"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


Monday, September 19, 2011

Gold chart and comments

Gold continues moving in a broad sideways pattern, unable to breach overhead resistance centered just below the $1840 but remaining above longer term support just above the $1760 level. The current short-term bias is negative until it can at least climb back above $1820.

Thus far forays down below the $1800 level have been met with quality buying in the physical market so this will need to continue to hold it from moving lower through $1760. Should these buyers step back a bit in the hopes of picking up the metal a bit cheaper, we could see it lag down towards the $1730 - $1720 region where one can expect to see very active buying occuring.
There is still some of this risk aversion selling occuring in gold (that is very easily seen in silver) but that is more a function of traders raising cash on their losing equity positions by selling their only winner, namely gold. In watching the price action today it seemed more a matter of a lack of eager buyers rather than any large scale fresh selling. That allowed price to drift lower until it triggered enough downside technically-related sell stops which then took it through $1780 before getting a bit of a light bounce up.

If you look at the copper chart, you can see that today it crashed through a former strong level of chart support. On the weekly chart, it has confirmed a double top pattern but that will not be totally confirmed unless it closes the week below the $3.85 level. Chinese buying had been keeping copper well bid below $4.00 but that buying disappeared today. The 100 day moving average, another key technical level, is now within easy striking distance for the bears. If they can take it down through that level, Dr. Copper will not be telegraphing good economic times ahead anytime soon.

There was also a hit to the unleaded gasoline market as well as crude oil. GAsoline is moving down towards a significant chart support level near the $2.60 region. Weakness in the grains is also evident. The result of all this is to bring the Continuous Commodity Index ( CCI ) back down towards the lower part of its now 5 month long sideways trading pattern.

This widespead selling across the commodity complex is a function of fears concerning the stability of the European Banking system which is reeling from its exposure to sovereign debt from that region. Investors are rightfully fearful of a contagion effect and a subsequent slowing of global economic growth. This is being reflected in severe weakness in the Euro, which as you can see from the price chart, is flirting very dangerously with falling below the 100 Week Moving average. It dipped briefly below this level last week but then recovered by the close of trading Friday and averted more serious damage. That respite was brief however as it has started off this week on a troubling foot. Unless it can rapidly recover above this level, it looks like a move towards 1.30 is in store. That would put even more upside in the US Dollar leading to further pressure across the broad commodity sector.

Take a look at the following chart and you can see where the safe haven money has been flowing over the last month. This is the gold/bond ratio. When the line is rising, gold is the safe haven of choice compared to bonds. When the line is falling, the bonds are the asset class of choice. Ever since the Central Bank organized hit on gold earlier this month, gold has been underperforming the US long bond. This is no doubt much delight to the Federal Reserve and to the Treasury Department, the former of which MUST HAVE LOW LONG TERM interest rates to prevent any further shocks to the already "on-life-support" economy; the latter of which cannot AFFORD to pay higher borrowing costs without worsening the already hopelessly incurable federal debt situation.

The HUI held fairly well today considering the weakness both in the equity markets and in the precious metals but it does need to clear 610 and hold that level if it is going to have a shot at the recent all time high once again. Downside support is initially near 600 followed by strong support near the 580 level.