"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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have noted that $1680 is a key technical chart resistance level for the gold market to overcome if it is to have a shot at $1700 and a chance to begin a trending move higher. I say this because one can see from the short term price chart that since late September, all forays into this zone have been successfully repulsed by the shorts.
Today the bulls pressed through this defense line but could not muster enough strength to hold their gains in a convincing fashion as the market retreated back below the $1680 level, although just barely. We have two days left in this week for trading. If gold can clear $1680 and hold this level by the time it closes for trading Friday afternoon, it should easily hit $1700 next week where the only resistance is more psychological in nature than technical.
Note that the downsloping red trend line has been broken in today's session gains by the bulls.
There are several factors currently working in favor of gold. The first is the recapitalization plan for the European banks which seems to have enough traders/investors convinced that the worst of that storm is over and thus are willing to take on the "risk trades" once again. The second is closely related to that in the sense that the safe haven trades are being jettisoned meaning that the US Dollar is getting slammed lower as long liquidation is the order of the day in there. The combination of a weaker Dollar and an environment in which risk trades are in favor has brought buying into the gold market. Since there is no need to sell gold to raise cash for any trades that have soured nor a need to meet margin calls, this overhead pressure on gold has for the time being been vanquished.
One other factor, which is important, needs to be mentioned. The upcoming Diwali festival season is fast approaching in India. A tremendous amount of gold is bought by dealers ahead of this season in order to meet the surge in demand that ordinarily results from Indians buying of the metal. That is working to keep a good flow of support into the physical gold market, especially on dips lower in price. That is being reflected in the rising levels of chart support that can be seen on the price chart.
Dollar bulls had better hope for a breakdown in the plans of the Europeans to get their bank recapitalization rescue package moving forward because it is rapidly falling out of favor as hedge funds flee the "SAFE HAVEN" trades (buying the Dollar and the US Treasury market). The Aussie is back over the 1.00 level, the Euro has pushed up to the 1.38 level, the Loonie is at the .98 level and threatening to move back to parity and even the Swiss Franc is showing a few signs of life.
There is a fairly large contingent of speculators who are (were) on the long side of the Dollar as they were plying the safe haven trade. Those positions, especially the ones that have been placed within the last three weeks, are all under water and bleeding red.
The Dollar is now moving into what should provide some buying support so some of these trapped longs are holding out hope that it can bounce from here. If not, it will fall back towards 76.50 as long liquidation is going to occur.
Mining stocks have been rallying alongside the broader equity markets as the bulls are frollicking in the pastures of increased liquidity being provided to the European banks courtesty of the recapitalization plans being discussed in that corner of the globe. That has taken away fears of bank failures tied to deteriorating balance sheets over in Europe and by inference, any hit to the banks here in the US. The result is "GAME ON" for the hedge funds once again as in they come into a variety of markets once again.
That had led to both a wave of short covering in the mining shares as well as fresh buying in some issues that has taken the index nearly 70 points off the recent spike low made earlier this month. However, shares have basically moved lower since the opening period of trade today as chartists are seeing a zone of formidable resistance against which some of either booking profits from fresh longs or are using as a strategic entry point for fresh shorts. That zone is a combination of of horizontal resistance associated with the swing high made back in May of this year as well as the most significant of the Fibonacci retracement levels, the 50% level which happens to come in very near the 560 level.
If the bulls want to take prices higher, they are going to have to buy in sufficient size across the sector to drive the index through 560 for a minimum. If they hesitate here, the index runs a good chance of retreating and moving back down towards 520 once again.
If the bulls show some mettle and charge higher, then 577-580 comes into play. A close of the index through this level would set up another run at 600-605.
The commodity sector has been slammed by hedge fund long side liquidation over the last 5 weeks which has basically taken the complex on a one way ride down and down hard at that. It has now finally bounced as nervous shorts cover for fear of getting caught overstaying their welcome on that side of the market should the hedgies' algorithms flip over into the buy mode over the chatter over European and IMF plans to deal with Greece.
The bounce could take it as high as the zone delineated by the pair of blue lines drawn on the chart. Should it breach this area with some gusto, it should see a return of some speculative money that has been sitting on the sidelines into the commodity sector as a whole.
Interestingly enough, corn locked limit up today with a decent sized pool of orders. News out of Russia on a ban on certain exports send buyers scrambling into both wheat and corn as Russia has been providing a substantial amount of cheaper quality feed wheat. The idea that this source will now end caused significant short covering. Considering there is a major report out tomorrow morning from the USDA, it is going to be anything but boring if the numbers provide any unexpected surprises.
Gold took out overhead chart resistance last evening in Asian trade and looked very strong until trading came around into the London session, where selling surfaced taking it back down from its best levels and dropping it into negative territory for the day. Support surfaced just below $1665 level but the market could not get back into positive territory.
Gold is trying to break out to the upside but is being kept in check.
Silver once again flirted with overhead resistance near $32.50, moved through it and them promptly failed to hold onto its gains above that level. It found support just above $31.50, bounced higher and managed to claw its way back above $32. It too is attempting to breach chart resistance and make a break higher.
Both of these precious metals markets are very close to changing the "sell the rally" mentality so it will not take that much to flip the psyche. The fact that the mining shares as evidenced by the HUI are finding buyers at the present time is very helpful.
Other than that, there is really not much more worth saying about them until we get a definitive resumption of the uptrend.
News out of Europe overnight that appeared to confirm thinking that the rescue fund being put together by the Europeans is going to proceed in a timely fashion cheered the hedge fund community which ran pell mell back into the risk trades. In the process, both gold and silver moved up towards the upper end of their recent ranges, the Dollar sank like a rock, the Euro soared and the US Treasury market was mauled with an avalanche of willing sellers.
What a party it seems liquidity can provide! Then again, when all is said and done, there is nothing left for the monetary and political leaders left to do except to intervene and bail out the banks. Dealing with the root causes (the failure of socialism and a cradle to grave nanny state which spends too much) would entail too much hardship on the populace which is addicted to government handouts, witness a huge hit on the balance sheets of the banks who bought this junk and thereby threaten the re-election prospects of too many politicians. That is a big no-no so the path of least resistance and the one that will ALWAYS be seized upon by short-sighted political leaders is to have the taxpayers pay for all this seeing that governments have no money except that which they take from the citizens in the form of taxes (this also includes borrowing money which will be eventually taken from future generations in the form of higher taxes).
No matter - the markets love it as the punch bowl has been spiked - at least for today.
Seeing that risk was back on, gold moved higher putting in a strong performance that has taken it to the upper end of its range during this period of consolidation. It must break through $1680 with some gusto to convince technicians that this consolidation is over and it is getting ready to at least have a shot at resuming its longer term uptrend.
As mentioned in the KWN Weekly Metals Wrap, the speculative side of both the gold and silver markets has been severely flushed with ongoing long liquidation continuing for some time now. What is needed is for a halt to be put to the rush to the exits by the specs and a renewed interest or desire in taking long positions on the Comex in both metals if these two precious metals are going to have a shot at a trending move higher. Neither metal will be able to sustain upside breakouts if the speculators do not return and inject their cash into these markets. If they are convinced that the bailouts in Europe are going to be of sufficient size to prevent any further credit market lockups, then this could be the fundamental spark needed to convince those sitting on the sidelines to re-enter.
The chart for gold remains the same as it has been for the last few weeks. Note the resistance levels and you can see where the yellow metal is at from a technical perspective. If it clears here, then it should make a move towards psychological resistance at the $1700 level. If that gives way, then $1720-$1725 is up next.
Downside support is a bit higher coming in first near $1640 followed by $1620 with more substantial support remaining at the $1600 level.
Silver is knocking on the door of strong resistance near $32.50 once again and continues to tease with this level. If the bulls can power through the selling coming in here, then it has a good shot at moving to near $34 before any serious resistance arises. Above $34, and we have some real potential to trend, especially if the specs come roaring back into this market. They have been fleeing in droves and at extremely low levels of concentration on the long side based on last Friday's Commitment of traders report.
The HUI thus far (it is still early) looks very strong and is trading right at a tough resistance level (540). If it can push through this level and close strong, it should have enough technical momentum to try a run at the 20 day moving average near 558.
The Dollar is getting the fire beat out of it today as Treasuries sink over a full two points and the forex crowd is salivating over the Euro. If it cannot claw back above the swing low noted on the chart, there are a large contingent of speculative longs in the greenback which are going to be in some serious trouble. Many of these guys ( and a large number of them are undercapitalized small traders) bought in above this level and those positions are going to be seriously underwater if this support level fails to hold.
Both silver and gold continue putting in wide-ranging price swings on a day to day basis providing plenty in the way of volatility but when the dust is settling at the end of the week, neither metal can escape its range bound trade.
What we are witnessing on the price charts is merely the pictorial form of uncertainty that currently is reigning over the minds of traders/investors. The long term bullish trends for both metals remains intact but short term fears over further risk aversion trades and hedge fund long liquidation in the commodity sector is preventing both the bull camp and the bear camp from gaining a tactical advantage.
Gold is unable to break through overhead selling resistance near the $1680 level but continues to attract good-sized buying, especially from Asia, on dips towards the $1600 level and below.
Silver runs into selling above $32.50 from nervous longs as well as opportunistic shorts. On the downside it is attracting interest from buyers when it moves into the region near $30 and below.
This range trade in the metals is keeping the mining shares in a similar pattern with the current markers at 540 in the HUI on the topside and 500 on the bottom. Trips below 500 on the HUI are generating good buying among the shares keeping this index above the 485 level.
The cross currents remain ample - on the European front many traders fear that the ECB and the European leaders are not going to act quickly enough or with enough vigor to prevent their version of the Lehman Brothers meltdown from occuring. Whenever the news seems to favor more decisive action on their part, traders/investors are cheered and plunge into equities and commodities on the long side. Whenver the opposite is true, out go stocks and commodities and everything else that does not look like a US Treasury.
Long term such action on the part of the ECB is inflationary and will end up debauching the Euro in the same fashion that QE has done and will do to the US Dollar if and when it will be employed again over here. Short term none of these hedge funds gives a hoot about any of the long term ramifications. They will try to squeeze every nickel out of such an event if they can and leave the political and monetary leaders to fix what they are eventually going to destroy by this imbecility. Call me a simpleton but I believe human actions should carry implications whether those actions affect only individuals or even countries. Rewarding stupidity, greed and folly is a prescription for more, not less, of the decisions that led to such crises in the first place.
In the fading West, we have reached a point in our history where political leaders want all the benefits of capitalism but none of its drawbacks. Those drawbacks include allowing poor decisions to be met with failure. When the lessons that result from poor choices are painfully learned, those same choices and actions are generally avoided in the future. Not any more - no we can have all the gain without any pain thanks to this magical fairy-tale land created by monetary officials who seem to believe it is their God-ordained destiny to save men from themselves.
Would that it were that easy! We could create heaven on earth and absolve men from any consequences for their poor judgment. Unfortunately there now exists a permanent class of individuals who cheer this sort of thing on not realizing how harmful it is in the long term. It enlarges the scope of government and allows it to intrude into the cleansing process that MUST occur in a capitalistic system if that system is to function efficiently. The STRONG survive; the WEAK perish. That may seem brutal on the surface and in some manner it is but leaving human emotion aside, it is this weeding out process that allows for efficiency and ultimately rewards good judgment and sound policy.
I survey where we are today with this constant enlargement of Central Bank activity and increased interference by political leaders and I often wonder whether a Steve Jobs could create a company like Apple, step down and then come back and lead it back to its place of prominence today. He did that through his sheer genius and ruthless insistence on creating products that consumers would want.
Imagine a world in which the political leadership finds an Apple losing market share, fading from its former glory and lacking creativity only to hear the company's leadership begging and pleading before the ruling powers about how it is too big to fail and needs government assistance to keep it viable "because of all the jobs it creates". Then imagine those same political leaders providing it taxpayer funding (from borrowed money) to give it a lifeline and rescue it. Instead of the company being forced to take a hard look at itself and get its creative juices flowing, as Apple did under the helmship of Steve Jobs, it takes the taxpayer money and survives but does not thrive by introducing a new line of products that consumers desire.
That is not capitalism; it is more closely akin to fascism or as some prefer, crony capitalism, which truth be told, is no capitalism whatsoever. Either a company stands on its own merits or it doesn't. How many family-owned businesses have we see fail in the last few years? There has been no rescue plan for them. If anything the federal government has made their life even more difficult by piling on more regulations and now attempting to saddle them with a huge boondoggle known as Obamacare? That is where we have now come in our journey here in the West - a system where government picks winners, allows fools to thrive in spite of themselves and works to undercut small business. I wonder what our Founding Fathers would think were they to see this now.
Please click on the following link to listen in to my regular weekly radio interview with Eric King on the King World News Weekly Metals Wrap.
http://tinyurl.com/3wqpdvl
