"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


Wednesday, June 1, 2011

Gold - 4 Hour chart update and comments

Gold has met the initial upside target of $1,550 based on the breakout above $1,530. It is displaying this strength in the face of widespread commodity selling by the hedgies as they run from risk once again and unload long positions cross the entirety of the complex. Only the markets with the strongest fundamentals have been able to shrug off this huge algorithm-generated selling.

I am now looking for a solid close in gold ABOVE the $1,550 level to signal a run back towards the recent all time high near $1575. If gold fails to extend its gains above $1,550 it will set back some and dip towards $1,530 where it should encounter some decent sized buying, particularly if strength in both Euro-gold and British Pound-gold continues.

Risk trades are being yanked off in droves today but in spite of that, the Dollar, while higher, is not getting that much of a bid. That is most interesting and bears watching. This is the 4th consecutive close by the Dollar below the 50 day moving average, not particularly inspiring if you are a Dollar bull. A failure by the Dollar to extend its gains will be positive for the metals, gold in particular, which is trading as a hard currency against the paper currencies right now.

The ADP number has taken the wind out of the equity bulls' sails and has left the chart of the S&P looking quite ugly and very disconcerting for any future prospects regarding the US economy overall. It had managed to claw its way back above the 50 day moving average but completely broke down in today's session. It looks heavy and feels like it wants to go back down and retest 1300. If it fails there, it is going to get ugly in equityville.

The long bond bubble is beginning to form once again and it will take another round of QE to pop it. While the Fed loves the low interest rate environment being created by this mad rush into low yielding bonds, they do not love the ACCOMPANYING market behavior of the equities and many of the commodity markets because that is signaling deflation. What the Fed wants, and is NOT GOING TO GET, is a low interest rate environment accompanied by RISING stock prices and gradually rising commodity prices. They will not get that either. If they push in another round of stimulus, they are going to get a collapse in bond prices alongside a surge in equities and commodities. If they fail to stimulate, they are going to get their dreaded deflation bubble in bonds.


  1. Any idea about silver action? More than 1usd fall in less than an hour?

  2. Great report unfortunately gold has pulled back to around 1538 from its high --this always seems to happen to gold when it gets up around 1% then is capped and starts to fade back-There have been many studies done and gold is almost never allowed to rise more than 1% never--
    Lets see what the jobs report on Friday comes out as.I'm sure they will do their best to fudge the report as they do all the others they put out.If its bad gold could really take off or just the opposite could happen with a report below expectations

  3. The bond prices point to a possible QE 3

  4. Dan,

    Could you comment on silver after the latest drop below $37 today. Do you still see it making a run towards $40 in the near term (next 2 weeks).


  5. Dan, you say:
    "If they push in another round of stimulus, they are going to get a collapse in bond prices alongside a surge in equities and commodities" I do not think so. A collapse of bond prices seems a reasonable expectation but it is my opinion that equities and commodities could initially surge (for one or two days maximum)but will fall after.
    The market did not react to Goldman Sachs statement saying that investors should buy commodities and this is a huge change with previous "statements" from GS where the market blindly followed the recommendations.
    Second, when the Fed announces QE3 we should see a fall of the USD which should be positive for all commodities...except this time I expect a short term rise (of the commodities) due to what you call algorithms followed quickly by a fall when the market finally realize that this is "deja vu" and the US economy will not respond to the stimulus -as seen with QE1 and QE2. This is when you start to see the international community switching quickly from USD denominated commodities to either a basket of currencies (including gold) or what we have been seeing in the last 12 months states agreement where the trades are done in state's currencies (China with Venezuela or Russia or Brazil...)
    QE3 will prove to be the finale nail on the US coffin.


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