"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 spike lower in EuroGold below 1200 seems to have been a relatively short-lived phenomenon, for now. You will note that in terms of the Euro, gold has been in a steady downtrend since October of last year with the trend more defined since November.
This is a possibility that it has broken this downtrend but one day does not a new trend make. We need to see CONFIRMATION. For a bare minimum, I would need to see Eurogold trade through the 1240 level and maintain its footing ABOVE that level. I would feel extremely confident that a near term bottom is in if price could climb past 1250.
Sterling gold is displaying a wedging pattern and has not performed as poorly as EuroGold of late. This is due to the extreme weakness in the British Pound which has has trouble lately on the crosses as further weakness displays itself in the British economy. The BOE is engaged in its own bond buying program and there is chatter that it may not be sufficient to lift the economy out of its doldrums over there.
You might notice that Sterling gold does not remain below the 1000 level for any length of time. It is very similar in that sense to Euro Gold and I might add, to US Dollar priced gold in reference to the $1570 - $1560 level.
I would need to see Sterling Gold above 1110 - 1120 to feel that it is going to challenge its all time high near 1180.
Lastly, Yen Gold - what more need be said - it is on a strong tear higher as the Yen has been the whipping boy of the crosses. The new Japanese government is determined to stave off the deflationary funk that has gripped its economy for decades and to that end, is going to create boatloads of yen if necessary. The currency is devaluing against nearly every single currency out there, not to mention gold. I would look for the all time high in this "cross" to be taken out by summer.
I am pressed for time right now but wanted to get some charting out there for the readers. I apologize for the lack of "stuff" this week but a trader's life can be busy at times.
As those who have been regular readers of this site know quite well by now, I have been very cautious in regards to gold for some time now. When a market continues to violate one chart support level after another, it is never a bullish sign, no matter what all the self-proclaimed experts are pontificating whether it be some backwardation nonsense chatter or "bullish COT" reports.
I have said it before and will say it again, speculators, particularly the large ones, aka, hedge funds, are what drive markets nowadays. When they are selling, it is never bullish. The only time it is bullish is when they are loading up on the short side and a market is not breaking down through support levels.
We might have just reached that point. I want to emphasize, "might" because I need some further confirmation from the price action. What I am seeing however is a market that keeps entering a zone that I have marked, "STRONG BUYING ZONE" and every time that it does, it does not stay in that zone for more than three hours time.
Note the following 60 minute chart and you can see that the moves lower into this zone generate high volume buying in which price tends to spike off of the worst levels rather than closing each bar down on the lows. That is an indication of heavy buying by some very strong hands.
We have had three occasions now since the first of this month that this level has held rock solid. it is evident that the bears have been unable thus far to break the price down through the bottom of this zone.
What I want to see to feel more confident is an upside breach of the top of this trading range that REMAINS ABOVE this level for at least 4-6 hours, preferably a day. I believe that if this occurs, we will begin to see some of these hedge funds start to cover.
If gold can get back above $1600, it will suggest that a bottom is in. The flip side is of course if this support level gives way. Let's hope it does not.
One last thing, gold was VERY FIRM today in terms of nearly EVERY SINGLE MAJOR CURRENCY. Whether it was Yen gold, Euro gold, Sterling Gold, Swissie Gold and even Aussie Gold and Loonie Gold, the metal was higher even as the US Dollar was sharply higher. That is very noteworthy. In the past I have spoken to the idea that if gold is moving higher in terms of most of the other major currencies besides the Dollar, the chances of the bears breaking it down sharply in US Dollar terms is greatly diminished. The opposite of course holds true; if the metal is higher in US Dollar terms only while it is moving lower in terms of these other majors, the rally is not going to last much longer.
What today's move is signaling is that gold is trading as a currency again and not so much as a Dollar related issue. Again, I would like to see additional confirmation of this besides just in the Yen (Yen Gold is on a tear higher). It is still a fact that regardless of talk about early cessation of the QE3 and QE4 programs, many of the Western Central Banks, and I am including Japan here in that sense, are employing their own versions of QE or have adopted monetary easing policies. While speculators are busy being enamoured of stocks, it is not being lost on gold as to what these Central Bankers are all doing to their currencies. Never in the history of mankind has so much paper currency been created simultaneously. It is a wonder that we are already not using the stuff to heat our houses instead of wood!
Let's see what next week brings us. At least the HUI has stopped going down for now!
After what must no doubt seem a near eternity to many, there is finally a sign of life in the mining sector. A BULLISH ENGULFING pattern appeared on the daily chart today. This is a pattern that is generally valid after a prolonged downtrend. It also is much more reliable if overall volume is good. So far we have both ingredients in place judging from some of the actual miners today.
There are two things I am looking for at this point. First - I want to see this index close strong on FRiday of this week and not puke out over the next two days. Second - I would also like to see it push through 370 on a weekly closing basis within another week or so.
Aggressive traders/investors can wade into the water on select shares PROVIDED that they use sound money management techniques. That means this - if this week's low gets violated - GET OUT. Don't stand around arguing why the market needs to go up. GET OUT! You can always get right back in if the market action subsequently dictates it is okay to do so.
Longer range, more conservative oriented investors would probably want to see that weekly close above the 370 level to prove that this is anything more than a dead cat bounce and actually has some legs to it. One day wonders are becoming way too frequent nowadays due to the nature of computer algorithmic trading so some confirmation is warranted for those who like to see some follow through before making a move.
I am noting that the indicator has turned higher from an extremely oversold level but it has not yet generated a buy signal. The index will need to add to today's gains to trip it into a buy mode. Also, I like to look at previous peaks in the indicator to see if those can be bettered. Remember, a trend that has been a long time in the making is sort of like a gigantic cruise ship. It takes a while to turn. The same sellers who have been pushing these shares relentlessly lower will be looking for a place, a level, at which they can sell any rally UNLESS THE MARKET PROVES THAT THE TREND HAS TURNED.
Keep that in mind...
The ratio briefly dropped below the low made back in November of 2008 before bouncing higher in today's session. It came very close to matching the October 2008 low. It could be that we have gotten the answer to our question posed previously whether the gold shares would need to move lower against the price of bullion before the HUI would finally bottom out. I want to see a bit more subsequent action to feel that has been confirmed.
By the way, I will try to provide a CLOSING chart of this later on today if my schedule permits.
As far as the actual index itself goes, it ran to within a point or so of the 61.8% Fibonacci Retracement level noted on the monthly chart before attracting what seems to be at this point a significant amount of buying. I want to take a look at some of the actual stocks that comprise this index to get a better sense of whether this is a one day wonder or is the long-awaited selling climax. Again, that will need to await the close of trading today and also how these things behave tomorrow. The weekly close is also going to take on a great deal of significance given the extent of the price decline in this sector, particularly against the backdrop of an upside runaway in the broader equities.
Note that the technical indicator has surpassed the 2008 low in regards to its oversold reading. It is back to levels last seen in 2001, TWELVE YEARS AGO!
Incidentally, gold itself is stronger in terms of all of the major currencies today; Canadian Dollar, Swiss Franc, Euro and Yen. It is basically holding steady against the Aussie which is vascillating up and down today against the US Dollar. This is coming on the heels of a stronger Dollar which is noteworthy. In observing the price action in the metal today it looked as if the bears were gunning for downside stops below $1570. They didn't reach them!
I was suprised at the ferocity of the rebound off that level as it reversed quite sharply to the upside around 8:45 AM CST on strong volume. Somone either covered in large size or some new buying came in. I am not sure which it was right now but the volume was big. I would like to see the metal close out a pit session trade this week ABOVE $1587 or so. That would make some of the Johnnie-come-lately gold bears extremely nervous. It will still take a closing push or good intraday push through $1600 to confirm a near term bottom. That would also need confirmation by the HUI.
Today's sell off in the mining shares dropped this ratio, which has already been collapsing, to levels last seen at the depth of the credit crisis back in 2008. It should be noted that the ratio did recover that month moved up smartly off its worst reading.
This time around however, the ratio is not recovering. It closed last month in February at the lowest CLOSE for a month since May 2001. That is an astonishing TWELVE YEARS AGO. The month of March is still young so the ratio has time to recover but so far it is showing no signs yet of reversing.
Some select shares are either the screaming buy of a lifetime or gold is going to fall further yet. It is unclear just what it is going to take to convince BROADER stock market perma bulls to stop chasing them higher. News that China is attempting to slow its overheating real estate market down was shrugged off like a bad habit in today's session in the US.
I know that many analysts continue to insist that the broader stock market is still cheap. That is their business and their opinion. I believe we are witnessing another speculative mania courtesy of the Federal Reserve. With the Fed having slashed interest rates to practically ZERO and with commodities in general out of favor with hedge funds and other larger investors, stocks are the only game in town to obtain any sort of yield in this insane speculative nirvana that the Fed's policies have created. I suppose the rally in equities will continue until it just doesn't. The tape continues to tell traders to buy the thing.
That of course is not much use as predictions go but these guys are drooling all over their chins while they eagery await any dips in the market to gorge themselves on more equities. Nothing, and I do mean "NOTHING" can disabuse this gang of the current Bullish rage that has seized upon them and will not let them go. Quite frankly, it is stunning to watch this herd mentality grow more virulent with the passing of each and every day.
The USDX has been unable to clear the 81.50 level for some time now, though it did close right on it last week. This week however was a different story as the Dollar powered through this resistance breaking out of a 5 month long sideways pattern. It should be able to make a run to at least 83. If it can push past there it stands a good chance of heading to 84. That should be a big test of the currency. If it clears that, it will begin a trending move to the upside.
Hard to believe isn't it considering the fact that next to Japan, the Fed has been the biggest debaucher of the currency in terms of the sheer size of money creation it has embarked upon. It just goes to show how rotten the Yen, the British Pound have become and possibly the Euro might be. In other words, the US Dollar is the lesser of the evils.
Let's see, the US is running a $16 Trillion+ deficit with its leaders unable to agree on slowing the rate of spending (note that i did not say CUT SPENDING) by less than TWO CENTS on the Dollar and yet the Dollar is the currency of choice. Absolutely amazing is it not?
Note the ADX below (the dark line) is turning up from a very low level indicating the possibility of the beginning of a trending move. This line will need to to climb above 20 to indicate that this is anything more than a grinding move higher. Momentum however is positive.
No, it is not the classic by Charles Dickens set against the backdrop of the French Revolution; rather, it is the price charts detailing the nature of the economy as told by two camps.
The first is the S&P 500 as it powers higher and shrugs off Italian election results, sequestration fears and moribond employment choosing instead to focus on the data detailing growth, albeit however minute that might be.
The second is the copper market, afffectionately referred to as "Dr. Copper" for its uncanny ability to project investor sentiment towards overall economic growth.
These two apparent lookalikes, Darnay and Carton, have recently taken to going their own separate ways unlike that of the novel wherein they find their paths increasingly intertwined.
Take a close look at the following two different colored lines. The blue line is the closing price of the S&P 500 (emini) while the red one is the red metal, Dr. Copper.
Don't worry about the actual price level of either one; look only at the DIRECTION of price movement for both lines. I have only gone back to June of last year with this for analysis purposes but wish to point out how the two lines are basically in sync until February of this year. Notice that they tend to both rise and fall together. Spikes in the S&P were matched by spikes in Copper with dips in the S&P coinciding with dips in the price of Copper.
Along about the beginning of this year, the two markets began to diverge a bit in the sense that while the general trend in copper was up, it began moving lower during periods in which the S&P continued to move higher. Copper would recover from the dip and move higher again, seemingly catching up with the S&P but right around the beginning of the second week of February, these two companions apparently parted company and did so rather glaringly.
Can you see how sharp the fall in copper has been over the last month? Can you also see that while the S&P has briefly dipped following copper lower since the middle of February, it then rebounded higher as copper continued to sink? The divergence is especially pronounced over the last week or so.
Here is the issue - both of these markets should not be both true. In other words, if Copper is a predictor, and a generally reliable one, of expected economic activity in the future, then one has to question why the equity markets are seemingly no longer paying attention to its fall. We are constantly being told by the pundits that the global economy is recovering and growth is expected to continue, even if it is at a rather lackluster rate. Yet, here we have copper falling lower giving us a clear signal that growth is expected to slacken.
Which one of these forward looking indicators is true?
I should also note here that the large macro funds ( the hedge funds ) are now playing copper from the short side. Talk about more fuel for further uncertainty. Watching to see how this will further unfold is certainly going to be interesting to say the least.
