Gold encountering resistance near $1780

Based on what we have seen in the price action the last few trading sessions, gold is having some difficulty convincingly clearing the level near $1780. That has now formed as a technical chart level that will need to be taken out to set up the potential for a thrust to the $1800 mark. If the bulls can do that, the level near $1820-$1825 comes into play.

Downside support still remains untested near the $1750 level. You will recall that it was this level that kept the price from moving higher on the way up after gold stalled out there on several tests.

I will feel extremely confident that this market is going to move higher as long as we hold above $1725-$1720 on any possible move back towards those levels.

This market has had a sharp move off the lows near $1535 that was nearly unimpeded all the way to $1750. It then consolidated for nearly two weeks working in a range of some  $60 or so over that time period. The sharp spike higher through chart resistance  $1780 signalled the end of that particular range trade. It could be that the metal wants to base here a bit and gather another load of stem before moving higher. We'll see what we get in the next couple of trading sessions.

Silver looks to me like it was capped below major chart resistance at the $35.50 level on the continuous chart. Obviously the perma-bears know well the significance of that level. Shorts are digging in there and it will be up to the hedgies to dislodge them if they are to make this thing run to $39.

Strong weekly close in Gold

Gold was able to close the week out on a very strong note, although some traders did decide to cash in some profits ahead of the weekend, after getting a nice run of some $65 off of last week's close as of Thursday's peak price. Even in spite of the light round of profit taking, gold still managed to put in a very solid WEEKLY close surrendering only about $15 off its best level of the week and closing within striking range of $1800, the top of the heavy resistance zone noted on the price chart.

Take a look at the weekly chart shown below for an intermediate term view of the market. Note how the chart resistance near the $1800 level can clearly be seen. Gold did not challenge this level this week but from a technical standpoint, it does stand a very good chance of so doing next week.

If you notice the pattern I have marked as a "bullish pennant" or a "bullish flag" you will see the flagpole and the pennant or actual flag. These patterns occur often enough that they should be noted as they generally portend a strong move in the direction of the flagpole which can be used as a gauge of where price might be expected to run in the near future. The length of this flagpole which extends from the bottom near $1535 to the top of the pole coming in near 1765 is $230.

Once you get a brief period of consolidation, which is exactly what we have had the last three weeks prior to this one just completed, a fresh upside move which takes out the HIGH OF THE FLAGPOLE then gives us the potential for a move of some $230 higher. Some technicians will add this to the top of the flagpole giving a projection of $1995. Others whom are a bit more conservative (put me in that category) will add the length of the flagpole to the BREAKOUT POINT of the downtrending line forming the top of the flag. That price point came in near $1725 which yields a projection of $1955. Either way it gives us gold at a brand new all time high.

An ideal technical price action will be, in the event of any subsequent price reaction lower, to see gold find buying coming in along the line that marks the top of the flag which then causes the price to rebound and begin moving higher. It is just another way of demonstrating that buyers are eager to buy dips and see value at this new, higher level. They are not willing to risk sitting on the sidelines in the hope of purchasing the metal even lower. If you do break below the bottom of the flag itself, the formation will generally be void although that does not mean that price has peaked. It merely means that the bullish flag formation projection is not going to be reliable.

For a bit of a longer-term perspective, I am including a monthly chart of the metal. Note carefully the clearly defined uptrending channel that can be seen going back into the bottom in gold in late 2008, when the Quantitative Easing programs were first announced. Gold has tracked within this channel very closely with the brief one month exception when it got a bit overheated and frothy later last year. That sharp parabolic rise was met with selling that corrected the overbought reading and took price back within the channel.

Here is the significant point to make -this month's price action has thus far taken the price to the top of this channel once again. I think it is no coincidence that we did see some selling therefore arise late Thursday and into Friday's session particularly as gold approached the $1800 level which just so happens to be very close to the top of this channel. It is both a logical and a technical chart selling point.

If, and this is a big "IF", the metal pushes through the top of this channel and closes the month above it, odds would then favor an acceleration of the trend higher and perhaps a new and steeper uptrending price channel being formed. I would especially want to see a second consecutive monthly close ABOVE this old channel coming at the end of March to confirm this however to avoid another one month wonder.
If we were to get that, I do not think it would be very long before we revisit the all time highs above $1900.

What this would be telling us fundamentally is that gold is now convinced beyond all shadow of a doubt that the near world-wide currency debauchment by the Central Banks is not going unnoticed.
That environment, which is simply another way of stating NEAR-ZERO interest rate policy, is generating genuine fears of currency debasement and the subsequent strong inflationary impact that inevitably arises from such a policy.

We would also get a confirmation by a strongly rising Continuous Commodity Index.

Trader Dan on King World News Weekly Metals Wrap

Please click on the following link to listen in to my regular weekly radio interview with Eric King on the KWN Weekly Metals Wrap.

http://tinyurl.com/6ov65yp

Gasoline nearing an important Inflection Point

The following chart is a weekly graph of the price of unleaded gasoline showing some lines that detail areas where both resistance and support can be identified.

As you can clearly see, the price has rallied some 70 cents snce the end of last year without hardly a pause. It is currently closing in on a very important chart inflection point which is just shy of the $3.20 level. Based strictly on technical analysis and nothing fundamental, if this market pushes past that point (notice it is knocking right on the door of the lower line of the pitchfork - which is where it can be expected to encounter selling pressure), then not only will it have bested upsloping resistance but it will also have taken out horizontal resistance coming in near that level as well.

That would give us a technical signal that this market is going to make a run towards the all time high. I wish to emphasize again, that we are no where near the peak driving demand season for gasoline which generally coincides with the advent of the Memorial Day holiday.

Gasoline is obviously pricing in a risk premium in an attempt to pre-emptively ration supply fearing a drop in oil shipments out of the middle East should tensions with Iran further ramp up. However, this rally began prior to such fears initially moving higher in anticipation of a near zero interest rate policy of the Federal Reserve and additional liquidity being supplied by the Central Banks of the West. Even China was not left out of the equation with many traders suspecting that the Chinese would lower interest rates or reduce bank reserve ratio requirements as they indeed did.

What to bring away from all this? Simple - get ready for the very real prospect of all time high prices at the gasoline pump this summer.

By the way, Newt Gingrich has an outstanding presentation at his website for bringing down gasoline prices, permanently, and for sharply reducing American dependence on imported oil. Check it out.

http://www.newt.org/news/newt-2012-announces-first-air-dates-of-30-minute-address-on-american-energy/



Also, if you did not get a chance to see the current President's logic-challenged speech on US energy yesterday, relax; you spared yourself a great deal of mental anquish trying to follow his convoluted thinking. The Wall Street Journal has an excellent take on that speech which is also worth reading. You can find that at the following link: It is entitled, "Stupid and Oil Prices". I especially liked the fact that the writer brought up the pernicious effect of the Fed's near zero interest rate policy on the price of energy, and commodities as a whole. It was and is a very insightful read.

http://online.wsj.com/article/SB10001424052970203918304577241623995642182.html?mod=WSJ_Opinion_LEADTop


Take a look at what has been happening to the Commodity Complex as illustrated by the CCI. The index has been in a downtrending pattern since it peaked late last spring. It is however showing some definite signs of bottoming and what is more, possibly begin a trending move higher (remember that a market can bottom without necessarily embarking on an uptrending move higher - it can merely go sideways).

The first solid chance of seeing such a thing would be an index close above the horizontal blue line noted on the chart. Upside follow through that takes out the lower upsloping red line would be then very bullish activity.

$1800 in Play for Gold

I am posting a pair of gold charts today to note the clear resistance levels on the chart and to comment accordingly.

The first is the daily chart showing the resistance zone that was broken this morning after being tested in yesterday's session. The key to that test was the ability of the gold market to SUSTAIN GAINS ABOVE the $1750 level. That was the level all momentum traders were watching to determine whether or not they were going to move in. When it appeared likely that gold was going to hold above that level yesterday, in came the hedge fund algorithms and up went the metal before it encountered a bout of bullion bank selling right at the key $1780 level.

The ability of the bulls to absorb those bids and push past that defensive barrier has set the weaker-handed shorts on their heels and is bringing in additional momentum based buying in today's session.

The result is that the market is poised for a test of a big block of resistance centering on the round number of 1800. Gold ALWAYS keys on these round numbers and has done so since it began its ascent to $300 a decade plus ago.

If $1800 gives way, then the next target is the zone near $1850.

Initial downside support comes in back near the $1750 level.

Now let's shift gears to the weekly chart where you will see two horizontal blue lines. The lower of the two comes in near $1740. This is the reason that the battle centered on that number last week and why gold bulls were stymied in their efforts to launch the metal higher. Chart focused bullion banks were aware of the significance of that level and were making every effort to hold the price from closing through that level. Once they were repulsed, they then attempted to hold the price from popping back through $1750 as the algorithms would signal their buys once price moved through that level and held.

You can see from this longer term oriented chart, the significance of the round number of $1800. That is where the next focus is shifting and it will hold as much significance as $1750 did on the way up. Gold bulls have the wind at their back right now; the big question is how much money do they want to commit to the metal in terms of position size. Certainly they are making a strong play in silver right now which will tend to benefit the gold market as well.

Silver is sitting right on MAJOR Chart resistance at $35.35 - $35.50. There is not much in the way of significant overhead chart resistance above this level until you get to $40. I might add that a bit of minor resistance appears near $39. I should also note that silver is making this move independent of the copper market which is reacting to fears of slowing demand for the red metal especially after the disappointing numbers coming out of Europe this morning. Copper stocks are building in Shanghai so some traders are reading that as a slowing of growth prospects in China, which is responsible for approximately 40% of global demand for the metal. We'll have to keep an eye on that since Silver has been more sensitive to overall global growth prospects than gold in general.

Strength in the mining shares is further aiding the move higher in both gold and silver with the HUI closing in on a key technical level on the price charts as well. Bulls have done a consistently good job in supporting these things on any dips to the bottom of the 1 1/2 year long trading range which comes in near the 500-490 level. One thing they have not been able to do is to generate enough upside price action to bring in momentum based buying which will also begin squeezing some of the shorts out, or at the very least make them rethink their continuing in that infernal ratio spread trade that has plagued this sector for nearly two years now.

If this index pushes past the line noted on this chart, there is a very good chance that the shares will begin catching a very strong bid with the potential of moving the index back to the top of that trading range closer to 590-600.

One last thing - yesterday I showed you a chart of gold priced in terms of the British Pound and how close it was to reaching its former all time high.

Today here are two more - the first is Euro gold and the second is Yen Gold. Note the strength in the charts.

Gold bears have their work cut out for them.

Sterling Gold surging Higher

Gold priced in terms of the British Pound is surging higher being reinforced in its upward trajectory by news that the Bank of England was further expanding its bond purchase program (Read this as its version of QE). This is more evidence that nearly the entirety of the Western World Major Central Banks are completely engaged in the process of adulterating their currencies.

They BOE has now set a program target near the 325 billion pound mark or $513 billion dollars. That is not exactly chump change.

This is also the reason that bears at the Comex are increasingly having difficulty in capping the price of the metal there as it is surging higher across a variety of foreign currency terms.

Gold Reaches Resistance at $1780

Gold is surging higher later in the session today having caught a gust of wind that took it all the way to major overhead resistance at $1780. The ability of the market to REMAIN ABOVE $1750 caught the attention of momentum based traders and that was all she wrote. Up it went taking the weak-handed shorts out of their positions until the bullion banks could regroup and start their selling again at $1780.

Bulls have their sights set on putting a handle of "18" in front of the gold price. The Central Bank pals - the bullion banks - are going to try to prevent that. If the bulls can keep gold above $1780, they should be able to take out the bullion banks.

Downside support now becomes the $1750 region.

Platinum regaining Ground against Gold

There seems to be a type of stealth bull market in the platinum group as the metal begins moving up and regaining lost ground against the price of gold. The metal has been grinding higher since the beginning of the year and is currently up nearly $400 since then but has mostly gone unnoticed by the financial press.

It is unusual to see the metal trading at a discount to the gold price. Apparently some of the hedge funds have taken notice and are moving into platinum especially as news filters out of a strike in a large South African mine owned by Impala.

Platinum, while often viewed as a precious metal, is greatly affected by economic news due to the fact that it is also an industrial metal used largely in the automotive exhaust systems. Obviously any news that is considered bearish for overall global growth tends to depress its price. Conversely, a growing global economy in which consumers worldwide opt to buy new cars, is bullish for the metal.

As such, platinum has been greatly impacted by the risk off or risk on trades. Notice how it responded to the QE I and QEII programs with the former beginning in late 2008 and the latter kicking back in during 2010. Then look at what happened to it in late 2011 when investors were watching European woes proliferating with what seemed like not much of a Central Bank response at the time.

That all changed at the beginning of 2012. Near zero interest rates and the expectation that the Central Banks would be keeping this environment intact for the foreseeable future have now combined with supply related issues and are driving the metal higher with strong showings the last two sessions in particular and the first two months of this year.