"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


Friday, May 27, 2011

Gold Comments

First, let me take the time to express my sincere and heartfelt gratitude for so many kind comments from so many of you. It is difficult to express how such words of encouragement can impact a weary warrior.

Secondly, I am okay health wise so no need for concern there but am just weary with the day to day battle against the hedge funds and their computer algorithms and subsequent volatility. Trading is an invigorating occupation as it engages the full powers of the mind but it can also wear one down as the extent of price swings makes it difficult at times to gauge what is actually occuring. With 24 hour round the clock markets, getting sleep is sometimes the trader's toughest trading decision!

These markets are nothing like the ones I cut my teeth on when I first began my trading career more than 2 decades ago. Back then, we had volatility, but it was the exception not the norm most of the time. The markets were what I call, "well behaved" back then. Then again, I also vaguely seem to remember being able to buy a fully loaded Camaro Z28 for $3,500 back in 1970 or so!  I was too young to be driving back then anyway. Disclaimer ( I did buy a used one however some years later - it was a 1971 with that LT1, 350 engine - I lost count of how many speeding tickets I got on account of that car - if that thing had come equipped with a set of wings, it would have gone airborne - those of you who know the Beach Boys "Little Deuce Coup" - will know what I mean).

I said all this to let you know that I still plan on posting, but I am backing off the number of posts in order to recharge and refresh a bit. Trying to write and trade and track markets at the same time takes a toll.

With that in mind, here is my latest... by the way, Eric King and I will be doing the regular Weekly Metals Wrap together over at King World News so tune in for that when it gets posted.

Please note several aspects about the gold chart.

Fist of all, from a trend following perspective, it is trading above all the major moving averages once again. That tells us that the chart is bullish. Secondly, the 10 day moving average (blue line), which had been moving down until last Friday, has now turned up and is trending higher. It is also getting ready to make a bullish upside crossover of the 20 day moving average (red line). That will be bullish as well.

Also note that the market held above the 40 day moving average (dotted line) even on its setback in price, failing to close BELOW that level once. That means that the trend following funds were still active and were buying the dip or retracement  in price.

The MACD, a good trend following indicator, is bullish.

Based on what I can see here, gold looks as if it wants to make a try at $1550, one of those even numbered levels that takes on a technical significance as price approaches it. It is important to note that this is occurring late in May, a time frame during which gold tends to show seasonal weakness. This seasonal weakness however can be attributed to factors, which while important, are not what are driving gold at this time. The festival seasons from Asia and India are over and the strong jewelry related demand is therefore missing. However, gold is not deriving the bulk of its strength from that source but rather from currency related matters.

By currency related matters I mean investor concerns over the stability of paper currencies due to the tremendous amount of debt being run up by so many nations. European sovereign debt woes remain a strong source of gold related buying, especially from investors on the Continent. This is reflected in the very strong gold price in terms of the Euro and of the British Pound. As you know, Euro priced gold set a new record high this week.

Here in the US, our total federal debt level is at 100% of GDP. We are looking at entitlement programs which will be bankrupt within less than a decade on the current trajectory. Many states are in precarious financial condition which large numbers of municipalities and counties facing their own set of problems. Much of this is tied to the collapse in real estate values and thus affects valuations which are a source of property tax revenues. News on the housing market continues to reflect a sector that is mired in a supply glut at a time when demand is feeble. That is not a recipe for improving valuations anytime in the immediate future.

Ever since Fed governor Bullard let the cat out of the bag and basically told the market that the Fed would not be withdrawing accommodative monetary policy until at least July 2012, the Dollar has been moving steadily lower. That keeps REAL INTEREST rate yields negative and has strengthened the conviction in many traders’ minds that such an environment is going to be the norm for at least another year. Gold LOVES those kinds of conditions and thus has moved steadily higher ever since Bullard’s comments.

While it may dip in price moving forward, as long as this negative real interest rate environment is present, it is going to attract strong buying on such occasions, particularly if Euro-priced and British Pound-priced gold continue their impressive chart action.

Also, an additional kicker for gold is that the CCI, the Continuous Commodity Index, is now trading above 650 as it puts a bit of distance between itself and that critical technical chart level of 640. The commodity markets are signaling that prices had fallen far enough and that this fall had been sufficient to scare the Fed out of any further hawkish talk. I would be surprised to see much in the way of comments coming out from the usual hawks on the FOMC. As long as these economic data numbers that we keep getting are coming out on the low side of expectations and disappointing investors, the doves at the FOMC are going to be getting the airtime.

Note that the Dollar has broken down through the 50 day moving average at this hour and is also down below support near 75.20. A week close today does not bode well for next week.


  1. Dan,

    You deserve the rest, recharge the batteries, take care of what you need to, and come back to providing your world class insight and knowledge when you feel ready. You are a class act and we all appreciate your posts as many of us have learned a lot from you.

  2. Dan, I am one those guys that has been reading every one of your posts for the past I don't know how many years. You give so much to all of us. Time to take some for yourself. Be well.

  3. yer the best

    try to get some perspective

    step back, observe the distant horizon

    see how there is no resistance to the dawning of a time when we will rejoice

  4. Does this also mean you wont be doing the weekly KWN weekly news? Go do some R&R Dan.

  5. Thanks for your information, have a good time to recover.

  6. Dan, I am a long time reader of your work here and previously on Jsmineset. It's about time that I at least said thank you for the top-quality work you selflessly put out there.

    These markets today would wear anyone down, and I certainly identify with your comments about trying to shoehorn some sleep into the day, particularly now that night-time raids seem to be the weapon of choice for the Bullion Banks.

    Anyway, thank you so much for all that you do and get some rest.

  7. Take care of yourself first, Dan. You don't owe us anything, but I sure as hell appreciate you.

  8. Just want to add to everyone else's appreciation for you guidance!
    What appreciate the most is your even approach to your analysis.
    I really like that you stay in the middle of the boat.
    Thanks so much!

  9. Dan,

    My first car was a '66 Mustang. Three speed, 289. So, yeah, ...

    That thing could fly...

    Nothing but trouble for me though, until I totalled it....

  10. Dan,

    In High School I had a '67 Malibu 327 2 speed automatic. Not so fast in the 1/4 mile, but nobody beat me on top end. It would bury the needle!

  11. Hi Dan, Always enjoy your insight. Thanks for all that you do. Reflecting back on my high school car...1969 Pontiac Firebird convertible 350 Automatic. Boy, would I love to still have that car!

  12. Thanks for everything you do Dan. You've become a part of my Saturday mornings with your KWN interviews so I hope you take all the time you need to rest and relax! :)

  13. Thanks Trader Dan for all you do for us. Rest and do less!!! Make your trades and let us know at the end of the day what you see that happened and give us a little insight to the next day. Whatever you give, it is so much appreciated it really can not be put into words. If I somewhere close enough, I would give you big-ole-hug. Rest and do less. You and Eric King are the highlight of my Saturday. It is a great pleasure to hear you discussing what has happened and the insight for the coming week. I must say, you have been spot-on--pun intended--for the month of May, and that my friend is a gift that no one would be able to repay. Rest and do less. Thank you for all you do for us.

  14. Trader Dan, Fully understand the need to back off!
    I'm not even a very active trader, just have enough endurance to keep track of things.
    These are very stressful days we live in, worrying about the details of the market plus the longer term situation. I've started to need recharging myself...have stopped spending so much time watching things super closely!

    I appreciate everything you've been doing and am happy you are going to take care of yourself!

  15. Dan, you're the best, you avoid profanity, which I greatly admire as it shows intelligence and educated usage of the English language...you're a class act...this is my first post here, though I have read you extensively and listened to you at King World...thanks for all you have to say and do...

  16. Hi Dan,

    As I read and appreciate your insight into the market every night I wanted to write and say thank you for your work.


  17. Thanks for sharing your insight and for the hand-holding when, well at least I, need it in these markets. Awareness is the first step toward improvement, so glad you listened to your gut and chose to follow its directive to pace yourself.

  18. thank you Dan,...enjoy life!!!

  19. Dan is the Man!

    Glad you're doing what you need to - i can only imagine the daily stress involved. Thank you and congratulations for your unique and calm, no fluff commentary on these markets.

    Got my first car from Fred Flintstone so yeah, i probably woulda been eating Z28 dust.

  20. This comment has been removed by the author.

  21. Hey TD (paisan) ...

    Had to reach out and say something.

    As you might remember, we had that debate about the validity and limits of chart analysis in this new crazy world ... what can I say?

    For sure, the speed, nature and tenor of events has become troubling and often things look like a train wreck in slow motion (because that's what it is); one that is--ironically--difficult to keep up with. It's a brave new world that requires various adjustments, as well as setting healthy boundaries. Many of us here (as I do) share your nostalgia and also feel disappointment, frustration and/or anger at what things are coming to.

    Given these stressors, we must remember to do the self-care we need, so treat yourself to what feeds your soul. As necessary, step back, rest and relax, lose yourself in nature or art (or a craft), take a trip, reconnect with your center, be in the supportive presence of loved ones, and challenge the universe to reveal to you more clearly what it wants you to apprehend and learn.

    As I said before, I greatly value your insights on KWN and your blog here--to which I would add--in whatever form they come, and at whatever intervals you are able and willing to share. Pace yourself as needed!!

    Ciao Dan!

  22. Thanks Dan you're awesome... take it easy.

  23. Read this 4 times trying to understand why God cares about this trade: "Gold LOVES those kinds of conditions..."

    Then realized it says Gold, not God.

  24. Just to say thank you for your time and selfless sharing. Thank You.

  25. Thank you very much for your insights. I listen every week at the KWN weekly metals wrap and it's amazing how you're always spot on on the metals and the dollar.

  26. There is a must read article for anyone who wants to understand the genesis of the current problem of industrial production transfer to Asia, unsustainable debt growth in the western world and exponential money supply expansion since 1971 and the inevitable dead end that is about to be met by this fallacious economic growth model.


    The Economic Death Spiral Has Been Triggered


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