"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


Tuesday, July 26, 2011

Weekly Gold Chart - longer term view

Excuse me for the lack of posts this week thus far but Trader Dan has been staying quite busy of late and has not been able to keep all the plates spinning simultaneously so the posting plate has had to be let down lest the other plates succumb to gravity.

Gold is acting in textbook fashion according to the technical signals thus far. Once it took out the overhead resistance level that the bullion banks were attempting to enforce at the $1610 level, the weaker shorts who were piggybacking the large bears had to beat a hasty retreat and cover. Their buying triggered some of the system trades to send in additional buy orders with the result that prices shot directly to the first resistance level near $1625 before setting back a tad.

I should note that in today's session (Tuesday), gold dipped back down towards $1610 but found more buying and not liquidation related selling. That seem to catch a lot of traders by surprise with the result that the opportunistic shorts were once again forced to retreat under a withering barrage of buy orders.

This market continues to astound skeptics as it as of yet shows no sign of weakening interest on the buy side. Coming on a day in which option sellers were desperate to keep their cash gravy train from sinking in the river crossing, makes the performance even more the sweeter. Those option writers have skinned so many longs in years past that it is nice to see them get their comeuppance, even if it is only for one day's option expiration.

I have put up a weekly chart of gold to attempt to show you the channel in which gold is rising, a channel which has very neatly defined both its upper reaches and its downside forays for the better part of 2 1/2 years now. Note carefully that since March of this year, the downside moves have not made it as low as the bottom of the channel. Instead, buyers have come in rather quickly and kept price from testing the lower limits of the channel. This is evidence that the bulls have been in control of this market since that time frame.

Looking back we know the reason for this from a fundamental standpoint as sovereign debt woes began to intensify out of Euro land, inflation reared its ugly head across China and other emerging economic powerhouses in that region and elsewhere and the Federal Reserve telegraphed that the US economy was so weak that monetary policy was going to stay extremely accommodative for the foreseeable future.

What now appears to be happening is that traders and investors are watching the US' deteriorating fiscal condition and have added that into the mix. Simply put, most want no part of the US Dollar which is paying next to nothing as far as yield goes and is threatening a technical washout to the downside as it inches ever closer to a major chart support level.

The buyers have now taken gold to the top of the innermost channel noted on the price chart. This week that top of the wider channel comes in near $1665 - $1675. There is psychological resistance near the $1650 level, as these increments of $50 are always significant for gold not from a chart level but just from the fact that so many traders look at these round numbers when gauging price performance.

If gold plows through the upper channel anytime within the next few weeks time, it should begin to accelerate at a steeper rate. It will then form another price channel albeit this one will be at a much steeper slope. One thing I would like to point out is that the price channel currently noted on the chart is one that is very modest and orderly; only since March of this year has the rise of gold began to steepen somewhat but even at that, it is a far cry from going vertical. Once gold does go vertical (and it will at some point) then the gains will be remarkable. At that time I expect the long suffering holders of many of the quality mining shares that have been lagging to finally see the rewards of their patience.

From a chart support level, we could conceivably fall as low as $1525 and stay within the steeper channel being formed on the chart but unless we see some rather remarkable turnarounds in the above three factors that have been driving gold of late, I would be very surprised to see the metal move to that level. If it did, one would suspect eager buyers would be quite active, particularly if such an occurrence were to develop during the latter part of the third quarter, since gold will be entering its strongest time of the year from a seasonal perspective.

I would like to make a comment in regards to my good friend Jim Sinclair who caught a fair amount of grief from naysayers and other assorted trolls earlier this year when his gutsy call of $1650 gold did not materialize in January, a call which he made well in advance of 2011. Now that gold is sitting up closer to $1625, a larger number of pundits are now talking about $1650 as a minor stop along the path to considerably higher prices. Nice going Jim - you were a tad early but a prediction that far out ahead of time is still pretty damned good as far as this trader is concerned.

Believe it or not, sometimes a trader or a holder of a particular stock can be absolutely right in their expectations if they have carefully done their homework and have a wealth of experience to back up their conclusions. The problem is that until the rest of the pack actually catches up with you and sees the actual things that you see now, the stock or commodity does not go anywhere. It takes the rest of the herd to come in and reach the conclusion that you have already arrived at to make your investment choice a prosperous one. Their buying then takes the market to new highs or to levels that your analysis suggests it might very well go.

The flip side to this is that you may have found an undiscovered gem out there for an investment but until the rest of the public thinks the same way about that stock or commodity as you do, it ain't going to go anywhere. Remember that the next time you decide to drop your live's savings on some obscure stock. 

Let's see how gold closes out this week to decipher where the market is telling us that this thing might want to head next.

 The Dollar is looking pitiful right now.

Saturday, July 23, 2011

Trader Dan on King World News Weekly Metals Wrap

Please click on the following link to listen in to my regular weekly interview with Eric King on the KWN Weekly Metals Wrap.

I want to make a brief clarification of a comment I made in regards to "limits" on the Commitment of Traders report that might be misconstrued. When I said that there are no limits in regards to "how many specs can come into a market", I did not mean to imply that there are NO POSITION LIMITS in the precious metals. There are of course position limits that apply to speculators. What I want to emphasize is that there are indeed no limits as to how many specs can decide to come into the gold market. The exchanges in conjunction with the CFTC do not publish a rule stating something to the effect, "Oh, we see that there are now 75,000 different speculative accounts on the long side in gold. That's it - shut the barn door and don't let anyone else in".

This is the reason that we cannot look at a build in open interest and dogmatically state that the market will now top out because the speculative net long position has reached such and such levels. All bull markets are marked by INCREASING open interest and along with that, an increase in the number of specs on the long side of that market. The reason is very simple - it takes financial firepower to drive a market higher and that requires a steady steam of buying. Absent this buying, the force of gravity takes over and markets fall lower.

Another way of saying this is that in order to keep markets levitated, thrust or force must be continuously applied. Absent this force, the path of least resistance is downward as gravity takes over. Speculative buying is the force that therefore drives a market higher. The higher a market runs then, the more speculative buying that accompanies that move higher. A bull market that makes new all time highs, should see the size of the speculative long category making new all time highs as well. This is normal and healthy. Whenever you see a market moving higher and the speculative long side exposure DECREASING, beware; the move higher is being driven not by new buying but by trapped shorts who are BUYING back existing short positions or short covering. Once they are done getting out, the market will then collapse because there are no NEW SPECULATIVE BUYERS around to keep applying upward force against gravity.

The thing we do watch with the COT report however is the size of large spec long side levels, AND whether or not the market continues to move higher or whether it stalls out and then drops through a technically significant support level on the price charts. If that occurs, the nature of the markets is that the computer algorithms will generate sell orders among the spec long holders. That is what the bears are always counting on - a rash of sell orders coming from sell stops located below the market which then feed a frenzy of additional selling as the computers take over. The larger the build in the speculative long side exposure, the more POTENTIAL there can be for a sharp move lower as their long positions are flushed out.

Incidentally, the Asians love these spec flushes as they pounce on the markets at lower levels to accumulate more at a better price.

The key for the gold market is whether or not it can continue to attract fresh buying from both existing long holders are who below the position limit threshold and from those who are just coming into the gold market having no previous long positions. As long as you get fresh money inflows, the market can move higher, regardless of the current size of the speculative net long position.

Thursday, July 21, 2011

Another leaked news story suggesting a deal on the debt ceiling

Here we go again! Tuesday it was comments from the President that some progress was being made on the debt ceiling negotiations that derailed gold and sent the US equity markets in a tizzy to the upside. Yesterday, that was walked back as things were once again at an impasse. Today another story hits the newswires that a deal is in the works again. Down goes gold; up go the equity markets and down goes the Dollar.

Only in America in the age of hedge fund computer algorithms could we get an upside reaction in stocks and a downside reaction in gold on news that the US could get the greenlight to plunge itself ever deeper into a morass of indebtedness as its financial condition further deteriorates and works closer to looking more and more like that of a banana republic.

Apparently in this brave new age of unlimited indebtedness, safe havens are only needed when it appears as if a country might actually attempt to hold the line on its spending problems and work towards balancing its budget like the rest of us ignorant clods who still attempt to run our family budgets in a responsible manner. Excuse me for not becoming part of the cheerleading crowd who equate more indebtedness with a good thing.

"The borrower becomes the lender's slave" was written by someone far wiser than the current group of debt-addicted politicians who are sending this nation down the roads towards financial oblivion.''

Either way, gold, after staging a titanic struggle revolving around the $1600 level, was knocked lower once that news story broke which gave the day's victory to the bears who managed to keep the metal from holding firm above $1600. Solid Asian-based buying last evening had pushed it further to the upside from yesterday's pit session close in New York and set the stage for the push above $1600 so we will have to see if those buyers come back in this evening. It does appear that as I write this commentary, buyers have appeared in the $1580's again.

More to come later if time permits...

The Dollar has gotten trashed today as it broke below 75 and then continued to plummet right through a critical support level at 74.50 without even a pause. It's weakness is providing even more volatility to an already volatile trading session as the algorithms generate buying across the commodity complex when the Dollar is weaker and risk trades are back on. That is what has pushed crude oil back to the $100 level again for WTI. However, several of the commodity markets are currently experiencing some bearish fundamental factors which is setting up some wild price swings across the sector in general as some of the algos buy while commercial accounts are providing the selling.

Remember that insanely weird 1 1/2 point rally in the long bond that I commented upon the other day? It never happened! Yep, bonds have erased the totality of those gains and have dropped as low as a full point in today's session. I am of the opinion that the best thing traders can do in these volatile market conditions is to sleep in late and upon waking, indulge heavily in video games. If you miss a couple of trading sessions, not to worry, as prices will eventually go right back to where they were before you took your extended nap. Madness, insanity and idiocy are too mild of a choice of words to describe what our financial markets are being reduced to by these damn computer algorithms.

Wednesday, July 20, 2011

Sellers dig in yesterday - Buyers dig in today

Quite a battle royale is being waged at the current time in the gold market. The bullion banks are digging in at and above the $1600 level while buyers are digging in just above the $1580 level where a new support level is emerging. The victory will be to whichever side refuses to blink. Open interest readings are at relatively high levels so the stakes are serious.

Yesterday we had a bearish outside reversal pattern form on the short term charts that I employ; today we had a bullish thrusting pattern on that same chart. Bulls regained the broken short term support level near $1595 that had failed yesterday but did not manage to recapture the $1600 level for any significant length of time. They will need to clear and HOLD that level to set up a challenge of the bullion bank capping level at $1610.

The new support level formed just above the $1580. This level now takes on a new significance and will need to hold on any subsequent retreat in price to prevent any further long liquidation on the part of the shorter term oriented traders.

For the time being, the bears still retain a slight advantage because of the inability of the bulls to hold $1600. Based on what I can see of the open interest readings, a fairly large contingent of brand new short sellers has formed. Some of them will be squeezed out if $1610 gives way as they are counting on that bearish outside reversal pattern to hold.

There are still plenty of cross currents at work in these markets which has kept just enough uncertainty in the minds of traders to keep most on pins and needles and ready to react very quickly to sudden changes in price. I might add what I said yesterday, the modus operandi is to react first and think later. We saw some of that in the long bond today. Yesterday I marvelled at the apparent "counterintuitive" 1 1/2 point rally based merely on a statement from the President that some progress was being made in the US debt limit negotiations. Traders today did have time to think about this overnight and took back a full point from the best levels of yesterday. Bonds are back to a holding pattern now as traders gauge the next direction for interest rates but most seem to agree with my assessment from yesterday that the sharp move higher was unwarranted.

There are a couple of things worth mentioning on the currency front today. The first is that the US Dollar has ONCE AGAIN fallen back below its 50 day moving average after failing to advance much past the 76 level on the USDX chart. That makes a total of SIX reversals across this significant moving average since May. Clearly, the trend following trading systems are getting whipsawed to death in there. If the Dollar cannot bounce from 75, then it will once again head back down towards 74.50 to retest that level where we will watch to see whether or not it can reverse to the upside.

The other currency worth mentioning is the Japanese Yen. During this period of risk aversion trades and moves towards safe havens, the Yen has been the recipient of rather strong inflows. These inflows have pushed it to levels where the BOJ began voicing concerns about "excessive currency movements not warranted by fundamentals" some months back. We need to watch the yen closely to see if we are going to get another round of Japanese monetary officials appearing at microphones.

There seems to be a type of linkage occuring between gold and the yen recently in much the same fashion that the link between gold and the euro was the norm a few years ago. You remember that link - the euro would move sharply higher and gold would follow it up. It was the anti-Dollar trade. Back then we were watching the Euro-Yen cross as it was the barometer of risk. When it moved up, gold and most other commodities moved up as well. When it moved lower, so too did gold, generally speaking. What we were then monitoring was the Yen carry trade.

Now we are apparently witnessing a move where traders/investors are spurning European debt in general and are having reservations about the Dollar as can be ascertained from its inability to mount a sustained upside breakout of its range trade. They are viewing the Yen as a type of safe haven, no matter the fact that Japan as a percentage of GDP, has amassed a total government debt level near 200%. That makes the US look downright frugal by comparison. Either way, for now the Yen and the Swiss Franc are the safe haven currencies. What this means to us as traders is that on days during which the Yen and Swiss Franc are higher, we should expect to see either higher gold prices or at least, some decent buying on any downdrafts in price. This correlation is not 100% but it is at least close enough that it merits mentioning. Keep in mind that in these volatile markets, this linkage can break down but for now, it is definitely there.

Silver has made a very sharp recovery off of its worst levels of the session and done that in very impressive fashion. It found support just above the $38 level, which is where it should have if it was going to bounce. The fact that it has now climbed back to the $40 level is quite noteworthy as it indicates that the new short sellers that had climbed aboard the bear wagon got way-laid. If the bulls can keep the price ABOVE $40 for the next few hours, they have a very good shot at taking it back up towards $41, where a breach of that level will send this market to $42 very quickly. Right now as I write this, I can see the sellers attempting to hold the line at that $40 level.

I wish to repeat something here that I have said on my radio interviews at King World News and my written comments - the fact that both of these metals are acting so strongly during the period which we seasoned traders refer to as "the summer doldrums" is a testament to the elevated level of fear, uncertainty, confusion and distrust of the monetary authorities in the minds of traders globally. These seasonal patterns have evolved over many years of trading as there is a reason for these cycles. As such, any trader who ignores them or dismisses them as unimportant is expressing profound ignorance and a type of rash recklessness which marks so many neophytes to this business. They tend to be Johnnie One Notes, who are either wildly bullish all the time or wildly bearish and who have not learned yet to read the rhythm of the markets. Sadly we live in an age where any individual with a keyboard and a penchant for striking keys with their fingers is at once considered some sort of divine oracle on the markets.

Professional traders note whenever seasonal patterns are not holding because it is a clue that something is afoot. We seem to be witnessing this right now  based on what I am currently seeing in the price action of the metals. If this is indeed the case, both the gold and silver markets are telegraphing that the normal seasonal pattern of 4th quarter strength, may very well be quite dramatic this year. Stay tuned on this one folks! 

Tuesday, July 19, 2011

Gold stymied as sellers dig in

There are some very strange happenings in today's trading session with some very contradictory (or to use a favorite expression, 'counterintuitive') price movements in some of the major markets.

Let's start first with the bond market which for some bizarre reason ran up over a full point on the long end supposedly on the (news??) that was made when Obama said an agreement on the debt ceiling looked a bit better. The equity markets went beserk to the upside on the same news while gold and silver were trashed as the need for a safe haven supposedly was decreased but then why would the long bond soar to the upside if traders were throwing away safe haven trades and putting the risk trades back on? In other words, if the intensity to own gold as a safe haven against all of the ungoing turmoil and uncertainty was lessening for today, why would traders trip and drool all over themselves to lap up ever single long bond that they could get their hands on and drive long term rates even lower at the same time the entire commodity complex as indicated by the CCI was marching higher and equities were completely erasing yesterday's losses and then some for added good measure?

The article on gold in the Times worked its usual magic as the bullion banks seized on the news story about a debt ceiling agreement to eat through all of the bids coming into the gold market. That had the effect of stymiing the move higher in gold and induced the short term oriented day traders to ditch their longs once it was evident that the selling cap above the market was not going to give way as it had previously done. Other longs seeing the selling pressure began to dominate then bailed out and down the metal went.

This is the type of action I had expected PRIOR to taking out the $1600 level but not after the fact. Certainly I would not expect to see safe haven gold get knocked back while simultaneously witnessing some sort of inexplicable short squeeze in the ten year note and the long bond. One would have expected to see them going in the same general direction if any safe haven trade was coming off. There was some nervousness in the bond market about a potential downgrade to the US credit rating which would have had negative implications for that market but to see them tack on such a ridiculous gain on ideas that the debt ceiling was going to be extended is the perfect example of what has happened to our once halfway rational markets.

Let me see if I have gotten the message from the markets today correct - here it is:
Since we are now convinced that the US is going to extend the debt ceiling, plunging it further into debt, we can safely buy US Treasuries as our choice of a safe haven while we also simultaneously reject the safety of gold and opt for the safety of US promises to pay. But then again, we really do not need any safe haven the more we think about it so let's bid the price of nearly every commodity out there higher today, including crude oil and gasoline and reload the boat on equities.

I remember the old TV commercial from some years back where they used to show an egg with the words, "THIS IS YOUR BRAIN";  only to then switch to a picture of the egg after frying it up in the pan with these words, "THIS IS YOUR BRAIN ON DRUGS".  I think the hedge fund community collective brain must be heavy drug users since try as I can I do not see how some supposed agreement on the debt ceiling justifies a nearly one and one half point rally in the long bond.

The price action of so many of these markets seems so bizarre today that I am going to have to wait and see the price action tomorrow in order to see if some of these knee-jerk traders have  second thoughts about their panicked buying and selling today. Maybe we will note some regrets. If not, then there is some kind of shift in sentiment that I am currently at a loss to explain and will only be able to understand what that might be after a day or so of further developments.

One thing is for certain however - if the US long bond is going to embark on a strong rally based on some need for a safe haven from the mess in Euroland, then gold is not going to stay down very long as it will find very eager buyers on this setback in price. Either the safe havens will be moving higher together or they will both be moving lower together but we are not going to have a situation where we have one going one way and the other going in the opposite direction for very long. Just ain't gonna happen.

Back to gold however - we are seeing a battle being waged to hold the metal down below $1600, nearly exactly was what happened the first time it ran to $1500. This is normal. The short term chart indicates the reversal pattern that was forced by bullion bank selling leading to the liquidation from some of the weaker longs and the day trading crowd that had enough momentum behind it to take out some light support near the $1595 level. Price then dropped down towards $1580 where buyers surfaced.

We now want to see how it performs in Asia, particularly if it results in some drying up of the scrap sales that JBGJ reports from India. There should be very good technical support near the former all time high at $1578 or so if the market is going to find a floor. To kick off the next leg higher gold will now need to get back through $1600 for starters but also $1610, it's new all time high in Dollar terms.

Monday, July 18, 2011

Gold clears $1600 in convincing fashion

A further deterioration in the sovereign debt woes involving the Euro zone coupled with an increasing loss of confidence in the monetary authorities of the West led to a strong opening in Asian trade last evening as gold came in well bid from the get go.

The buying picked up steam as it moved into very early European trading and continued to be firm as the action shifted into New York. One could see the attempt to cap the rally at $1600 by the bullion banks who no doubt had recruited some of the pit locals to their side but shortly after the close of lunch hour there in New York a burst of buying came in that startled the shorts for its intensity and drove them back decisively from the $1600 level.

The market pushed as high as $1608 ($1607.90) to be exact and has stayed strong going into the afternoon hours. This is no mean feat as one would normally expect a sizeable amount of profit taking from longs to come in at a round number like $1600, particularly after a rally of over $120 in the last two weeks time. I think the shorts were expecting that to occur also based on the attempt they were making to hold it below $1600. The idea is that they could induce a bout of long liquidation beginning with the short term oriented day traders who would be inclined to sell seeing the market stall at $1600. Instead of that occuring, some powerful long or group of longs came in and snatched up the offers to sell on the dip back below $1600 and then never let it go the rest of the session. If that group sticks around and pulls a repeat of today's showing, this thing will go to $1650 faster than some of us are already imagining.

Since we are basically in uncharted territory (unless we use an inflation adjusted chart to mark resistance levels) I am attempting some price projections levels to try to get an idea of where the technical chart resistance might appear. I am using the weekly chart to do so.

If you look at the chart below, one can see the solid red line that is the upper prong of the pitchfork which should provide some levels against which selling should enter. Above that is the center line of a longer based pitchfork (blue) which as you can see is well above $1700 and for the next few weeks out sets up a run towards $1720-$1750 should $1650 give way.

One thing I have also noticed about this chart is that while it shows the powerful uptrend that gold has been in since early 2009, the angle of ascent, even after the past two weeks strong showing, is still not all that steep. In other words, gold has not yet gone parabolic but is rising in a strong, yet relatively tempered fashion. For all the buying that has been and is presently occuring, there is not yet evidence of any PANIC. What there is evidence of is increasing fear and concern but not PANIC. It is that emotion which produces nearly vertical moves up.

Downside technical chart support remains near the previous all time high made earlier this year close to $1580 followed by stronger support near $1550. As said previously, the close above $1600 targets $1650 but as I honestly do not see much in the way of any sizeable technical resistance until then. There might be some selling at the $1625 level but that would be more psychological rather than technical in nature.

By the way, gold notched a print above the 1,000 British Pound level today as well as scoring another all time record high when priced in Euro terms. Clearly, it is trading as a currency as that makes three record highs now in three various major currency terms all in the same day.

Saturday, July 16, 2011

Trader Dan on King World News Weekly Metals Wrap

Please click on the following link to listen to my regular weekly interview with Eric King of King World News on the Weekly Metals Wrap.

Friday, July 15, 2011

Gold closes the week on a strong note

Some brief comments on gold as it is displaying some very impressive strength. I hope to be able to write a bit more thorough commentary on it later this weekend.

One of the things that has me so impressed about gold is the fact that its rally from off of major support at $1480 has been one which contains hardly any dips or retracements in price that are worth mentioning. The dips have been extremely shallow and very short-lived sometimes only lasting a few hours before the market has resumed a powerful leg higher.

What this type of behavior is telling us as students of the market is that the forces driving gold higher are INCREASING in intensity. I mentioned in my comments from the other day that any lessening of the INTENSITY of fears or concerns on the part of investors/traders would see gold halt its upward movement and bring on some selling by the very short term oriented trading crowd (the day traders and one minute or three minute bar chart geeks). The more longer term focused crowd would then use those occasions to look for a setback in price to buy back in at a lower level. What seems to be happening is the latter crowd is so eager to buy dips, that the dips are being erased within the matter of a few hours time.

Gold did stall out near the $1590 level this week and was unable to initially punch through this level and MAINTAIN it as it tried on 4 separate occasions on the chart shown below yet failed each time. Today it did not. It closed the pit session above that level (barely) but as the afternoon trading on the screen continued, the market garnered additional buying that took it out on the high of the day and pushed it solidly above the $1590 level. What strikes me as noteworthy is that this development in the market occured on a Friday afternoon, a day during which we can normally expect to see profitable long positions see some liquidation as those traders pocket some of their winnings and head into the next week with money in hand to await their next move. They did none of that once the trading rolled into New York. They bought more instead. The overnight dip down toward $1575 was all that they could get as far as a break in price before they realized that this market was not going to let them in at a better level. The result was that a steady stream of buying kept coming in from both frustrated shorts and from eager bulls that keep the bids flowing all throughout the entirety of the session.

What I take away from this as a student of the markets and of the chart patterns is that FEAR and CONCERN is rising. This fear is being reflected in the price action in gold. There seems to be a growing consensus that the problems affecting the economies of many nations of the West are too complex, too deep-rooted, too structural and too ingrained to prevent any short-term, transitory fix. An unnerving realization is fast taking root in the minds of investors that the West is in serious, serious trouble and the cure is going to entail measures which are going to result in severe social dislocations within their respective nations. Divisions along financial lines are going to occur as a result causing severe political pressures among politicians representing diametrically opposing segments of the population. I personally see a very strong likelihood that we are going to witness riots in our streets in the major urban areas here in the US. Imagine the fault lines that are going to be revealed in the nation when once that occurs.

Again, this is not to try to paint the worst possible picture of finanical mire that many nations of the West are currently quamired in. It is however an attempt to translate the price action in gold to the underlying sentiment that is taking hold of investors' minds. There is a growing suspicion or should I say, lack of confidence in the fiat currencies of the US, Great Britain and the Euro zone and in their respective monetary authorities and political leaders. Gold is signaling that things are going to be getting worse before they get better. A close over $1650 and things could intend turn very ugly on the social front.

Thursday, July 14, 2011

Bernanke trying to walk back expectations for QE3

The past couple of days have seen the commodity markets wake up as hedge fund money flows have poured back into the sector with that community rightly interpreting the recent FOMC comments as signaling that another round of QE (this time QE3) was soon to be on the way.
We have been led to think that any further sluggishness on the part of the US economy to gain its traction was going to be met with further monetary accomodation.

The problem for the Fed however was that the hedgies had the temerity to shove the energy markets higher and ended up pushing crude oil to within striking distance of the $100/bbl mark. They also pushed gold into a new all time high in Dollar terms; something which caused Chairman Ben to make a total buffoon out of himself as Ron Paul's intense cross-examination yesterday resulted in what will soon become the infamous, "Gold is NOT MONEY" statement to somehow excape the confines of his lips.

The hedgies should have known that was a big NO-NO. Thus instead of "ENTER THE DRAGON" starring Bruce Lee we get "ENTER THE DRAGON" starring Ben Bernanke who proceeded today to administer a nice snap kick to the current market psychology as he basically walked back traders' expectations on QE3. His comments derailed the rally in stocks and send money flowing OUT OF the energy markets and some of the food markets. It also led to both gold and silver coming off their best levels of the trading session.

I have said it before and will say it again - the Fed wants to have their cake and to eat it too. They want the hedge funds to bid the price of equities into the stratosphere. Their plan is actually very simple - once the stock market moves higher, 401K's and other pension and retirement plans will be showing nice gains on the year. The public will then be able to say: "My house value stinks, my job stinks, my wages stink, gasoline prices stink, Corn flake prices stink, but at least my 401K has made me some money. I will henceforth proceed to begin spending money and buying more STUFF". That of course will be reflected in a boost in consumer confidence numbers, increases in retail sales and increases in corporate profits who will then happily turn on the jobs spigot and begin hiring gobs of people. The other piece of that cake however is that the hedgies are not playing ball. They are not going to tell Uncle Ben that; "We will buy equities but will leave those nasty commodities alone and will of course not buy crude oil, gasoline, corn or anything else" that might actually impact the inflation numbers and tie up what is left of consumer disposable income.

So what happens? They come in and bid up the price of energy and food and Ben has to go and deal with that brush fire and attempt to stamp it out while at the same time not stamping too hard lest he stamp on the stock market rally and send the equity markets in the wrong direction. Like I said, they are attempting to play the hedge funds like a finely tuned fiddle and get their lemmings to behave properly which means leave commodities alone and only buy stocks.

Once the comments became more widely circulated, gold has encountered selling pressure just above the $1590 level which is keeping it from making a push at $1600 and testing that nice even round number. Bernanke sowed just enough uncertainty now that he has produced enough hesitation on the part of the bulls that they are unwilling to push hard enough to take it through $1590 and hold it above that level. We do have a lot of new buyers at these higher levels so we will have to see if this thing can quickly push up towards $1600 or the short term guys will dump some longs and temporarily stymie some of the strong upward action. Medium term and longer term oriented guys will be looking for another buy-in point a bit lower should that occur and we will be able to catch that on the charts.
The break into new all time highs across three major currencies, the Dollar, the Euro and the British Pound, is ample proof that the market is attracting a great deal of buying. Those factors responsible for this remain firmly in place and while the INTENSITY of fear or distrust in the respective monetary authorities may ebb and flow somewhat, the root causes are not going anywhere.

What we will need to take it up past $1600 is some more food for the bull that is of a fresh nature. We have the three factors I mentioned the other day that are driving gold but those are all currently baked into the market so we need something from another source or a development from another front to give the bulls reason for another strong push higher. Italy supposedly has agreed to some sort of austerity package so that has temporarily taken some of the immediate concerns related to a further sovereign debt issue eruption off the table somewhat. Remember however that these problems are deep-rooted, structural in nature (too much government spending and too slow growth) and are not easily solved because of the social implications. For the time being however the urgency to push gold strongly higher has abated due to that development especially when it came in conjunction with Bernanke's attempt to damped down QE3 expectations.

There should be some light chart support near the former all time high of $1578 with better support down near the previous breakout level at $1560 followed by our old friend at $1550. For the bulls to extend the gains and set the market up for a run to put a handle of "16" in front of the metal they now need to clear today's peak and new all time high at $1595.

Incidentally, the US Dollar continues its Yo-Yo like action as it once again fell BELOW the 50 day moving average but has since recovered (after the Fed chairman's comments) that level. It failed to hold 76.50 on the top and went down to test the bottom of the recent range but this time attracted buyers up a tad higher than previous trips to the downside. The level near 75 seems to have held for now. Bears need to take this out with authority to run it down to 74.50.

Silver ran into some selling pressure due to the reasons impacting gold today. Technically it has managed to clear two significant resistance levels on the price chart. The first was near the $37 level and the second was a bit shy of $38. It needed to push through $38.75 - $39.00 in order to set up a test of the $40 level but has been unable to hold its gains and keep its footing above the latter level. Bulls will need to assert themselves here.

Tuesday, July 12, 2011

Gold breaks out; ready to take on its all time high

Judging from the price action in gold, it seems as if all three factors that are currently driving this market are gelling together into one powerful inducement to buy the yellow metal. As discussed in my recent radio interview over at King World News on the Weekly Metals Wrap, sovereign debt fears originating out of Europe, inflation fears in China and elsewhere in that region of the globe, and a continuation of the extremely loose monetary policy currently in place by the Fed are producing a toxic mix for the bears in the gold pit as buying momentum is driving them back as bidders are overwhelming their offers.

Gold was strong all evening last night with buyers eager to snap it up below $1550. That was a good technical signal that dip buyers were coming in and that long side liquidation was not going to be a problem this time around. As the market moved into the early part of the New York trading session, it held well even as sellers were making an appearance near the $1555 level. Once the minutes from the Fed's recent meeting were released, it was Katie bar the door as traders rightly interpreted those minutes to read the strong possibility that additional monetary stimulus in the form of another round of QE will certainly be forthcoming should the economy remain stuck in its current moribond condition. My pal Jim Sinclair has been saying this for quite some time now and I have been echoing the same - namely - the hawks on the FOMC have gone into hiberation and the doves are currently in the ascendancy. Unless we get some real humdingers of economic reports coming our way, chances are very good that a few more stinkers of a job reports are going to get the QE guns a blazin' again. This goes back to the third of the points I raised at the beginning of these comments - Fed monetary policy is not going to turn tight any time soon and such an environment is strongly bullish to gold.

Gold now is in position to challenge its all time high. It is difficult to see how it will not best that level if conditions in Euro land continue to deteriorate. Downside support lies first near $1550 on followed by $1530.

Regardless, once these minutes began circulating around the wire services, the gold market saw a strong influx of fund buying that drove the metal right through overhead resistance centered near the $1560 level and shoved it to within a few dollars of its recent all time high. I also noted that the US Dollar, which had been very strong coming into New York and looking as if it was finally going to get a strong close over the stubborn chart resistance near 76.50 on the USDX chart, simply fell apart and sank well off its best levels of the session, once again failing to close above that critical level. That Dollar weakness then saw another round of commodity buying by the hedgies in general which benefitted silver, although it moved into the plus column once gold took out $1560.

My read on all this price action was the speculative side of the market was already looking ahead for more QE and was loading up on the long commodities/short dollar trade once again. In other words, risk was back in even in spite of the fact that many investors and traders are extremely worried about what is transpiring in Europe.

Where we stand now is very simple - gold once again scored brand new all time highs when priced in both terms of the Euro and of the British Pound - and is within easy striking distance of its all time high in US Dollar terms. This is signaling the lack of confidence in the respective monetary authorities of those nations and in their political leaders to take the necessary steps to actually get to the root of the structural problems that have led to their terrible fiscal condition.

I might make mention here of the Japanese Yen. Remember that big, coordination intervention by the ECB, the BOJ and the Fed to knock the stuffing out of the Yen after the tragic earthquake and tsunami hit struck? The Yen is within 3 1/2 points from its strongest level, or the high point, from which it rapidly descended when the Yen selling spree by these Central banks began. In hindsight, we can now see how even coordinated intervention cannot completely reverse a currency's trend if speculative money wants to keep coming in and buying up that currency. The Yen rally is tied to more risk aversion trades as the carry trades using that particular currency get unwound driving it higher in the process. There is also a type of trade which takes the Yen as a type of proxy for the entire Pacific reason, and just bids it up as trading the Yuan is not nearly as liquid as the Yen or even the Korean Won for that matter.

The mining shares withstood all of the selling pressure originating from the weakness in the broad equity markets today as traders were drawn to them on account of the strength in gold and the later-session climb in the silver market. After moving lower yesterday and furthering distorting the HUI/Gold and XAU/Gold ratios, the shares appeared to be undervalued against bullion.

Monday, July 11, 2011

Gold now poised for a technical breakout to the upside

Sovereign debt fears out of the Euro Zone are filling investors' minds with fear and trepidation as many believe a contagion effect is inevitable. News concerning Italy has sent stock market bulls scurrying for cover today and has emboldened the bears who have been mericlessly squeezed out over the last two weeks once the S&P was miraculously recussitated from the 1250 level on the price charts. The thinking is that a rash of credit downgrades might commence hitting large bank balance sheets in particular which would have a similar effect on Europe as the collapse of Lehman did on the US back three years ago to this very month.

Risk trades went out the window today as most commodities were jettisoned along with equities while the bonds and the Dollar were both sharply higher as the latter two were beneficiaries of a safe haven flow. With the Euro looking shaky, traders were willing to buy the greenback in spite of the lack of any serious effort on the part of the current US administration to come to terms with the runaway costs of entitlement programs, which is where the serious money is going to have to be cut in order to get federal spending under control.

An interesting thing happened however to the gold market - it completely ignored the reversal of the risk trades and actually functioned exactly like a safe haven market is supposed to function in such an environment. It shot up through the critical technical resistance level at $1550 and while it did fall below that level briefly as silver get slammed, it clawed its way right back above that level and ended today's trading in New York firmly above $1550. That bodes very well for the future prospects of the metal as the bears have been able to successfully block its upward progress there for three separate attempts over the last 6 weeks. Given the strength in the Dollar, this is excellent price action as it translates into higher prices for gold measured across a wide variety of various major currency terms.

What we are now watching to see is whether or not it can attract buyers on any dip back down below that level or whether it sinks below $1550 and fails to regain its footing and incurs speculative long lonquidation instead of dip buying. If it can hold $1550 and plow through the last technical level shown on the chart below ($1560), it will be at its all time high very quickly. As it stands now, it has already made a new all time record high when priced in terms of the Euro and in the British Pound. That strength will aid the metal and SHOULD attract dip buyers as it is extremely difficult to be bearish on any commodity when it is making new all time highs when priced in terms of other currencies. What adds another element of interest to this current drama is the fact that gold is moving higher during the summer doldrums. Quite frankly, a fair contingent of traders are off of vacation with their families right now. Unless they are checking in regularly, they might well be surprised when they return.

The fly in the ointment is the weakness in the mining shares which succumbed to the selling that hit the broad equity markets. I would prefer to see those things moving higher in conjunction with the metal but no dice. The price action today confirms the 210 level in the XAU as the next formidable resistance level through which the index will have to climb in order to presage better prices for the sector lay just ahead. There is some technical price support down near the 200 level.

Silver today was viewed as a risk trade as it sank sharply lower alongside of copper and the energies and softs. That market is so schizophrenic in nature that one never knows from day to day how it is going to be regarded by traders. Is it a safe haven or a risk asset? The answer depends on whatever the hedge funds say it is on any given day. See the chart below for the technical posture.

The US Dollar was sharply higher today on a safe haven bid but was once again unable to successfully clear overhead resistance centered near the 76.50 level on the USDX chart. This level is taking on increasing signifance therefore as sellers have been able to hold it from breaking through even when volume has been good. IF, and this is a big "IF", the Dollar can punch through this level and hold its gains, it will have managed a breakout to the upside and should be able to garner enough buying momentum from trapped shorts to initially take it up towards 77.50 - 78.00. Should it do so, we will want to see how gold responds to any such event. If gold does what it did today and ignores Dollar strength, the Gold bears are in trouble.

The S&P 500 dropped down and bounced lightly off of its 50 day moving average. It looks heavy here as it is still reeling from the absymal jobs number from last Friday but today had to contend with traders running out of equities and into bonds. It will need to climb through 1350 to set up a run for 1375. On the downside there is additional support near and just below the 1300 level.

My last comment for today is a sure fire trade for the summer. Get ready - BUY FROZEN YOGURT at the market. Can't miss on that one!

Saturday, July 9, 2011

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.

Friday, July 8, 2011

Gold Chart update and comments

Gold shot up through overhead resistance near $1530 on news that the employment situation in our nation remains in the pits. Quite frankly, this economy is going nowhere, notwithstanding the chatter from the perma bulls in the equity camp who apparently do not understand that corporate profits are strong BECAUSE THEY HAVE SLASHED THE LARGEST EXPENSE FOR MOST BUSINESSES, namely payrolls. While Wall Street cheers the earnings reports, believing that somehow those will turn into more hiring, Main Street continues to suffer from stubbornly high prices for food, energy, medical and insurance costs in an environment in which home prices remain mired in a rut and wages are stagnant.

Methinks I hear the sound of the QE horses neighing in the barn to be released. The payrolls number for May were disappointing but many chose to believe that was an anomaly which would be corrected in the June numbers. Now that the Junes are shockingly low and the May's were downwardly revised further, another month of this is going to set the Fed up to rally forth with further monetary accomodation. The pressure from the Democrats on the Fed will begin rising to obscene levels as they watch their poll numbers heading in the same direction as the payrolls numbers. PANIC, is too mild of a word to describe what they are experiencing right now.

Once again we are back to watching the all-important $1550 level in the yellow metal as that holds the key to its fortunes. Twice within the last 6 weeks or so it has come close to knocking down that door but was unable to maintain its footing above this level. The perma bears at the Comex, the bullion banks, will be attempting to hold it in check near this level as they can read the price charts just like we can and understand the implications of a successful breach of this defensive line on the charts. Should they fail, gold is going to revisit its all-time highs. It has alredy set a new all time high when priced in terms of the Euro.

The more investor confidence in the ability of both the monetary authorities and the political leaders to deal with the structural causes of what ails so much of the global economy continues to fade, the firmer the gold price is going to remain. Recent weakness in gold was a symptom of fears concerning deflationary pressures building back into the commodity sector as a result of the withdrawal of QE. Hedge funds were throwing the entire asset class away. Those fears were replaced by fears of inflation raging in the far-East, notably with China that arose on an announced rate hike. That reminded investors of the negative real rates in many nations in the emerging Far East, an enviroment extremely conducive for gains in gold. Today another set of fears arose, namely fears of a stagnating economy which will keep the Fed on hold as far as any restriction of the extremely loose monetary policy environment that they have created.

Under normal conditions that would have put pressure on the Dollar especially with the Euro seeing a rate hike recently,. HOwever, safe haven bids came into the Dollar as the US Treasury market witnessed a strong surge of buying which boosted the greenback today. The fact that the Yen and the Dollar are moving higher today, with the Bonds also moving sharply higher while the US equity markets sell off sharply is evidence that the risk trades are off for today. This is what explains the volatility in silver in particular as it is being racked by its safe haven status and its perception as a risk trade.

The mining shares are also caught in a type of crossfire between the lower broad equity markets and the strength in gold and relative stability in silver. They have put on a very good showing this week but further work remains if they are going to put in a strong upside breakout of the nature that would presage a trending move higher. The XAU would need a good weekly close above the 210 level first.

Commodity markets in general are mixed with corn leading the way to the upside among the grains as most of us traders have long ago dismissed the recent acreage numbers as utterly worthless. Demand shot through the roof on the recent plunge below $6.00 in new crop corn and towards that level in the old crop. Apparently the rest of the world did not believe USDA either.

The flip side is the energy markets as crude oil was off nearly $3.00/barrel at one point in the session today. Gasoline, while lower also still remains above $3.00 at the wholesale level. The CCI is back to revolving around the 640 level.

The US Dollar looks like it is going to finish the week above the 50 day moving average after closing below it last week. More of the same see-saw type yo-yo action in there. Until it can conclusively post a closing print above 76.50 it is going no where. Support lies near 74.50 on the downside. You can see how tight a range it is trading in.

Wednesday, July 6, 2011

Broad Dollar Index down near 16 year low

China's Inflation problems continue to be Bullish for Gold

It seems as if every time traders (whose attention span these days is easily exceeded by that of a gnat  - a little Dr. Zeuss here) forget the struggles that many nations in the developing Far East (particularly China) are having with inflation, news arises that serves to remind them that gold is not a US game only anymore.

Overnight, China once again hiked interest rates to try to tame this unruly beast. As a matter of fact, it is the third time this year that they have done so in an attempt to keep the monster from further rampaging through their streets. As they did before, it was another 1/4% or 25 basis points hike that was employed. As of tomorrow, the one year deposit rate will be 3.5% with the one year lending rate rising to 6.56%.

There are several points to take away from this. First, if investors/traders begin to believe that these minimal rate hikes will actually have their intended effect, they will see it as a huge negative to global growth overall.

Second, the Chinese well understand the risk trade and are attempting to defuse the hedge fund commodity buying associated with that trade. Rising agricultural and energy prices do not make the Chinese ruling class happy because those things make the working class unhappy. Get the hedgies selling commodities as an asset class in general, and prices for those goods will work lower, or so their thinking is.

Thirdly, with their officially reported inflation rate running above the interest rate on one year money (the Chinese have taken a page from the US authorities and are playing games with their equivalent to our CPI), REAL INTEREST RATES are negative. That environment is one in which GOLD thrives.

You can see that some of these effects are in play in today's trading session. The S&P 500 was knocked strongly lower this morning as news filtered into the marketplace of the rate hike. Combined with a lousy ISM number, it was enough to take stocks lower across the board.

Furthermore, yields on Portugal's debt continue to rise as Moody's downgrade to junk status of the same has made traders extremely nervous about Europe in general. Their 10 year is now at a record 12.44% while their two year is at 15.72%. YIKES!  There are issues also with Irish debt and chatter is rising about Italy's and of course, Spain is not exactly a picture of robust health. This is serving to pressure the Euro  and by default bringing strength into the US Dollar.

Benefitting from all this has been the US long bond, which after plummeting last week has started this holiday-shortened week off by rising nearly a full 1 1/2 points off its worst level of the past week. Bonds are benefitting from both a safe haven trade and fears that the Chinese rate hike will work to slow growth in China during a time in which US employment numbers remain stuck in nowhere land.

While commodities in general are weaker today based on the CCI, Gold, and silver, are actually benefitting from strong flows linked to safe haven buying. Silver remains as it always does, a schizophrenic market which cannot make up its mind whether it wants to be a poor man's safe haven or part of the risk trade. Today and yesterday is was a safe haven - tomorrow, who knows?

Gold on the other hand has been attracting a very strong safe haven bid ever since the Moody's downgrade hit the market. Yesterday it surged back above $1500, giving the bulls a psychological boost and today it has managed to push past the $1520 level, a level which has been noted previously as the bottom of a recent trading range, and through which gold must push if it is going to put a dent in the "sell the rally" mentality that has arisen in the yellow metal due to its position BELOW the 50 day moving average. It is no coincidence that the 50 DMA comes in at $1520 on the charts also. That is why a push through this level is so significant from a technical standpoint

I am closely watching how this market is going to act the rest of the day to see if it can maintain its footing above $1520. If gold is going to have a decent shot at recapturing its former range between $1520 and $1550, then the former level needs to hold on any subsequent retest back down toward there. As I write this about mid-morning CDT, gold has pushed further north and is now above $1530. Shorts are getting squeezed by some very strong buying.

Helping matters has been the good showing of the mining stocks in general as indicated by the HUI and the XAU. Both have continued to push up from their important recent bottoms with the XAU managing a push through its 50 DMA in yesterday's session. They both look like they are taking a bit of a break in their move higher today however. The XAU has pushed nearly 15 points off its support level near 190 while the HUI has tacked on nearly 40 points from its critical bottom around the 490 level. Traders are now stepping back to take the lay of the land and see whether or not they should take them higher or backfill a bit. If gold can better $1530 and hold there, the miners should move higher.

One very good thing however can be said about the mining stocks in general - both the XAU and the HUI set back and retested their previous swing lows that were made in mid June. The retest attracted BUYING however instead of SELLING and that confirms those lows as an important technical bottom on the price charts. Traders felt that prices for the shares were just way, way undervalued against the metals down at those levels and there were no longer any sellers left that were large enough to take them down through the value-based buying that arose at those levels.

They are not trending yet as that will require a closing push through 560 on the HUI and 210 on the XAU but they no doubt have some of the shorts in that complex nervous. The fact that they are moving higher today while the broader equity markets are seeing good selling pressure is indicative of that.

Oh, and by the way, I find it deliciously ironic that the politically-motivated release of oil from the SPR by the current administration has failed miserably. Have you noticed that crude oil is right back to where it was trading before the announcement of the oil release?

Saturday, July 2, 2011

Trader Dan on King World News Weekly Metals Wrap

Please click on the following link to listen to my regular weekly radio interview with Eric King of the King World News Weekly Metals Wrap.


Friday, July 1, 2011

Gold nearing Critical Support Level

The euphoria over the Greece bailout continues unabated today with the equity markets rallying further upward and gold moving the other direction. The chatter is that traders are getting rid of gold supposedly for reasons related to the ebbing need for a safe haven. As always, market commentary follows price action and that is no exception when it comes to gold.

The truth is that last week's Commitment of Traders report showed a very large speculative long side exposure by the hedge funds and as remarked upon in our regularly weekly interview on the KWN Metals Wrap, any downside violation of a major chart support level set up the very real possibility of a good amount of liquidation by these stale longs. That is what has occurred.

Part of the trigger came when the USDA issued what I believe is a totally unrealistic corn acreage number. That number, which is still being met with a huge amount of skepticism among many analysts and traders such as myself, set off a massive wave of liquidation across the entire grain complex. That liquidation then spilled over into the livestock sector as well as other non-related commodity markets as margin calls proliferated and algorithm related selling across the commodity sector picked up. Both gold and silver were whacked with silver leading the way lower as could be expected in that sort of environment. The CCI plummeted yesterday dropping back down below 630 after another failed attempt to recapture the technically significant 640 level. Quite clearly, rallies in the commodity sector are currently being sold.

It certainly does appear that there is a concerted effort taking place by the powers-that-be to take commodity prices lower. The fact that a politically-oriented release of oil from the SPR came in the face of crude oil prices that were ALREADY FALLING AT THE TIME THE RELEASE WAS ANNOUNCED is sufficient reason for me to hold to my view that the release was designed to do one thing and one thing only; knock crude oil prices and by virtue of that, gasoline prices lower, in order to boost the sagging poll numbers of the current administration, and by virtue of that, the welfare of the entire Democratic party which will face a wipeout of epidemic proportions in next year's election if they do not get energy prices lower, especially at the gas pump.

Then there is the issue of annoyingly high food prices to contend with. A nice easy way to knock those lower is to go after the lynchpin of the entire food sector, the corn market. Take it down and you can lower not only food prices for those products using corn, but you can get lower wheat prices and also lower meat and chicken prices all in one fell swoop. Just like the useless jobs report numbers that we constantly get which then are revised the following month after the initial release has its intended effect, the USDA will come back next month and lower the acreage number but the damage will have already been done to the corn market.

I suspect however that some traders are getting wise to these games by now. Crude oil prices, while lower today, remain some $4.00/barrel above the level that the news of the SPR release took them. Corn, while seeing additional downside action today, is working higher off its worst levels as end users are furiously buying and getting hedge coverage into place to take advantage of this gift. Export buyers are probably already booking orders while they can.

None of this matters to the brain-dead hedge fund community however which lets their computers do their "thinking" for them. I wish to repeat here for what seems like the umpteenth time - hedge fund computer selling hits every single commodity market when their algorithms generate sell orders. There are no exceptions, even for gold. What has been occuring however in the gold market until this week was that safe haven buying was coming in and that kept the metal well supported in comparison to the damage that was being inflicted on the broader commodity markets. The bailout of Greece has temporarily derailed this safe haven bid and we are now left to the usual physical demand of the type that proceeds out of India and the middle and far East. That demand is not of sufficient size at this time to absorb the hedge fund selling and thus the market has been unable to regain its footing above $1520, which is what it needed to do in order to prevent a deeper setback in price.

For the time being we are looking to see if the demand can keep price supported here at critical support between $1480 - $1470. This level MUST HOLD to prevent further long side liquidation on the part of the hedge funds. If the physical market can soak up enough gold down here, then we have a shot at stabilizing here during this season of the summer doldrums and building a base for the rally coming later this year.

We must get back above the $1500 level in gold to give the bulls a shot at stemming the bleeding here but more importantly, the 50 day moving average to short-circuit the "sell the rally" mentality currently in place for the gold market. That level coincides with $1520, the bottom of the former range that gold was consolidating within.

The weekly gold chart still shows the BEARISH ENGULFING PATTERN formed the week of May 2 dominating its chart picture. The market had been holding up and been resisting any downside follow through from that week but had not been able to clear and hold $1550 which was needed to negate that chart signal. That week's low, $1462, is the last level of support for the bulls. They cannot afford to let that level go if they wish to avoid a move down towards $1435.