“Woe to the land whose king is a child and whose leaders are already drunk in the morning. Happy the land whose king is a nobleman, and whose leaders work hard before they feast and drink, and then only to strengthen themselves for the tasks ahead”. (Eccl 10: 16-17)


"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






Wednesday, June 11, 2014

Gold Chart

Gold has been trekking slowly higher on low volume as it inches away from support at $1240. Calls for slower global economic growth seem to be putting some firmness in the market as some shorts pull out and move to the sidelines with some bargain hunters moving in as well. Also, the ECB's recent move to provide some monetary stimulus, while knocking the Euro lower, has chased a few shorts out of the gold market in spite of the continued weakness in that key currency.

Notice on the chart that price has managed to move back into the first of three FORMER support zones which were violated to the downside. Gold pushed through the first of these and is knocking on the lower boundary of the middle support zone.



For the bulls to be able to shift the sentiment more towards their liking, they will need to take price back through $1277 for starters but for a more convincing feat, $1280.

For now, the low volume makes this current recovery look more like a dead-cat bounce but any break through $1280 that remains above that key level will have to be respected.

In looking over the ADX, it shows the bears still remain in control but the current leg lower has been halted near $1240. That zone is shaping up to be just as important as $1280 had been. As I have written previously, below this level, a goodly number of hedge fund positions from earlier this year will be underwater.

So far, it seems this is the pattern that we can expect to see in gold - a slow, steady grinding move lower instead of any sharp falls in price. The price drops, then stabilizes, then drops some more, then stabilizes, etc.  I think this is mainly a function of the extended move lower for nearly the last three years and the remaining stubborn and persistent bullishness on the part of some of the large hedge funds that moved onto the long side earlier this year. Most of those who have given up on gold have already done so and are in equities. Those that persist in gold are a bit more ideologically persistent and will only exit reluctantly if successive support levels give way.

Keep in mind that a market can find a long term bottom and still not make any sharp moves to the upside. Instead it can continue meandering back and forth, working essentially sideways for quite some time ( quite longer than many traders have patience for ). Some seem to think that once a market bottoms, it is off to the races once again. Nothing could be further from the truth. As a matter of fact, most markets do not as a general rule put in spike reversals without a abrupt shift in fundamentals but instead slowly transition from bear markets or bull markets through a period of consolidation ( sideways trade ) which can last for a fairly long period, before then entering a solid trending move in the other direction. Sometimes the initial trend actually resumes.

When it comes to gold this has been perfectly illustrated when the market topped out in August 2011 just above $1900. It experienced a sharp selloff, then stabilized above $1530 whereupon it moved sideways for nearly 1 1/2 years when it was stuck in a range between $1800 on the top and $1530 on the bottom. Then it dropped out of that range falling over $300 all the way to $1180 whereupon it once again entered another period of sideways trade which it has remained in for nearly a full year now. The top of that range is up near $1400 and the bottom remains near $1180.


There is really no telling how long gold might remain in this "RANGE TWO". It could be for months or it could be for years. No one really knows. If we compare the secondary range to the initial one, this current one has at least six more months to go (wouldn't it be nice if markets were all that well behaved - we would all be so wealthy we could retire the national debt all by ourselves).

Within these broad ranges there exist smaller, tighter ranges. Those tend to show up better on the Daily Chart. Just keep these things in mind whenever someone gets too wildly bullish or too wildly bearish.

Gold is stuck in a very broad range with the shorter term charts showing a bearish pattern for the time being. If gold were to take out the bottom of the former range near $1280, then it would have the potential to move back up towards the top of that range near $1320. Again, as noted above, a break below $1240 however would give the potential for a move all the way back to $1200.




By the way, GLD has not given us any updated numbers for some time now.

29 comments:

  1. You write well Dan, especially for those who were not around for the 20 year bear mkt in gold from'80-/99 or so. The big money has been made and now we can go sideways for a long, long time; right now between 40-80 or so. Uninteresting. Same thing goes for the currencies, since now everyone has bought into the currency war theme, we will now just chop and slop; trust me, I have been cut up in the miserable Yen for quite a while now, waiting for the next big break; take care all

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  2. Thanks for your perspective Dan.

    I agree on the slow grind down and a retest of $1200 being in the cards.


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  3. Well, so far not the "Rip Your Face Off Rally" I expected, but it appears that a decent bounce is underway. I'll watch Newmont and Barrick to see if they can clear the swing high from last month. If we are lucky GDX could run up beyond the 50-day before it runs out of gas, maybe the 200-day, who knows?

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  4. Dan, if oil were to start breaching 115 and 120 and head higher, how do you think that would affect the gold market?

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    1. Arnie-
      I'm not Dan and he may have a different perspective but my take:
      if oil goes up it would likely tend to act as a governor on the economy since energy costs are a cost of doing business (shipping, manufacturing, etc). In our Petro based economy, with higher oil prices, the cost of everything else eventually goes up, corp profits get squeezed and inflation becomes more of a concern. Investors would likely lighten up on stocks and start moving more money in alt investment classes, like oil and other commodities. With expectations of more inflation, Gold would likely be one beneficiary...

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    2. Arnie;

      I would say it depends on what happens in the rest of the commodity sector. I believe that there are instances in which crude oil is actually a better protection than gold when it comes to inflation which is one of the reasons that big speculative forces plying a macro trade tend to pile into it in such large numbers when they feel inflationary forces are going to be set loose. That is what drove it to $150 back before everything crashed in 2008.

      Over the last two years or so, crude has easily outperformed gold as it has remained relatively high in price which gold has imploded. In other words, a rising oil price has not resulted in a rising gold price - the exact opposite has been the case.

      If however the entire commodity complex as a whole were to start a solid move higher as evidenced by one or more of the major commodity indices, I believe you would then see gold move higher. You need the entire sector to show inflationary pressures as it did back when it was responding to QE1 and QE2 and the Dollar was sinking sharply.

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  5. Dan - you've written several times about the lack of updates from GLD. just to clarify - GLD updates their numbers every night. They also publish a spreadsheet that has each day's stats/numbers. The numbers haven't changed in the last several days - but it's not that "GLD hasn't provided updates".

    best,
    KD

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    1. Kid D;

      Yes, I know that they provide updates every day and I know that they have the spreadsheet. Where do you think I get my data to update my chart from?

      I understand what you are saying but I think you are being nitpicky to be honest.

      If it makes you feel better however to set the record straight - I am happy for ya.

      I shall endeavor to be much more precise with my comments about GLD and its reporting in the future and will choose my words more carefully.
      Dan

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    2. Dan, I was just trying to help you. there are a lot of people who talk a lot about GLD who have no idea what they are talking about. you can tell that they have no idea what they are talking about because of the errors they make. By making these errors and showing that they have no idea what they are talking about, they discredit themselves.

      In this case, you have written the wrong thing repeatedly over the past week - so i just wanted to make sure that you don't come off as one of those people.

      And yes - it is definitely a nit-picky distinction, which is why I didn't mention it the first 4 times you wrote it. I mentioned it this time because I was, quite understandably, unsure if you knew that GLD was in fact providing updated numbers every night - contrary to what you wrote.

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  6. We may be about to see some disturbance in the force. Iraq is about to fall. Oil production in question but no sign of any USA / Europen support. Presume their president will have an illness ( Saveyourass disease ) requiring treatment in Switzerland.

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    1. Mike;

      Can you even imagine how members of our military must feel to be watching what is going on over there and how easily it could have been prevented? Talk about being betrayed.

      Yes, it does indeed bear watching. They are slowly trying to close in on Baghdad.

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    2. Thanks Dan
      Have a personal stake in the lives and treasure wasted there. Fortunately he returned whole.
      Sen Hoyer was opining that things need to come out "right" there.

      Don't know what that means with the multiple course reversals but I am just sick about the waste.

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    3. Mike-Not a good situation in the Iraq and Islam world in general...its akin to a spreading cancer. One of the problems is, the "doctor" is on the golf course with no idea of how to treat the disease...

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    4. What amazes me is how thoroughly the most radical of fundamentalists have high jacked the religion.

      There just doesn't seem to be any opposition. Perhaps the masses are too sick of the corruption to support anything moderate. So sad for them. Going back to the feudal ages.

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    5. Yes it seems Japan is one of the few nations in the world taking a proactive approach and "outlawing" all forms of sharia law to protect their treasured culture. They have no "shame" in doing so and view it as the only wise thing to do. it appears many of the western countries including much of Europe are basically "throwing their pearls to the pigs" when it comes to protecting their national culture and treasures from the evils of the radical Islamic elements that are taking root. It is sad to see...

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    6. Trinity trader;

      Yes indeed - this is what happens when political correctness is taken to its logical end and when the idea that some cultures are superior to others is ridiculed by that same PC crowd.

      There exists an intangible but real glue that binds a people together in any nation and that is their common culture/heritage, etc. Tear that about or ALLOW it to be torn apart by refusing to protect it, and the glue that holds the nation together dissolves.

      Japan is right to do so. Europe is reaping the fruits of its PC crowd. One of the reasons that we say growing gains in that last election by the right/nationalistic groups is that a growing number of people in those respective countries are sick of the multinationalists and the destruction of their culture.

      The left would do the same thing here if unopposed. The idea that America could exist in its current form without people coming here and assimilating to its culture and heritage is a figment of minds ignorant of history. We are called a "melting pot" for good reason but there is a growing number who want to Balkanize us.

      No nation or kingdom divided against itself can stand.

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    7. Couldn't agree with you more on all points. The melting pot is E pluribus unum, out of many, one. And that "one" is only maintained with the American values of liberty and the concept of "In God We Trust". It is what makes America unique and exceptional on the world stage. Isn't it disturbing to hear the progressive thinkers who do not equate these American values as "exceptional" and wish to change the country with the goal of "equal outcome" for all... A recipe for disaster that American was (originally) designed to be liberated from!

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  7. Hi Dan , if you have a minute , what do you think of the AUSUSD chart ?

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    1. Anon;
      Range trade for the last two months - bottom of the range is 92 - top is 94. It would need a break out of that range to set the tone for the next move. Below 92 there is support near the 90 level and just below that. Above 94 there does not seem to be much in the way of overhead resistance until 96.

      The Aussie tends to be very sensitive to the overall global economy. If traders are optimistic about global growth, it tends to track closely with the general trend or direction of commodities as the Australian economy is heavily involved in the production and export of commodities and basic materials.

      Also, its health is therefore tied closely to China's as China is a big export partner of the land down under.

      Right now it is obviously right up at the top of the range. My guess is that it is going to be very sensitive to any signs of improving global economic activity or the inverse.

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  8. Kind of disagree here :-)

    If I look at gold stocks, maybe not so much an index like the GDX or HUI, but a large list of individual gold stocks, I'm seeing a nice buildup in many names. The past few days have seen DMAs being ran over on high volume all over the place.

    Personally, I think at least the gold stocks have been busy bottoming, maybe even for a year. In June 2013, some of the royalty companies and some of the very well-financed stocks made their bottom. In december 2013 a whole lot of other gold stocks made a bottom that has not yet been re-visited. And if the action of the last few days can continue, I think the list of stocks with tentative bottoms behind them will keep growing.

    I agree with you that none of this has to imply that gold is off to the races tomorrow. In the long 80s-90s gold rout, there were periods with very enjoyable rallies in the gold stocks, without gold really following. But that was a very different period, without all the unstable Ponzi finance that some readers may be a little tired of hearing about in terms of apocalyptic predictions, but that I'm afraid is still very real.

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  9. Gold held near the highest level in two weeks as a rally in equities faltered, boosting demand for alternative investments. Palladium traded below a 13-year high.s
    Bullion Tips

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  10. Until I see evidence to the contrary, I too am in the "80's-90's all over again" camp. I anticipate waffling, whipsawing, and chop, chop, chop for years to come.

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  11. So Mark, is this just a shake or is the top in on your platinum and palladium? How are car and truck sales lately? Remember what I said about thin mkts; just look at the 5 min palladium this morning, but of course your girlfriends at kwn will claim it was manipulation, but of course there was no manipulation for the last $100 ramp, right?

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  12. Dan,
    Great post on Gold. My thoughts several months back was, what is to stop Gold consolidating between 12&1500 for the next several years? I have been involved since below 300 in 2003 and yes I was one of the "manipulation crowd"because of everything I have seen through this bull market but I am also a realist and can see what the markets are doing. After the numbers this morning and with OIL above 106, Gold and Silver look ready to fall again. There is just NO interest! Plenty of other markets to trade.
    Steve Brassey-had to laugh, I saw your comments and looked at the charts on plat & pall. Ouch!
    Much Kudos Dan
    TraderMartin

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  13. Looks like the Iraq premium in gold is underway just like it was regarding Ukraine.

    The situation developing there promises to unravel all other underlying powder kegs in the region that thus far unbelievably haven't ignited yet.
    Recent Iran/Saudi/Israeli silence even before this Iraq situation is telling imho and the situation (ISIS) reeks of a planned alternative reason (Syria) why it's happening.
    Time will tell but the gears for something larger are still in motion.

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  14. I would have to disagree with those who think we're going to chop around for a few years, and this is similar to the 80's-90's. Outside of the Iraq war in 91, there wasn't near the geo-political turmoil that we have currently. Also, gold had finished it's bull run in 80 and was in a secular bear market. IMO we're in cyclical bear, but still in a secular bull run for gold. The economic conditions are also totally different. The western world and Japan have tremendous debt. Economic growth is anemic. The fed has a 4 trillion dollar balance sheet. QE in Japan, England, US.Europe is a disaster. The stock markets have been liquidity driven, added by all the stock buybacks. We have had a low period of volatility for an extended time, therefore volatility is sure to go higher. I don't know where gold is headed, but I seriously doubt that the next few years are going to anything like the 80's or 90's.

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