"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, March 14, 2014

Ukraine Worries keep Pushing Gold Higher; Dollar Struggles further

In what has been a constant theme for this past week, conditions on the ground over in the Ukraine region have generated nervous safe-haven related buying in the gold market. With equities looking a bit wobbly, some investors are selling stocks and buying gold ( the reverse of what they had been doing for all of last year). Throw on top of the fact that the Dollar continues to be losing friends of late, and the path of least resistance for the yellow metal has been higher.

The strong finish to close out the week puts the market on really firm footing as we head into next week. The wild card, and the potential to be a big spoiler, is this weekend's referendum in the Crimea. If the votes goes as many expect ( with the region voting to become a part of the Russian Federation) and all hell does NOT break loose, there is a very good chance that gold will see a fairly substantial amount of selling come the reopening of trading Sunday evening here in the US ( Monday morning in Asia).

Geopolitical events, by their very nature, are incredibly volatile. As such, both buying and selling tied to these sorts of things is completely emotion driven. That means the losing side acts first and thinks later. All they know is that they are on the wrong side of a trade and their account balance is disappearing. So out they run. Volume tends to run quite high during such times.

What this means is very simple - you have a 50/50 chance of getting it right as a trader when dealing with geopolitical events. I personally will NEVER trade those odds. Why not just hit the casino and roll the dice because that is about the same set of odds. Traders deal with favorable probabilities based on technical analysis. If you want to test your luck, try picking up some out of the money put or call options depending on your perspective and roll the dice on those. At least you know what the extent of your losses is going in while leaving the upside open for some good profits if you happen to hit it right.

I do wonder however with all the hype about massed troops on the border, Western sanctions, deadlines, etc. whether or not the gold market has already factored in most of those expectations. If things disappoint in the sense that WWIII does not break loose, I would expect to see the selling show up. If the conditions worsen, then gold will move higher as it factors in another  and more dangerous scenario.

That is how markets work. They anticipate events ( that is why it is called a "FUTURES" market and not a PAST or a PRESENT market. If the events materialize within expectations, more often than not you get a case of "Buy the Rumor; Sell the Fact". If the events do not unfold as expected, then the reactions can be quite severe, either up or down depending on the particular turn of events and how it is being interpreted by players.

What I can say is that traders of both persuasions when it comes to gold ( bull or bear) had better have some very light and very fast trigger fingers come Sunday evening. They might just need them.

Here is the weekly chart for gold. This week's performance was a real doozy of a show put on by the bulls. I have included the note I put on this same chart earlier this week which stated that if they could close the week over the resistance zone noted, ( $1,350 - $1,355) they have a real shot at reaching psychological resistance at the $1,400 level. They did just that!

Again, the move has been predicated on fear/concerns over that situation in Ukraine ahead of this weekend's big vote so just be prepared because all of this could evaporate if the world does not end come Sunday evening. The obvious flip side - If tensions remain high, so too will the gold price remain supported.

Looking at the technical levels on the chart you can see a couple of things here - the first is that the ADX line is beginning to flatten out. That is suggesting that the sideways action ( on an intermediate term basis the market has merely been moving in a sideways range between $1180-1200 on the bottom and $1425 or so on the top) could be coming to an end and that the POTENTIAL ( please note the use of the word) exists for this broad consolidation pattern to be coming to an end being replaced by a trending move higher.

That spike high near and around the $1,425 level would need to be taken out to shift this particular indicator that I favor into a trending mode. If it were to do so, one could easily make the technical case that a move back up to retest the broken FORMERLY MAJOR SUPPORT near $1,525 is reachable.

The Dollar's action would of course be key to this as well for if it cannot stay above 79 on the USDX chart, I do not believe gold will fail at the $1425 level. Any weakness in the Dollar of that nature would send a lot of strong speculative inflows into gold and those should be enough to better that spike high.

Again, let's see how events unfold over the weekend.


  1. http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/3/14_Billionaire_Sprott_Looking_To_Sue_Banks_For_Gold_Manipulation.html

    1. Got it Right;

      May I suggest that you cease from coming here and eagerly reading all the stories that Toilet Dan writes here. After all, it is only fitting that you have some integrity and stop visiting a website which you equate with human excrement.

      Incidentally, Sprott reminds me of Don Quixote... I think we should chip in and buy him some windmills. Good luck proving his allegations. This guy has cost so many investors so much money by his horrendously wrong-headed price predictions that it is tragic he has the least shred of credibility left. Then again, I just know I would have been 100% right were it not for those big, bad, nasty, evil price manipulators over there at the London PM Fix.

    2. Got it right,

      We all know where KWN is, if we want to go there, so there's no point for you to post these links. Rather, tell us more about how successful you were with calling tops and bottoms in the miners. Those posts are very amusing (if very doubtful).

  2. There is a lot more than Ukraine Dan we also have an FOMC meeting on the 19th as well as an an op-x week as well so there is a lot on the markets plate,

  3. Hello,
    I find it quite remarkable that using differents methods or indicators, price levels often coincide.
    The 1425 area here is for me at 1418, so on a long term time scale exactly the same, watching the middle of the body of the "ligne de poussée" on the quarterly time unit and the fibo retracement level mentionned before.

    I have the impression that Ukraine situation is like a slow motion train wreck, things are getting worse week after week, with everyone trying to slow down a terribly logical chain of events based on escalation. The West is finding every reason to justify that Ukraine as a whole should remain under their control. Now they brought a Tatar representative to explain they risk extermination. How come they didn't risk it 3 months ago? Noone wants to be bullied here, then what? Crimea will of course vote in favor to joining Russia. Russia will welcome Crimea. Higher sanctions will fall. Russia will cut gas against Europe, I presume. Then the west will reply it's not tolerable and will talk about integrating Ukraine inside Nato. Russia will act and this time really invade eastern Ukraine provinces as a preemptive move. Nato will send troops to protect the western side of Ukraine. Poland and Baltic States will call for help and military readiness. This is just one scenario. Which could take a few months to unroll, step by step until those idiots find themselves face to face, missile to missile over the whole European border, and the smallest shoot will trigger a whole war.
    You think those guys are reasonable enough to de-escalate at any time, and come to their senses? History tells me to be rather pessimistic, but it's my personal opinion.

    But even without that, there is a factor that makes me feel a bit confident that gold would rather push higher than lower and get a better than 50/50 chance for bulls, better than throwing a dice : the fact that cold was is back.
    Even if, by miracle, there is a relative de-escalation about Ukraine, we are seeing a full confrontation East / West now, and that means perceived unstability, risk and geopolitical tension.
    The mere fact that the world is once more split in two, with US/Europe (unfortunately taking sides instead of mediating, calming down)/Nato against the BRICS, the two sides being more and more in conflict with each other everywhere in the world, from Syria to South China sea, through Ukraine, etc... is an incentive to buy gold that wasn't as strong a few weeks ago.
    We'd better be praying that this whole chain of events, dominos, fate, butterfly effect, whatever you name it which provokes all the time a world war from the assassination of just one guy, better be praying that we manage to stop it somewhere on the way.
    Both sides took such strong positions now, that they cannot back down without being humiliated and looking weak, which is a very dangerous situation.

  4. TD,

    Trying to sort out all of the unusual market crosscurrents going into this "referendum" weekend is tough...would you be willing to share a brief opinion about the following synopsis of current market prices?:

    Copper = deflationary forces
    USD = no war coming
    Gold = short covering, bull trap, war fear baked in
    Oil = short covering, no war coming, newly trending deflationary

    That's the best shot I have at trying to make sense of it all and tying it together

    Thanks for all your hard work, especially with it being cost-free to people who strongly value your opinions, like myself

  5. Thumbs up to Dan for this blog.

    I think the misunderstanding from some folks is exactly caused by the fact they don't know what trading is about in the first place.
    They are used to the investor's speeches.
    Is gold cheap?
    Is it expensive?
    Is it manipulated and can it go down lower?
    It's about value, and not technical analysis, not support, not resistance identification,not setting up stop loss, not risk reward approach, not how to get in / get out of position.
    But trading is a lifelong job to master and some think they know what it's all about when they arrive here for the first time.
    The fact that Dan lives only from trading, that this is not a paid service, and that he is still alive and trading after 25 years shold give us a hunch about the odds that he knows more than us about how to correctly trade, i.e how to make regular small constant profits and not become a road pizza.

  6. Dan,

    I think everyone can agree there is going to be volatility come monday?

    What about a straddle? Wouldn't that be a bet of high probability regardless the vote?

    The way I see it, it is not a thumbs up, thumbs down vote. Meaning the chain reaction has hundreds of different outcomes and degrees:

    Crimea could vote to go to Russian, then comes the "oh that is against international law, against Ukraine's Constitution" from the West and they impose sanctions which then cause Russia to retaliate with sanctions of their own.

    Crimea could vote to stay with Ukraine (doubtful), then Russia could go in militarily, or impose sanctions on Europe. Everything I hear says that Russia believes the West MANIPULATED the coup (sorry, had to throw that out there).

    Either way, Gold could take off, or it could crash. I don't see many scenarios where it would go stagnant. Maybe a straddle is the best way to play geopolitical events of this nature.

    Would love to hear others' thoughts.

    BTW, I kinda did that in GLD options, but risked very little.

    1. Nate;

      I think that is a good strategy that you have outlined there. There are covered calls or covered puts option plays that could be employed. Different kinds of strategies to capture relatively high option premiums. You can also use a combination of futures and options.

      I hope the trade works out for ya my friend... you are certainly right - it is going to be volatile regardless.

      I still don't get what the West is so upset about. Some of the US media has Putin as the second coming of Hitler, which I think is beyond absurd.

      When politicians draw lines on a map and then call those areas within the lines a nation, more often than not, they give no regard to the ethnicity, customs, traditions, religious views. etc of the people who live there. The simple truth about human nature is that people want to generally live among those who share a common set of traditions or values. Forcing people to do otherwise, is a recipe for permanent civil unrest.

    2. "I still don't get what the West is so upset about. Some of the US media has Putin as the second coming of Hitler, which I think is beyond absurd. "

      Or to prepare the population to see Russia as THE enemy once again;
      Convenient to prepare for a war, with the population embracing it instead of opposing it everywhere. How could you refuse to wage war and defend your wife and kids if it were against Hitler?

      Convenient for turning away population from the real culprits of the current economic situation, and in order to find an external enemy so that they turn their attention outside rather than inside...

    3. that strategy is just about as old as the gold trade itself. and for the most part it seems to still work. sad but true.

    4. Hubert
      I agree the Russian occupation of the rest of Ukraine is a done deal. Putin can either gradual ooze it or blitzkrieg. USA/Europe/NATO will dither and wake up to find it done. If he should chose a middle course we might have a shooting war.
      Either way gold will be explosive. Interesting times.


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