"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


Tuesday, September 27, 2011

Gold Chart and comments

I am basically reposting the 4 hour chart that I sent up yesterday as it has been a good guide for locating resistance levels and support levels. I noted yesterday that gold would run into selling near the $1680 level, the location of the former gap and go region. That is where it ran in today's session before the sellers showed up.

A probable bottom has been put in down near $1535 based on today's followthrough buying but there remains a fair amount of technical damage that will require repairing before anyone can start talking about a new leg higher.

I do like the action however as it bodes well for a period of sideways consolidative trade, which is just what the doctor would want to order for this "disorderly market".

On the downside, it will likely retest $1640 for starters to see whether or not it can entice any bulls at that level. Failure there should let it move down towards $1620 - $1615 and then $1600.

On the topside, we need to clear $1680 and hold above that level to set up a push back into psychological resistance at $1700. Above that is $1710 - $1715.

Some could argue that a potential bearish flag formation can be seen on the chart but I think the rebound off the low was too strong for a flag. Perhaps their reasoning would be more solid if the market could not get back over $1600 but it did moving over $120 off the recent low.

Not only that, we are getting a very good washout of speculative money, both in gold and in silver. Quite frankly I wonder where we would get the downside firepower to take price down below $1550 once again on strong enough volume to constitute a fresh, legitimate leg lower. It would take a rather sizeable exodus of hedge fund money not only out of long side positions, but also into establishing fresh short positions.

Not that those guys care a whit about fundamentals, but given the current interest rate environment and the pumping of further liquidity into the system, that seems to be a rather remote possibility.

By the way, to a totally disinterested observer, the modern hedge fund community must no doubt resemble those who have some sort of pathological disturbances in their brains. The mood shifts and swings are downright manic. Sunday evening the world as we know it was coming to an end. Today the only fear is being left behind as the bull train leaves the station without being on board. Are these guys pitiful or what?

What is especially distressing is the fact that we have an entire generation of investors who seem to have absolute faith and confidence in the power of Central Bankers to create prosperity by conjuring liquidity into existence. I am not exaggerating when I say that historians will liken our generation to those of the Medieval period who spent countless hours and resources studying alchemy while attempting to turn lead into gold.

When all is said and done, what the hell is the difference between us and them? Both feats are impossible yet that has absolutely no inhibiting effects whatsoever. Pity the generations that came before us - if they only realized how easy it was to build a strong economy with such little effort....

Country Western buffs will no doubt remember Mel Tillis, the stuttering talker (we used to call him, M,M,M, Mel Tillis) who totally lost that impediment while singing. He had a song out that became a classic:

"Stomp, stomp them grapes
and make that wine,
put it in a bottle boys
and ship it on down the line".


This could be the new song for the Western Central Bankers. They used to be the ones who took away the punch bowls from the party. Not any more... They are the bartenders in chief.