"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

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Thursday, June 19, 2014

Gold pushes further into Chart Resistance levels

While the pit session close was very strong, the screen trade continuing in the later afternoon hours has seen the metal moving further up into the next level of chart resistance. Adding the upward march has been good buying that has continued into the closing bell in the mining sector. I am currently showing the HUI up over 5% compared to gold currently up 3.75 % and silver up 4.89%.

One wants to see the gold shares leading any charge higher in the metals and we are definitely seeing that occur.

I am reposting the gold chart from earlier today since the metal has risen further and I do want to note its position on the Daily Chart and show the next challenge that gold bulls need to tackle.

As you can see by examining the chart, the metal is knocking on the LOWER portion of that next resistance zone. As a side note here ( will someone please explain to the gold perma bulls or GIAMATT crowd that "YES", technical charts DO MEAN SOMETHING, in spite of their protestations to the contrary whenever the metal is moving lower), observe how the breach of the initial and a KEY resistance level near $1280 brought in more buying in the form of heavy short covering and fresh new buying. It works the same way in reverse folks - breaches of support levels bring in new selling and induce long liquidation.

This buying produces MOMENTUM and that is what attracts the momentum-based hedge funds who will now come in on that side of the market while those in that crowd who are short will be forced to exit by their computers.

Here's how the technical picture now looks - if the bulls can take out this next zone of resistance, I see another band of resistance centered near $1350 - $1360. Above that, frankly I do not see much, if any, until the market would get nearer to the $1385 level. Resistance would extend from that point all the way to round number and psychological resistance at $1400.

I want to give a tip of the hat to one of our regular readers and frequent poster, Steve Brassey, who rightfully has noted that the Argentinian debt situation is worth monitoring. As Steve has noted, problems tend to start around the periphery and slowly work inward so any sort of fresh occurrence of sovereign debt fears could reawaken some strong interest in gold once again.

It should be noted that equities have been the "go-to" investment of choice by large money managers and institutional funds. Ditto for the hedge fund community. If equities begin to falter (remember what happened when sovereign debt fears arose over Europe), there is going to be some diversification out of them and into gold, especially since its price has been so beaten down in comparison to the major stock indices. Traders/investors are not going to want to lose their nice, fat profits in equities so if they begin to get nervous, they will book some of those gains, take the profits and stash them into safe havens.

A question that I have is whether or not the Dollar and the Yen would serve as safe havens in that event. Today, neither one of them look remotely life a safe haven. It was the European currencies which attracted the big money flows, especially Pound Sterling which registered a near 5 year high against the greenback.

Traders have been looking to sell gold on rallies as it was not performing as were equities. Combine that with the fact that the inflation genie has been relatively well confined in his bottle, (at least in the minds of the majority of players ) and there was every reason to sell the metal.

A couple of things have since changed however. The ECB seemed to take the first step with their recent monetary stimulus measures ( lowering rates from .25% to .15% and implementing negative interest rates for bank excess reserves). Since that time, the Euro has refused to break down below the key 1.350 level, something I have found quite remarkable. It is now back above 1.360 again.

The second thing is Yellen's comments which caught a lot of traders leaning the wrong way. Most everyone expected the Fed to announce further tapering, which they did, to the tune of another $10 billion/month reduction. But most expected the Fed to sound a more upbeat tone about the economy and begin to start preparing the markets for an eventual rate hike. Quite the opposite happened. Disappointed traders, or better yet, shocked traders, ran for cover.

Lastly, is that concern that Argentina's situation has now once again raised and brought onto the radar screens of traders.

I would also like to take this opportunity to hoist up a longer term chart of gold.

This is a weekly chart. Notice that today's big move on the Daily Chart above still leaves gold well within the TRADING RANGE market that has held it for a year now. If you look at the previous trading range, $1800 on the top and $1525-$1530 on the bottom, you can see that was in existence for 20 months! When gold finally broke down below the bottom of the range, it entered a bear market. It is currently working within a very broad consolidation pattern bounded by approximately $1400 on the top and $1200 or so on the bottom. It is now, as a result of today's big move higher, a wee bit above the MIDPOINT or center of this range.

For gold to have a chance at ending the bear market, it would have to break out from the topside of this new range at the very least. It would also have to Close ABOVE the bottom of the former range. That means it would have to regain the $1530 level.

One thing I am noting that makes this weekly chart and the price action within this new and lower range a bit more constructive than the previous range is the fact that the market has bounced higher within this range but the more recent low formed near $1240 is HIGHER than the low of the range ( near $1200). If you look at the previous range, gold tended to move to the bottom of the range before it rebounded back up to the $1800 level.

In this newer range, the market has made a HIGHER LOW which is constructive as it gives the bulls a bit more reason to be hopeful than it does the bears, who were unable to bring the metal back down to the $1200 level for another test. Buyers emerged prior to this occurring which is friendly.

I will want to see several thing now - first of all, I want to see the holdings in GLD move higher. If the ETF fails to confirm this move, it will NOT be a good sign for continued strength. WESTERN INVESTMENT DEMAND must surface and remain solid if the price is to continue moving higher.

Secondly, I want to see continued weakness in the US Dollar, especially at the hands of the European based currencies, notably the Euro.

Thirdly, I want to see continued upward progess in the commodity indices.

And lastly, I want to see some weakness in the equity markets of sufficient magnitude that it would reflect some real FEAR exists out there among stock bulls.

The VIX has been and remains comatose and that bothers me. If there is real nervousness out there, it should be seen in this Volatility index careening higher. Either that or stock bulls are just punch drunk and nothing is going to trouble them until it just does. Check out this chart - NO FEAR ANYWHERE - it is absolutely astonishing....! and scary!


  1. I commented a week ago (on Friday 13th) as follows:

    "the key pivot points are

    0.618: 1338

    0.382: 1277 (recent high)

    0.239: 1241 (recent low)

    0.146: 1217

    interestingly, Dan often refers to the start of the Bear phase as having occurred in the mid-1500's, and this is confirmed by the 1.382 oveshoot of your chosen range at 1532; put another way, if the total Bear trend is from 1532 to 1180, then the .239 retracement of this comes in at 1264 and the 0.382 at 1314

    two harmonically consistent trading bands are therefore apparent from 1240 - 1277 and from 1264 - 1314. we were locked into the higher range from 26th March to 27th May, and have yet to break out of the lower band which we entered at the start of June. within these ranges everything is pretty much noise without offering any clear indication of trend

    and yesterday that

    "We need to see - and hold - WELL north of 1320 before this can be considered anything more than a flash in the pan"

    and whilst I know no more than the next man, I would respectfully suggest that Fibonacci levels give critical insights into ANY market; just as a shirt, a sock, a blanket and a suit are all very distinct items, and there may be many different size, colour and texture variants of each, under a microscope they all look the same, because they are all composed of an almost identical pattern of stitches. Number systems are the same - rabbits breeding, cars stopping at a red light, the Golden Ratio, musical harmonics - you will find the magic sequence in there somewhereL

    0.618 x 0.618 = 0.382
    1.000 - 0.618 = 0.382
    1.000 / 0.618 = 1.618
    1.618 x 0.382 = 0.618
    1.618 x 0.618 = 1.000
    1.618 x 1.618 = 2.618

    1. Postcolonial; when Hubert comes back from his vacation I am sure he will engage you; all I can say is that bear mkt rallies will take your head off if you are not careful; how we close the week and month out will be important I would think; sparks

    2. bear mkt rallies will take your head off if you are not careful

      what does that mean, even approximately?

    3. Postcolonial;

      Good stuff there.... I also think those Fib levels are significant. There is definitely something about them.

  2. always XLNT Dan!

    open interest in the GC SI will be studied to see if today was alot of short covering, or some fresh buying as well.

    http://etfdigest.com/ has a good take tonite on the metals funds mess in china being a big factor, and since precious had been in a large downtrend one would think alot of shorts.

    speculators short silver on comex were way up there, near record net short coming in.

    for GC 1331 will be a res. with a previous peak and a fib zone, then the 1350 ahead on futures op-ex next week. ..op-ex for GLD SLV tomorrow.

    grains op-ex is tomorrow with most commentators saying we'll have a bit of an uptrend if they can close above, then hold above their 20-day MA's.


  3. One day does not make a trend. We will see how insane market participants take and bid the action out into the near future. The stock market is looking top heavy like Dolly Parton and she is begging for a much needed 10/15% correction; maybe soon.

  4. This is what is different this time:

    Gold rallied on 4x normal volume compared to recent trading sessions

    Many crappy gold stocks which were dead in the water on previous rallies actually started getting bids before today. Breadth is much better in the sector than on previous rallies of late.

    The CRB Index may be finally about to break out from a 2 1/2 yr. consolidation, and gold and silver are front running it. Oil was the first to move up, but everyone blamed it on Ukraine and Iraq, but now I'm seeing something else. Possibly another 2010 style commodity rally, especially now that Emerging Market ETF's are acting so much better.

    Some stocks like Royal Gold and Agnico Eagle are already near the top of their trading ranges, as if they were already predicting a floor in the gold price of around $1,275. They got slammed pretty hard on that last shakeout and I was expecting another leg down, but they completely reversed and that shakeout was erased almost immediately.

    So I'm predicting a rally that is going to be stronger than the previous ones, based on my observations.

    I just hope that Bill Murphy doesn't ruin it like he always does by posting pictures of the GATA rockets on his webpage after a day like today, LOL....

    1. Props to you Mark, you call it as you see it. Who knows if this lasts. It seems different in terms of gold shares, but if the gold price cannot achieve a higher high or low for that matter this thing could go down fast. I see little talk on CNBC and Yahoo finance about the rally and wonder why that is. So it seems like a stealth rally except for all the perm bulls. If gold can break out in June it will be quite a trick. That said I bought some gold shares. It was like August 2011 for a day. I may regret it.

    2. Good to see that you're data driven, Mark.

  5. Great analysis as always Dan! Regarding the GLD, could part of the reason that there isn't a lot of new buying in this vehicle is because nobody trusts the ETF? Not only that, but it also appears that it is difficult to redeem shares for the actual metal.

    1. Gilliom;

      I suppose that I am merely focused on the rise or fall of the reported holdings my friend. The reason I say so is because back when gold was in a bull market and running into all time highs, the reported holdings were moving higher the entire time it was rising. When the gold market retreated and moved lower, the reported holdings began to drop and move lower.

      I really don't think that the metal redemption thing was an issue because it did not seem to keep those reported holdings from rising when the price of the metal was rising.

      For whatever its flaws might be, it is a good indicator of Western oriented investment demand for the metal.


  6. Hi Dan,

    The red and green boxes in your weekly gold chart look almost identical to me. Even though gold managed a higher low, I see no reason for the bulls to rejoice yet. What an exciting day it was.

    1. Timco;

      Yes, it was indeed a big day - big, big wave of short covering as upside stops got hit as well as some new buyers coming in. There was a lot of repositioning today.

      Those big range boxes I drew on the weekly chart however are meant to throttle back a bit of the wild exuberance. I tend to be a bit more blasé about these market moves when they are not showing breakouts on the longer term charts.

      We can easily go back and look at the commentary when gold was pushing up towards $1400 not that long ago and get similar views. Staying even keel when trading is however sometimes easier said than done!

  7. Dan - great posts today. What do you make of the delay in the synchronized "pop" in commodities this morning at 5am ish (pacific time). The fed started jawboning around 11:30 yesterday and many of the commodities were firmer. But the fireworks didn't really get started until this morning... and when they did as you point out it was across the board. It was like someone published a memo today telling everyone to start buying commodities which screwed up a couple promising trades... Also noticed the action the last couple weeks in Silver looks very similar to that seen the first couple weeks in February with a ~1$ Valentine day surge. Only to fall back over the course of the next few months. And a huge gap up in the HUI today - which feels good if you own miners, but gaps are made to be filled... Agree with your comments about the general incompetence of the PM mining company execs. It seems the energy company execs, (large and small companies), for what ever reason, make better business decisions for their share holders overall. Always exceptions of course!

    1. Trinity ;

      You were seeing the same thing I was seeing my friend. I was watching the movements in some of the other commodity markets and began noticing some steady bids showing up.

      It is hard to say what kicks off these computers into buying or selling - in this case buying. Once they do however, they ALL kick in mindlessly buying or selling. The reason is that there are some index funds out there alongside of the hedge funds. Those are often referred to in our industry as "Long Only" funds. They take positions in the commodity markets according to whatever index they benchmark against. That means they blindly buy a basket of commodity futures across the board, regardless of what the fundamentals might be in those individual markets.

      I agree with you on the energy market stocks. Good companies, sharp management, etc. yield very good returns and some pay great dividends to boot. ON any inflation play, I would own those before I would own gold stocks.


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