Gold has had a nice rally off what is now a TRIPLE BOTTOM ( which amazingly held) near $1180. In the process it has managed to clear two resistance zones; the first near $1220 and the second near $1240. It has subsequently been unable to best the 50 Day Moving Average however and has set back after some early session buying popped it above that key technical level.
The HUI, in spite of an extremely powerful rally in the broader equity markets ( the S&P 500 is up over 2% today) has been comatose which is worrisome if one is a bull.
I mentioned in yesterday's post that if the equity markets rally and especially if the VIX moves lower, gold was going to encounter some selling pressure. That it is doing at the moment. It does however remain higher on the day although well off the best levels reached earlier in the session.
Tomorrow will therefore be important for the short term future of the yellow metal. If it does indeed set back from here, how it handles itself if price does fall towards $1240 will be key in deciphering its next move. Failure there and it will drop back to $1220 as discouraged bulls and emboldened bears will assert themselves.
If the metal manages to attract enough dip buyers to keep it afloat above $1240, the action will be more indicative of a pause or rest in a market that wants to make a run towards $1280. Thus the jury is out at this point.
Buying has been good out of Asia ( what else is new ) but Western-based investment demand is miserable as witnessed by the plunging reported holdings in GLD.
Some want to make some sort of big deal out of this claiming that the "GLD is being "drained" or "raided" to meet demand from the East" but that is an explanation looking for an argument. Who cares who is buying it? No one in the perma gold bull camp seemed to care when the reported holdings were soaring several years back now were they? We could turn the latest theory on its head and say the following:
"Western-based investment demand is pulling gold from all corners of the world to meet it". The simple truth is that for every buyer there is a seller. Some act as if once this gold is bought by some nebulous "East" that it will never be sold again. That is pure rubbish! Gold is bought and sold every day in China as well as in India or Vietnam or anywhere else in the nations that comprise the "East".
Western-based money managers chase yield. If they feel that gold is going to put in a good performance or if they require a safe haven asset in which to park some excess funds, they will buy the metal. If they do not, they will not buy it.
I am on record here as stating that I believe falling reported holdings in GLD is not bullish. If was bullish on the way up for gold way back when, then it is bearish on the way down. One cannot have it both ways.
That is why I am watching this rally with some skepticism. For now, the bulls are in technical control of the market with the chart in their favor.
Let's see what we get tomorrow.
By the way, the Euro plunged on the ECB potential corporate bond buying news.
It stalled out exactly at the former support zone near 1.2800 which is now serving as overhead resistance. The recent bump higher has relieved the oversold reading on the weekly chart so perhaps the currency is reading to resume its move lower. We shall see on that as well.
Lastly for now, the soybean meal market which I noted earlier today, posted a very strong close above the $340 level. It continues to pull the soybeans, AND THE CORN higher.
Wheat was pulled higher by talk of planting delays for the soft winter wheat crop in the Eastern portion of the Corn Belt. It popped above $5.20 which is a big level but failed to CLOSE above that line. Wheat bulls can expect to see $5.40 if they can dislodge the bears near this level.
There has been a rather significant amount of short covering by the funds in this market but that is the reason why one has to closely watch these resistance levels. The stronger hands, who have not been squeezed out, are still looking for a level against which to sell. For now they seem to have found it near $5.20. This is shaping up to be an interesting battle.
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