"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, October 12, 2011

Gold Bulls Pressing against the Bears' Line of Defense

I have noted that $1680 is a key technical chart resistance level for the gold market to overcome if it is to have a shot at $1700 and a chance to begin a trending move higher. I say this because one can see from the short term price chart that since late September, all forays into this zone have been successfully repulsed by the shorts.

Today the bulls pressed through this defense line but could not muster enough strength to hold their gains in a convincing fashion as the market retreated back below the $1680 level, although just barely. We have two days left in this week for trading. If gold can clear $1680 and hold this level by the time it closes for trading Friday afternoon, it should easily hit $1700 next week where the only resistance is more psychological in nature than technical.

Note that the downsloping red trend line has been broken in today's session gains by the bulls.

There are several factors currently working in favor of gold. The first is the recapitalization plan for the European banks which seems to have enough traders/investors convinced that the worst of that storm is over and thus are willing to take on the "risk trades" once again. The second is closely related to that in the sense that the safe haven trades are being jettisoned meaning that the US Dollar is getting slammed lower as long liquidation is the order of the day in there. The combination of a weaker Dollar and an environment in which risk trades are in favor has brought buying into the gold market. Since there is no need to sell gold to raise cash for any trades that have soured nor a need to meet margin calls, this overhead pressure on gold has for the time being been vanquished.

One other factor, which is important, needs to be mentioned. The upcoming Diwali festival season is fast approaching in India. A tremendous amount of gold is bought by dealers ahead of this season in order to meet the surge in demand that ordinarily results from Indians buying of the metal. That is working to keep a good flow of support into the physical gold market, especially on dips lower in price. That is being reflected in the rising levels of chart support that can be seen on the price chart.


  1. Thank you for today's updates Dan . . . I would be climbing the walls without your consistent and balanced comments/charts.

    Nothing from Jim Sinclair for a day or so . . . hope all is well with him.


  2. Hi Dan,

    I'm a bit perplex reading that "risk on" means gold up and vice-versa.
    It means that for most of hedges, "risk off" still benefits the USD, and gold is being flushed like other assets?
    Isn't it strange, given the global situation?
    When will gold be considered a real "risk off" safe haven, if everything we've recently experienced was not enough?

  3. The Gold trendline you've drawn is going to be obvious for all to see. When price does eventually break it, gold will ZOOM up!

    Thanks for your charts Dan!


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