"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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The HUI has been lagging the broader US equity markets since August of last year but has found some good buying down near levels commensurate with valued based buying for nearly two years now.
What this tells us is that further rallies in the US equity markets should see corresponding support continuing in the mining sector.
Now if only the ratio trade employed by the hedge funds against the miners in relation to bullion would ever come to an end. For most of 2011, with brief exceptions, the miners lagged poorly against the price of gold. Note the trend has been down but the ratio is now at levels that have attracted a reversal in the spreads last year. The shares remained undervalued when compared to bullion but something will need to change in order to put the nail in the coffin of this spread trade which has gutted the value of so many quality mining companies.
There has been a band of overhead chart resistance centered between $1630 - $1620 that has been keeping gold in check for the last few weeks. Gold has been probing this level for the last couple of days and has been unable to convincingly push past it. Today that all changed as gold charged higher in the very early hours of European trading. While it has been stymied in New York from furthering its overnight gains (no surprise there), it has also been attracting additional buying above $1630. As long as this buying continues, gold will have sufficient momentum to launch an attack on the $1650 level.
A large number of traders are watching the 200 day moving average to see how the metal handles itself here. The longer it holds ABOVE this level, the more nervous the shorts are going to become. From a technical perspective, a market in a bearish mode should not be able to push through this level but should fail near or at that level and then begin retreating in price. This average comes in near the $1629 level which reinforces the horizontal resistance levels noted on the chart. You will note that gold is trading above both these levels as of this hour.
If this market can continue higher tomorrow and take out $1650, we will see $1680 in very short order as shorts begin exiting more earnestly while buyers sitting on the sideline observing its performance will grow emboldened. That will bring the open interest up as hedge fund money returns more strongly.
Downside probes should meet up with valued-based buying above and just slightly below the $1600 level. Only a failure there will see the metal retreat deeper back towards $1575.
The Dollar is setting back a bit from its recent 52 week high but remains above both its 10 day and 20 day moving averages. The weekly chart is positive but does show a level of chart resistance just shy of the 82 level which is exactly where it is currently stalling a bit. Dollar bulls need to clear this level before the week is out if they hope to take the Dollar up towards 83.50 - 84.00.
Please click on the following link to listen in to my regular weekly radio interview with Eric King on the KWN Weekly Metals Wrap.
Considering the very strong rally in the US Dollar today, a generally weak or lackluster showing in the equities, a sinking Euro and a rather comatose bond market, one would expect the selling malaise that has gripped many of the commodity markets in today's session to be making an impact on the gold market. Instead, the yellow metal is showing signs that investors/traders are looking at it as a safe haven that got undervalued and is now a good place into which to store some wealth while trying to get a handle on the mess called the Global economic situation.
The incompetent bunglers (aka hedge funds), which came out buying everything in sight to start off the New Year have been mostly in the process of throwing all of that stuff away over the last two days proving that the advent of the New Year has not seen an improvement in the intelligence of that pack of pathetic traders. Seriously, this current crop of hedge funds contains some of the most ignorant and unskilled traders that I have ever personally witnessed over my entire two decades+ trading career. They seem to know little if anything about nibbling on markets or being cautious and scaling back in size. It is either, "All in" or "All out". Massive amounts of money are slingshotted into everything and then promptly jettisoned out. It seems to me that the only people making money in that environment are the brokers, who must love the commissions and the exchanges which are revelling in the huge fees that this constant churning is creating.
That brings us to gold, which has been able to hold very firmly above the $1,600 level. The longer it does, the more confident traders are becoming that the bottom is in and that the next trending move will be to the upside.
You will notice on the chart that the market has run right back up into the initial resistance level detailed near and just above the $1,620 level. Forays in price the last two trading days have seen any dips below $1,600 immediately attract buying which has taken price promptly back avove that level. The result is that some shorts are getting nervous and are beginning to cover. If the bulls can now mount a close above today's session high, it seems we are going to get a move towards psychological resistance at $1,650 with the potential to charge towards the second resistance line drawn in near $1670. That is where the real battle will shape up to see whether or not the stronger-handed bulls can contain it there or watch it run to $1,700.
It certainly appears that hedge fund managers are hungry for gain this year as they used data coming out of China and India as a reason to plow idled money into commodities and jettison the Dollar. "SAFE HAVEN" was anathema to begin the New Year's trading as bonds are being pummelled in today's session.
The surge in money flows pushed gold and silver sharply higher with Silver leading the gains (as we have said repeatedly - Silver will outperform gold anytime the RISK trade is back on) as it is currently trading near $29.60, up some 6% to start out the New Year. It still remains below $30 however and until it does, stronger hands are going to look to sell silver rallies.
Gold is acting very impressively as it has been able to push through the $1600 level and maintain its footing over this psychological resistance. A good finish to the day (needs to stay over $1600) and it has a good shot at running to $1620 where stronger-handed shorts are going to be waiting for it. If the bulls can absorb that selling, then this thing has a real shot at pushing all the way back towards $1650, which will be the indicator whether or not we can get a trend higher to commence. A short term bottom is in however - now, we will need to see whether the metal can build enough buying momentum to kick it out of a range and into a trend.
There still remains enough of a contingent of traders who remain very leery of bad news out of Europe and until that number dwindles down further, some are not going to be convinced by one day's trading gains, even though those gains are strong.
Please click on the following link to listen to my regular weekly radio interview with Eric King on the KWN Weekly Metals Wrap.
First of all I would like to publicly thank one of my readers, "Silverwood", for noting that I erroneously reported in an earlier post that silver had ended the year 2010 at the $28.00 level. I mistakenly used the LOW for the month of December 2010 instead of the closing price which on the front month futures contract was $30.93.
Based on that price, Silver is ending DOWN on the year 2011.
Note on the following chart that it has retraced 50% or half of the entire rally made from the lows in 2008 which marked the bottom during the eruption of the credit crisis and the inception of the Federal Reserve's Quantitative Easing program. That rally took it all the way to $50 before it then promptly collapsed.
Bulls would have preferred to see it close the year ABOVE that 50% Fibonacci retracement level near $29.30 but alas, it could not do so after staging a decent bounce off of this week's low near $26.
A period of base-building in a sideways trend would benefit this market as many players are simply too worn out from its wild swings up and down to mess with it right now. Silver is a seductive lover which promises all manner of satisfaction only to then break your heart with its fickleness. If it can settle down some and grind sideways ABOVE $26 for some time, then we should start seeing some confidence towards it on the part of more investors outside of the dedicated silver bulls.
If you note on the chart the line marked "SUPPORT" in dark red. That line comes in near $26.30 and extends down towards $26.15. THREE times over the last year it has held price and attracted sufficient buying to take the price higher. IT MUST HOLD in order to prevent a drop all the way down towards $22 - $21. If the bulls can take price back above that 50% retracement level near $29.30 and preferably put a handle of "3" in front of the price once again, then I think silver will be okay and attract some new buying as well as minor short covering.
In order to get a sustained uptrend going however, it is going to have to convincingly clear $35.50. If risk trades come back into vogue early next year, then this should be a relatively easy matter for the bulls to accomplish. If however risk aversion is still the order of the day, then this market is going to struggle.
