"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


Sunday, September 25, 2011

Gold coming under selling pressure in very early European trading

Gold opened in Asian trade on a relatively firm note as buyers came in to take advantage of the break in prices. That buying eventually gave way to sellers looking for a bounce to exit from longs. As price dropped down to Friday's closing level (commensurate with the 100 day moving average), longs who had been bottom picking stepped aside removing any support from the market. That allowed the shorts to press it into stops below Friday's low which dropped the metal rapidly into the band of chart support near the $1600 level.

Upon its initial test of this level, it did bounce somewhat but renewed selling then took it back lower and violated this key psychological level.

Should it fail to recapture $1600, the next stop is near the $1580 level. Should that give way, it looks most likely to drop back into the band of congestion on the charts that held the price from late April of this year through the breakout that came in July. Should this occur, the entirety of the leg higher from July will have been erased. The top of that band was centered near $1550 while the bottom of the band was near the $1480 level.

That is rather fascinating to observe considering the fact that the monetary authorities' solution to the woes confronting the European economy and the US economy is further currency debauchment. Some of this is no doubt due to the fact that traders on the losing side (currently the longs) are going to be dealing with increased margins to hold these losing positions come the close of trading Monday (tomorrow) afternoon.

What we are experiencing is very similar to the events of the summer of 2008 when traders began fearing a deflationary outbreak which led to widespread commodity selling as carry trades were unwound. What is different right now is that the US equity markets are not imploding lower ( I suspect we are seeing official sector intervention occuring in there with the Exchange Stabilization Fund very active - whether they can hold it is unclear).

While monetary officials are no doubt quite pleased to see the commodity sector getting pummelled by hedge fund selling, it is going to be very difficult for that sector to continue its freefall without a spillover effect on the equity sector. What's good for the goose is good for the gander. If the global economy is slowing to this extreme to justify the severity of the sell off taking place in commodities, then stocks are overvalued and ripe for a breach of important chart support levels as well. Either the commodity sector will find value based buying very soon or the US stock markets are going to experience a free fall in price.

One further note for those who like to do historical comparisons. The plunge in 2008 took gold down from its peak by approximately 30% before it bottomed out and began its next leg higher. If that same plunge were to occur this time around, the price could drop as low as $1345 or so by comparison. Gold ended last year at $1422 on the front month Comex gold contract so such a plunge would take the metal negative for the year. Those who are buying the physical metal are being given one helluva gift. Scale in buying can take advantage of this setback in price but this is for buyers of physical only. LEveraged futures guys have got to be careful not to let these hedge funds trample you to death in their mindless rush to the exit. Wait for some signs of a bottom before moving in on the long side unless you have extremely deep pockets.


  1. Technically, the Adam & Eve can target 1900-1700 = 1500.
    The daily mm150 has been a dynamic support along this year, and is around 1570, but I wonder if it will hold, given the volatility and the excesses to be corrected.
    Also, on a log scale long term, monthly candles from 2001, I see gold in a rising wedge, whose support is also around 1500. Watch out if we break this area :(
    Last, if we take the Fibo point of view, from its long term rise at 750$, 1600 is only the first retracement level. Second retracement is around 1450$ area.

    Question is do we have a very short term sell off due to margin increases, hedge funds running for the door, or a longer sell off which would see to correct the whole move from 750 $ up to 1900 $.

    I think the sell off is amplified because so many people gt caught buying too much silver & gold at too high levels recently, listening to gold mermaids. The same ones who were seeing gold at 2000 $ by october and 2500 $ by year end are now singing that 15% retracement is very little in a secular bull market and you should buy more (yeah, so if 15% is small, why not 30% first), strangely enough, all comments about their previous target of last week disappeared.

    I'm so angry with those people seing the trees going to the roof and tell you to buy more even when the price of gold is 30% above its ma150 daily.
    They played on fear.
    They keep playing on fear, with special speeches about the end of the world and the only safe haven being physical metal.
    Point to remember is even if they are right, it doesn't keep a silver market to correct 40% down, and gold to lose 300+ $ on its highest.
    I won't listen to those mermaids ever again.
    They made me forget about the simples rules of money management and profit taking.
    Glad I didn't get wiped out and only lost my profits there.

  2. Thanks for the great post Dan! Just curious, is this the test Martin Armstrong was talking about in his post the "So you thought the sovereign debt crisis is over"? It seemed like his prediction would be gold to drop near and around $1200? Thanks again Dan!

  3. Very glad you warned us on time Dan. Perfect call to go short two weeks ago! Thanks again


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