"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, 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.


  1. Incredible report, Dan. Thanks so much. I cannot believe your reports are free! Of course, they aren't free to you with the "sweat" equity you put into it. A blessed weekend to you, sir. Rod

  2. Dan,
    I Really appreciate your well thought reports and look for them on a daily basis. Thank you for your efforts. I also appreciate your occasional comments on the miners, as they are my conduit to gold exposure. I believe that QE3 is definately coming in the fall. Politically it is the administrations only option to attempt to stimulate growth. I am looking forward to gold and equities rallying together once again, even if will cost us massive inflation in the long term.

  3. I think its interesting that despite the recent greek can kicking, gold is still incredibly strong in euros. Looks like Portugal and Italian banks are now feeling the heat.

    This is keeping gold strong in dollars despite some dollar strength this week. If the dollar breaks down I think we'll break out of this summer range and shift to the $1600-$1700 zone.

  4. Thanks, Dan. Even a novice like me can follow what you say...you're so clear.

    So much appreciated!!

  5. It's guys like you, Dan, that enable the rest of us to start getting a grasp of what's going on. Thank you for being so generous as to share your knowledge so freely.

  6. Thanks Dan ! Its INCREDIBLE REPORT on gold. I can't believe you shared everything briefly through your post and chart. MUCH APPRECIATED REPORT !!
    cash for gold nyc


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