the current banking turbulance going on regarding sanctions against some countries and the increasing dumping of UST's in recent months.
"SWIFT has its headquarters in Belgium and has offices in the world's major financial centres and developing markets."
Could SWIFT (via Belgium) be picking up the current UST buying slack as the US starts to taper QE?
Belgium makes sense if you consider SWIFT's presence there as Brussels is a huge international banking center.
Russian ETF RSX up 12% since Thursday's low. Probably will see the biggest economic boom in that country's history after Ukraine is fully occupied, resulting in astronomical gains in Russian equities over the next 3 years.
ReplyDeleteWhich should be good for gold the next few years as Russian girls and Oligarchs love gold jewelry.
But scared investors are still fleeing to the safety of bonds, evidenced by the unreal resilience in U.S. Treasuries, and the ridiculously low interest rates in safe havens like Germany and Japan, where borrowing costs adjusted for nominal inflation is virtually free.
Quite possible for Fed to compensate for Taper via Backdoor QE using its puppets in Belgium (EU+NATO).
ReplyDeleteHowever SWIFT is controlled by Basel not Belgium.