"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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You can see on the weekly chart that silver failed (once again) to extend through stubbornly strong overhead resistance near $35. Having done so, it is now setting back as speculative longs are getting flushed out. Additionally, fresh shorting is occurring.
The metal looks like it wants to drift lower yet unless it can pop back over $32.50 before the weekly trading ends. If it does not, odds favor a move down towards the 50 week moving average near the $31 level. That would put it back near the middle of the very broad trading range that it has been stuck in for more than year now and effectively leave it in limbo for a while.
Clearly the market lacks the necessary impetus to drive it higher through the stiff selling originating at the $35 level. The question is at what level it will find enough solid buying to set a floor.
As you can see on this shorter term chart, gold has broken the nice STAIR-STEPPING PATTERN that had been in plce since the middle of August. The overhead resistance at $1,800 has proven to be too formidable for the bulls to overcome and thus the market has set back due to a combination of both stale long liquidation and fresh shorting against this resistance line.
The market is probing lower looking to see at what price level more demand, especially on the physical market, can be generated. It is important that the line marked, "SECONDARY SUPPORT" does not give way. If it does, gold will drop to $1700 - $1690 and possible as low as $1680 before temporarily stabilizing.
There is some concern that the slower growth in China (they are still humming along at over 7% but well off the previous pace) will curtail some physical gold demand from that quarter. Also, from time to time it appears the woes in Euroland continue to make traders nervous about piling on the risk trades any further.
The larger trend continues against a backdrop of easy money policies meaning low interest rates and Quantitative Easing/Bond Buying programs and some government stimulus measures over in China. That does not look to change for the foreseeable future. This will keep the primary trend in gold intact.
Nothing much has changed since my last post which is why I have refrained from posting any recent comments since this past weekend.
Gold is stuck below $1785 - $1800 and Silver is stuck below $35. Until these respective resistance levels are convincingly cleared, the market is going to sit here with the risk of the shorter-term oriented speculative longs getting impatient and bailing out.
Thus far bears cannot break down either market but neither can the bulls blow past the obvious overhead capping action. This week's COT report will be informative in allowing us to see what kind of , if any, spec liquidation has been occuring.
Some sort of trigger seems to be needed for a fresh leg higher. With crude oil getting thumped lower today and now below $90, the initial rush to buy everything looking like a commodity on the heels of the QE3 juggernaut, has obviously dissipated. Both of the precious metals need the inflationary expectation psyche to advance strongly. Crude oil weakness is currently undercutting that; so is weakness across the grain complex I might add.
I want to point out to some of the more wild-eyed grain bulls something I mentioned a while back - drought or no doubt, that impacts only the supply side of the equation. The demand side of the equation is a totally different thing. I warned that grain prices were rising into levels that were effectively trimming demand. A buyers' strike appeared.
These same buyers are now taking advantage of the selling pressure due to farmer delivery pressures as new crop supplies are now entering the pipeline. That is where the pressure in this complex is coming from. Once the bulk of harvest pressure is past, we should see grain prices stabilize and possibly work higher again as end users secure coverage and the market takes some time to evaluate whether or not sufficient liquidation pressure has occurred across the livestock and poultry industries.
HIgher grain prices will aid the cause of gold as an inflation hedge. We will have to wait and see how the dust settles across the complex in the next couple of months.
Please click on the following link to listen in to my regular weekly interview with Eric King on the KWN Weekly Metals Wrap.
http://tinyurl.com/9qlcupa
Over the last two weeks, gold has had some difficulty clearing the stubborn resistance level beginning near $1785 and extending towards $1800, round number psychological resistance. It has poked its head into this zone but cannot breach it as of yet.
When examining the chart it is not difficult to understand the significance of this region. Note that there have been two occasions in the last year, one back towards October 2011 and the other earlier this year in Jan/Feb, when gold either punched through this level or came extremely near to it, but failed to close ABOVE it.
Look carefully at what happened the following week after the failure to extend higher - there was a downside reversal in both cases which led to a protracted period of falling prices that did not culminate until gold was near the $1525 - $1550 level. It was at this level, that we later learned, Asian Central Bank buying prevailed. That buying was of such size that it absorbed all of the speculative selling and then some forming the bottom of this now YEAR LONG trading range.
Gold is currently knocking right on the door of this upper boundary which is why it has heretofore been stymied.
There is something however that is at least hinting that this third time might be different. Notice those two previous attempts to clear $1800 were followed by those aforementioned downside reversals the next week. This week, following on last week's failed attempt to clear $1800 is different. We did get a significant down day this week which looked as if it might be setting up the same pattern of a downside reversal, but lo and behold, instead of a proliferation of sellers, we uncovered very strong buying which took the price well off the intraweek low closing the market up near the high of the week. Yes, it did not take out $1800, but it also did not fall apart.
I am looking at this as a potentially subtle hint that we might be able to extend higher in gold next week or at the very least, not break down technically as we have done previously.
This week's low, down just below the $1740 level therefore becomes quite significant from a technical analysis perspective. If we drop back down towards this level and gold bounces higher once again, the bears are going to begin covering. If the market can then extend the bounce and push into the zone $1785-$1800 and better that, it will touch off a wave of significant, and I do mean "significant" short covering that will initially send the price towards $1825- $1830. I think that if we get this, we will move quite quickly to the all time high up near $1900 before we pause.
If we violate this week's low to downside and especially if we close down below it, expect a sharp drop down to $1725 - $1720 and then to $1700 if that fails to attract some strong buying.
We will simply have to wait and see what early week action gives us next week as the market is now at a crossroads where both sides are either going to perform or have to yield the field of battle. Gold bulls do have the advantage right now based on the close of this week but they will need to stand their ground and push through the selling cap that is being imposed by the bullion banks/swap dealers.
