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!