"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 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.