Gold Takedown Rejected

Take a look at the following 5 minute chart and note especially the volume readings posted below each individual price bar. Look just past the 5:00 AM Pacific time hour and you will see the enormous volume spike accompanying the sharp downdraft that occured in the gold price dropping it $15 in the course of minutes. Analysts are still grasping for an explanation.

The most common is that it was another one of those "fat fingered trades". Have you ever noticed how many fat fingered human beings apparently camp out in the trading community. Last time I checked a skinny finger could hit an "enter" key just as easily as a fat finger could.

My view on this is that gold's psychology changed late last week as it begin seeing some seriously interested buyers whose entrance back on the long side was able to take it up through a minor chart resistance level near $1650 and set it on a course to test overhead resistance at $1680, a key chart level. That is a no-no in the world of the Western Central Banks who cannot tolerate this rebellious upstart of a metal telegraphing to the entire world the failure of their attempts to paper over the problems ailing both Western Europe as the US.

That called forth reinforcements to take the price lower to try to corral the unruly upstart and put it back into the box. As you can see, the selling was met with more buying that completely erased the losses and then added some more gains for good measure.

We are right back to being in position to try to tackle $1680 again. Weakness in the mining shares however is working once again to dampening excitement in the actual metal.

Trader Dan on King World News 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.

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US Q1 GDP grows 2.2% - Copper moves Higher?

This morning's big news item was the fact that US Q1 GDP growth came in at 2.2%, well under expectations of 2.6% growth predicted by analysts and well down from Q4 2011 growth of 3.0%. Under "normal" circumstances, such a number would have been expected to put downward pressure on the bellwether copper market. 'Twas not the case however as copper shot up on the news bursting through the 50 day moving average in the process. What gives? Simple - we are now in an environment in which the more bad news we get, the more optimistic traders are becoming that the next round of QE is coming right up.

That is what gold began sniffing out in yesterday's session and appears to be continuing today. We have been accustomed to seeing these rotten numbers generate the risk aversion trades, trades in which commodities in general are dumped and the Dollar is bid higher. We are now seeing a change in trader perceptions, which after all is what runs markets, in which the steady trickle of news showing a deteriorating growth pattern in the US is being met with increased expectations for QE sooner rather than later.

In other words, it is QE ON instead of RISK OFF.

As long as this perception continues, gold is going to move higher. The trick is just how bad do traders think the news has to get before it forces the hands of the Fed.

I think it should be noted here that we also have politics at play as far as the Fed is concerned. Governor Romney, the presumptive Republican nominee for President, has made it clear that he is not a big fan of Chairman Bernanke. Bernanke serves at the pleasure of the current President Obama. If Obama loses the upcoming election, Bernanke is OUT AND HE KNOWS IT. Now, maybe he no longer wants to play MASTER OF THE UNIVERSE, but methinks very few men are able to gladly relinquish such power. My guess is that he is going to make sure that if his boss goes down in flames at the next election, at least it will not be on Bernanke's account for not acting to keep the markets from sinking lower.

Bernanke has also kept the door open for additional QE but coyly suggests that the time is not just yet. In other words, he is keeping his options open but does not want to get too assertive about it precisely because of what we are now seeing occur in some of the commodity markets such as copper. If traders become CONVINCED (they are not there yet but leaning in that direction now more heavily) that Bernanke is going to pull the trigger on the next round of QE, they will bid the price of essential commodities higher so quickly that if you snooze you will miss it! The Fed Chairman is trying to keep that from happening, particularly with energy prices. He already has a problem with the grain markets, particularly soybeans; the last thing he needs is for crude oil to take off to the upside because the hedge funds go giddy on him.

REmember that the Fed's game has been to talk up the stock market but try to talk down the commodity markets. There are only TWO MARKETS that the Fed wants to see going up - EQUITIES AND BONDS. They want everything else going down, including the Dollar, if they can accomplish that.

This brings us back to gold - it continues to exhibit strength but has not yet cleared the single major hurdle preventing it from tearing higher, namely that stubborn $1680 level. It is creeping closer to this barrier but has not yet managed to test it. Perhaps that will come next week. We will see. One thing is for sure. All of the usual suspects who were so giddy and so presumptuous to declare the bull market in gold is over, are going to look like buffoons if Bernanke and company indeed pull the trigger and fire off another round of QE.

Besides, with China buying oil from Iran and paying for it in gold, as my pal Jim Sinclair has so brilliantly noted, the game has changed as the Western powers are being served notice. One wonders if they even get the message.

Gold seeing some strength

Gold appears to be catching some decent buying in today's session - buying that has been strong enough to take it out of the range within it has been trading for approximately the last ten days or so. Note the resistance levels shown on the chart and you can see the progress.

It still has a big hurdle to clear if it is going to get any fireworks going and that hurdle remains the same as it has been for some time now, namely the region up near $1680.

It seems that Central Bank buying below the market has shored up support on the chart.

One gets the impression that the gold market simply does not believe that the Bernanke-led Fed is going to be able to avoid doing another round of QE.

Gold chart and some comments

Gold remains in a sideways trade above strong support emerging below $1630 and continuing down towards $1620 and below.

As suspected from the price action and the inability of the paper shorts to break through this support, we learned that several foreign Central Banks have been very active buyers of the metals on these breaks in price. I see nothing on the horizon that would lead me to believe that anything has changed in regards to these Central Banks and their desire to acquire gold during these periodic bouts of weakness. I repeat for the sake of emphasis - Central Banks do not CHASE GOLD PRICES HIGHER - they buy when prices drop and only when prices are moving lower. It is only the brain dead hedge fund managers who are servants to their gods, the computer algorithm, who sell gold as it moves lower hoping to profit from momentum based moves.

In many markets this strategy works relatively well for them; however, gold is not just another market. It is the currency of last resort with no liabilities attached to it and certainly no connection to the Western Powers which are presiding over their own financial downfall by their insistence on papering over their structural problems.

To force some of these newer paper shorts out, we are still going to need to see gold climb ABOVE $1680 and stay there on any dips lower. That will be the signal that there are now buyers who do not mind paying up for gold.

The gold shares, as exemplified by the HUI continue getting more and more undervalued in relation to gold itself. At some point, these shares are going to be the trade of the decade. You now have to move as far back as early 2002, a FULL DECADE AGO, to find the shares at this level of valuation against an ounce of gold. Heaven help the shorts in these shares when the tide reverses - there will be no one left to sell to as they try to cover.

Trader Dan on KWN 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.

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RISK OFF Trades hitting the Commodity Sector

Investors/traders are growing increasingly concerned about an overall global economic slowdown. This morning's Retail Sales number had temporarily cheered them with higher equities coming in on that news but then the fall of the NAHB housing market index (the first in seven months I might add) soured them rather quickly and led to increased selling pressure being seen in the broader equity markets as well as the commodity complex. Even gasoline has thus far not been immune to the pressure.

The result of this has seen the CCI moving back towards the critical low made late last year. You might recall that as the year 2011 wound down, many speculators were in a selling mood fearing European Sovereign debt woes contagion and slower growth in general.

That began to change towards the end of December as many then began anticipating a Central Bank response. Fund flows began reversing and moving back into RISK assets particularly at the start of the New Year as traders were certain that the Fed would not only be bringing back the punch bowl to the party, but also spiking it as well.

Now that we have heard nothing in the last few days from the monetary masters about such things, traders are growing increasingly despondent that a new round of QE is forthcoming and are reacting accordingly - they are generally selling risk assets and buying Treasuries.

Surprisingly, silver is holding relatively well today in spite of the general trend away from risk as it is attempting to hold chart support centered in the region near $31. Bulls need to dig in here or it will sink rather quickly to $30 for a test of their resolve at that level.

I am going to be extremely interested to see whether we get some comments soon from the various Fed Governors. While the S&P is holding much better than the broad commodity sector, it is still trading below its 50 day moving average, having fallen back through that critical level last Friday on the news of China's growth for Q1 slowing to 8.1%.

The least whiff of another round of QE will completely reverse the losses in the CCI - in the meantime the Bears are dominating.

Gold continues to struggle at $1680 - there currently does not seem to be enough speculative money flows to take this market through that level without some sort of spark.

The HUI is lower today and is sinking back towards a very important chart support level near 440.

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.

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