The S&P 500 gave up its gains over renewed concerns with emerging market currency/credit issues this afternoon but neither the Japanese Yen or the Swiss Franc seemed to catch any sort of safe haven bid as they were doing last week. Neither did gold when the dust finally settled. Even the bond market moved lower today.
It was thus a very strange day seeing interest rates actually rising in the face of sinking stocks. If there was a safe haven today, it was the US Dollar all by itself as nothing else seemed to be moving higher besides the Australian Dollar and the British Pound.
Frankly I have no idea what was going on in some of these other markets so I am not even going to try venturing a guess. Just chalk it up to one of those days where not too many folks were very sure of exactly what they wanted to do.
One thing that many folks were sure of however was to sell the liquid energies, especially heating oil. That has been driven sharply higher on the severely cold weather engulfing the middle and eastern parts of the US, but some forecasters apparently took a bit of the severity out of the cold and that forced some profit taking by longs and some fresh shorting as well. The exact same thing occurred in the natural gas market today. Both these energy sources have been benefitting from the sharp cold but the first sign of more normal weather patterns/temperatures coming and more longs will be heading for the exits. The forecast models are always fickle ( as any grain trader and he will show you the scars from being on the wrong side of a "flip" in the forecasts ) so they might just as well show more cold tomorrow that is more bitter than today's models.
I have some friends up here who are burning as much firewood as we can in order to do our fair share to help our fellow citizens to the east which are getting the brunt of this walrus weather. If we can force enough fossil fuel fumes into the air, we should be able to kick up the global warming enough to warm things up for ya'll over that way. Hang in there and give us some more time to let the smoke plume move east.
I have posted up a very short term gold chart ( 4 hour) to note the resistance and support levels. I want to add here that volume in the February gold contract is going to be shrinking as we draw nearer the delivery process so it will not be long before I switch over to the April contract for analysis purposes.
Gold has obviously failed at its first attempt at $1,280. That was a big number on the way down so it makes technical sense to expect it to be a big number on the way up. The setback initially found dip buyers into the support band noted near $1255 but then failed eventually dropping below the zone in late trading as the gold miners failed as well.
There might be a bit of psychological support near $1,250 for gold but more substantial support actually lies closer to $1,245 or so. If that fails, expect gold to retest $1,235 - $1,230.
For the bulls to generate any more excitement on the upside they now have a solid barrier up near $1,280 that they will have to better.
The FOMC will add more uncertainty to the market this week ( as if we did not have enough of that already to contend with) so do not be surprised at some pretty large swings in price as traders react with the usual calm and measured demeanor that marks our profession ( this last part is pure sarcasm as everyone knows that there is no calm, measured demeanor left anywhere in the trading world nowadays).
Strong buying overnight in the early part of the Asian trading session took gold into a region of formidable chart resistance near the $1,280 level. At that point sellers entered sensing that the bulls were booking profits and prices needed a breather.
With the nervousness surrounding last week's emerging markets currency/credit crisis subsiding somewhat, gold ran out of reasons to keep moving vertical. If you notice, the Japanese Yen and Swiss Franc, the beneficiaries of last week's rush to safety plays, are weaker today. Also, the S&P 500 is trading higher while the US Dollar has managed to obtain a firm bid. With the VIX moving lower as well, it appears that for the moment, the market is less concerned about the emerging market issues that plagued it last week. How long this lasts is anyone's guess but for the immediate moment, gold is being sold and stocks are being bought once again.
If anything, last week's price action in response to the emerging markets reinforces in my mind the notion that gold MUST HAVE SOME SORT OF CONFIDENCE SHATTERING event(s) to push it into a sustained uptrend. The recent move up has consisted of a great deal of short covering and while there has indeed been some fresh buying, that has been largely outnumbered by speculative short covering.
As I have written many times here at this site, short covering rallies can be quite ferocious and oftentimes spectacular, but by their very nature, they tend to fizzle out as quickly as they start. Markets require the application of THRUST/FORCE to escape the downward pull of gravity and that necessitates SUSTAINED money flows ( new buying ). If that new buying is lacking, gravity will win out and price will back down.
When it comes to gold that means any sort of credit/currency crisis must be one which escalates in the minds of traders/investors. Such escalation fans more fear and nervousness and that will drive money into gold. Given the current state of low inflationary expectations, it will take this sort of strong emotion to keep those flows active. At the first sign of stability or easing of tensions, gold will tend to surrender its gains with the more recent pattern of buying stocks/selling commodities coming to the ascendancy once again.
What this translates to when it comes to technical price action is selling at resistance zones. Gold thus far has managed to plow through several layers of overhead chart resistance and in the process turned the daily chart positive ( the weekly remains decidedly bearish however). With traders looking for reasons to sell rallies, these resistance zones on the daily chart will take on more importance. Any hesitation by the bulls to extend the rally at these zones will bring in selling as very short term bulls bail out with any paper profits that they might have while longer term oriented bears look to re-enter on the short side.
It is always interesting to watch the battle lines being formed on the charts. Right now dips are being bought in gold based on the improving daily chart picture while rallies tend to stall - at least temporarily - at these resistance zones. Translating to numbers - resistance is the zone near $1280 with support being provided by the zone near $1260-$1258.
I am watching to see what gold does if equities start moving lower once again and particularly if the Dollar cannot hold any gains. I will provide an update later in the session as the direction towards the pit close becomes evident.
