"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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Gold has solidly taken out resistance centered near $1840 - $1845 and has now moved directly to the next level of chart resistance near $1880. This is the last barrier before a retest of the former all time high near and just above $1900 is in order.
That gold is doing this even as the Dollar is moving higher is evidence that it is trading primarily on currency related issues now ( currency debasement by the respective monetary authorities).
We are back to looking at the same issues that have driven the metal higher in the first place - deliberate currency debasement efforts by the monetary authorities ( aka loose and extremely accomodative monetary policy combined with official sector buying of government bonds ); raging inflation in the far East, particularly China and South Korean; and three, enormous federal budget deficits in the West. Throw in a good dose of rotten economic data releases which will reinforce the need for accomodative monetary policies resulting in NEGATIVE REAL TERM YIELDS for savers, and you have a perfect storm for higher gold prices.
That is the situation from a fundamental perspective. From a technical chart perspective, we will watch to see how gold acts should it make a move towards $1900. I would expect an all-out effort by the perma bears at the Comex (bullion banks) to check the metal at this level and attempt to paint a technical chart pattern known as a double top. They know full well that if they are unable to absorb the plethora of bids or buy orders that will come into the market as its price rises and thus fail to hold it below $1900, gold will be at $2,000 before the month is out.
I should point out here that gold has also made a Brand new all time high WEEKLY SETTLEMENT PRICE.
By now you have all learned about the absymal payrolls number. What more can be said at this point except for the fact that the current Administration seems intent on gutting the American economy.
Remember at the last FOMC statement when the Fed announced that short term interest rates were going nowhere for the next two years? They then went on to say that there is only so much a Central Bank can do and if the economy is going to grow, it is going to require policy changes that reduce structural impediments to growth. That was a not so subtle dig at the current clueless occupants of the Executive Branch to get off their Marxist redistribution wagon and start putting forth some business friendly policies (not to mention spending us all into the toilet). Well guess what? After today's jobs number, the markets have given up waiting for anything coming from that quarter and are now practically begging the Fed to save them.
This is being evidenced by the fact that the long bond is rallying as traders now are fully expecting the Fed to roll the proceeds from maturing short term Treasuries into longer term Treasuries. In other words, exchanging short term debt holdings for long term ones with the idea that the Fed will now engage completely in focusing on keeping those long term rates low for an extended period of time as well. My thinking is that were it not for this thinking, the equity market would have utterly imploded today.
What has been occurring is that the more bad news we get, the more stocks refuse to break down, in some instances actually rallying in the hope, wish, prayer, etc, that the Fed will be FORCED to act. Personally I find this sort of activity repugnant. The greatest nation on the face of the Earth, its entire economic hopes are now hanging on whether or not a group of monetary authorities are going to buy US government debt. Am I the only one out there who shakes my head in dismay and disgust at what we have all been reduced to? Instead of being able to witness the unleashing of American ingenuity, drive, ambition, know how and hard work, we sit around and buy stocks because we think the dispensers of slips of paper known as Federal Reserve officials will inject us easy money addicts with more of the same worthlessly ineffective stimulus? This is America early in the 21th century! Sigh....
Anyway, gold is reacting to this nonsense as it rightfully could be expected to do - it is moving sharply higher because it instinctively realizes that the only "solutions" going to be offered for the current economic disease is going to be additional currency debasement. Whether it is Europe, the US, Japan or even Switzerland, all are going down the debasement path. That is why gold is either making new all time highs in terms of these various major currencies, or just shy of those record high levels.
Silver too is now catching a safe haven bid as many investors are viewing it as undervalued in relation to gold and as offering the potential for better gains on a percentage basis than Ol' Yeller.
I will kick some of this around on today's Weekly Metals Wrap with Eric King over at King World News but wanted to note that those who keep insisting that gold is in some sort of bubble are utterly clueless as to what is driving this market higher. It is going up because a steadily growing number of investors are wising up to the game that is being played by the monetary authorities at the expense of the wealth that they have spend a lifetime accruing by the sweat of their brow and the labor of their hands. As more and more of these investors and average folks learn the role of gold in protecting that wealth from the depradations of Central Banks and spendthrift politicians, gold demand (and silver demand) is going to grow.
It basically comes down to this - whom or what do you trust more - monetary authorities and Central Bankers who have a distinct bias towards problem solving in the most painless manner possible or gold, which cannot be conjured into existence and which has stood the test of time and history. The market always votes with its feet and the voting is obvious.
The only additional comment I might want to make in regards to the ignorance of those who insist that gold is in a bubble, is that they obviously have incredible confidence in Central Bankers and politicians to fix all that ails us - also noting that it is this very same group of people who are the most responsible for creating the current miserable economic climate in the first place.
Note that the HUI has smashed, and I do mean "smashed" through overhead resistance near 610 and is charging higher. I mentioned not that long ago that the hedge funds who were employing this damned ratio trade had overstayed their welcome and that the first one to cover those mining share shorts and get out would be the only one which would make money on that crowded trade. That is now the case as the shorts are now in serious, serious trouble with all of them looking to buy and very few looking to sell.
We'll see how these indices close the session out today but I do find it very telling that the mining sector shattered upside chart resistance on a day in which the broader stock markets are cratering.
One more thing in reference to the mining shares - how many times in the last two months have we urged the hedge fund managers to get out of that overcrowded and worn out long gold/short mining share ratio trade and to instead institute a ratio trade employing a long mining shares/short broader equities trade mainly because of the severe undervaluation of the mining shares? Just look at the following ratio chart to see how successful this recommended trade would have been instead of trying to squeeze the very last nickel out of their former strategic trade.
Note that a rising line indicates the mining shares in general are OUTPERFORMING the broader US equity markets and have been doing so since June of this year.
What an impressive performance by Ol' Yeller for the month of August! Note that Gold has bettered the all time high CLOSING price on an inflation adjusted basis.
Gold has been relatively quiet after the extreme volatility of recent days, a very welcome development. You can note the declining trend in volume as evidence of the more "tranquil" trading conditions. We are currently running into overhead selling resistance near $1850 with buyers either unwilling or unable to take it through this level without some sort of fresh news. Sellers meanwhile have been thwarted in any efforts to break prices significantly lower.
The present posture is one of consolidation with some buying surfacing down near the $1800 level and further below towards $1780.
A strong push through $1850 that can carry through the $1860 level would set up the potential for a push towards the recent peak near $1900.
There is some pressure coming into gold based on today's weakness in the HUI and the inability of that index to push through tough overhead resistance at the former all time high set back in April of this year. Last week the miners pushed up through the 600 level but could not quite muster enough strength to best that previous peak. Price then set back but has subsequently rallied back towards 600 once again, failing today to extend those gains and dropping off lower. For all that, one can still see quite clearly that the miners have been in a nice uptrend since bottoming out in mid June. The more time this index can spend above 580 the better the odds grow that it is soon to mount a breakout and begin its next leg higher.
Please click on the following link to tune in to my regular weekly radio interview with Eric King on the King World News Weekly Metals Wrap.
Silver has thus far held solidly at the intersection of three major chart support levels detailed on the following chart. Horizontal support near $39.50, the 38.2% Fibonacci retracement level of the move from $50 down to $33, and the upsloping trendline created by the price action of ther last 6 weeks. Now the bulls will need to take it through the 50% retracement level once again and keep it ABOVE that level to set it up for another test of overhead resistance near $44.
Trying to explain the reasons for the price action in the markets today is an exercise in futility as there are far too many cross currents at work and far too many hedge fund computers sloshing money all over the place. And this does not even take into account the parasitical HFT crowd.
That being said - gold initially dipped a bit lower and came off its best level early in the session as Bernanke's highly anticipated speech turned out to be a dud. Why these guys expected him to come out and announce another round of QE3 escapes me for the reasons we have detailed here on this site previously. The political environment just did not permit it without a SERIOUS DEGRADATION of the economic data (not to mention the glaringly obvious fact that is DOES NOT WORK).
After the initial knee jerk lower (which also took silver down with it), gold moved back up again as the speech was interpreted by the market as saying that the economy was very weak and that the Fed was closely monitoring the upcoming economic reports. Most took it as saying that the Fed left the door open for additional monetary stimulus next month in September and reinforced the demand for gold as a safe haven. Once that theory seemed to gain traction, gold began money steadily higher as the Dollar began heading steadily lower.
I also happen to think that with Bernanke passing the ball off to the political leaders to address the structural issues plaguing the US economy, those who wanted to put their trust in those clowns to fix anything decided that gold looked mighty attractive and decided to trust it instead of their princes.
The other issue working for gold was the thinking that what ECB President Trichet might say this weekend would actually be more important that what was contained in Bernanke's speech. After all, Europe is experiencing its own version of its credit crisis and the ECB is going to be under pressure to deal with that, not the Fed. Whatever they might do, if anything further, to provide some form of monetary accomodation or further increase the size of their bond buying program, makes gold all that much more attractive.
Let me make a quick comment in regards to some of the "experts" that are continually trotted out to pontificate by stating that "gold is not a safe haven". Have you ever noticed that it is ALWAYS AFTER A SELL OFF IN GOLD that these mushrooms pop up and appear for the sole purpose of annoying us? They are never anywhere to be found while the metal is making one record high after another. But let the market experience a normal price retracement such as those that occur in any bull market and out they come dazzling us with their brilliance. My response is simple - if they think it is not a safe haven, then they should have some courage and short the market with reckless abandon to prove how smart they are? After all, once it broke out above $1500, they could have sold it short over and over again all the way to $1900. After all, a $400 dollar drawdown on a short position would only amount to a paper loss of $40,000 on each short position initiated. What's that to these wizards???
I cannot think of any other statement that so utterly disqualifies these individuals from being taken seriously as stating that gold is not a safe haven. Not only does it display amazing ignorance, the statement has also been proven to have been blatantly erroneous. What else can explain a $400 rally since the beginning of July? Indigestion induced by a bad batch of pepperoni pizzas that made the round in the investing community?
Gold is and always will be a measure of the CONFIDENCE that investors have in their monetary and political leaders. It is that simple.
If you doubt my comments, then let a more objective argument make the case and convince you of the utter stupidity of these babblers who are legends only in their own minds. Following is a chart comparing the price of gold to the price of the long bond. Both are considered CLASSIS SAFE HAVENS.
Which one has proven to have been the better choice as a safe haven since the first inception of the Fed's failed QE policies were first begun? Yes, you have guessed it - Gold.
The chart settles the argument. Ignore the babblers and pay them no heed. They have been discredited and can be and should be ignored by savvy traders and investors.
Watching this game being played by the shorts in the mining shares as they attempt to extricate themselves from their rather tenuous short positions in the shares is shaping up to be mighty entertaining.
On Monday of this week, the mining sector finally blasted through the stubborn line of resistance that has formed on its price chart near the 580 level. It ran right through the 600 level and almost as high as 610 before settling near the high of the session. All in all, very bullish chart action. Yesterday it moved lower along with the gold and silver markets but bounced off the 580 level confirming that former resistance level as the new support level even though it ended lower on the day. It kept itself above the low of MOnday's session as well. That too was friendly.
Today, the shares were mangled with the result that the index collapsed back through that same old 580 level and was unable to regain its footing above it before the close of the trading session. It did managed a decent bounce off the session low however.
Since the middle of June, the mining sector, while lagging the performance of gold (and silver to a certain extent) , has been in a definite uptrend marked by a series of higher highs and higher lows. While the long suffering share holders have been distressed by their lack of upside activity, as long as the index stays above the uptrend line shown on the chart, it will still be in a bullish posture although it will have to clear 610 to get another strong leg to the upside.
If this index recaptures the 580 level within the next couple of days, the shorts are in trouble.
