"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, October 10, 2011

Gold at the upper end of its recent range

News out of Europe overnight that appeared to confirm thinking that the rescue fund being put together by the Europeans  is going to proceed in a timely fashion cheered the hedge fund community which ran pell mell back into the risk trades. In the process, both gold and silver moved up towards the upper end of their recent ranges, the Dollar sank like a rock, the Euro soared and the US Treasury market was mauled with an avalanche of willing sellers.

What a party it seems liquidity can provide! Then again, when all is said and done, there is nothing left for the monetary and political leaders left to do except to intervene and bail out the banks. Dealing with the root causes (the failure of socialism and a cradle to grave nanny state which spends too much) would entail too much hardship on the populace which is addicted to government handouts, witness a huge hit on the balance sheets of the banks who bought this junk and thereby threaten the re-election prospects of too many politicians. That is a big no-no so the path of least resistance and the one that will ALWAYS be seized upon by short-sighted political leaders is to have the taxpayers pay for all this seeing that governments have no money except that which they take from the citizens in the form of taxes (this also includes borrowing money which will be eventually taken from future generations in the form of higher taxes).

No matter - the markets love it as the punch bowl has been spiked - at least for today.

Seeing that risk was back on, gold moved higher putting in a strong performance that has taken it to the upper end of its range during this period of consolidation. It must break through $1680 with some gusto to convince technicians that this consolidation is over and it is getting ready to at least have a shot at resuming its longer term uptrend.

As mentioned in the KWN Weekly Metals Wrap, the speculative side of both the gold and silver markets has been severely flushed with ongoing long liquidation continuing for some time now. What is needed is for a halt to be put to the rush to the exits by the specs and a renewed interest or desire in taking long positions on the Comex in both metals if these two precious metals are going to have a shot at a trending move higher. Neither metal will be able to sustain upside breakouts if the speculators do not return and inject their cash into these markets. If they are convinced that the bailouts in Europe are going to be of sufficient size to prevent any further credit market lockups, then this could be the fundamental spark needed to convince those sitting on the sidelines to re-enter.

The chart for gold remains the same as it has been for the last few weeks. Note the resistance levels and you can see where the yellow metal is at from a technical perspective. If it clears here, then it should make a move towards psychological resistance at the $1700 level. If that gives way, then $1720-$1725 is up next.

Downside support is a bit higher coming in first near $1640  followed by $1620 with more substantial support remaining at the $1600 level.

Silver is knocking on the door of strong resistance near $32.50 once again and continues to tease with this level. If the bulls can power through the selling coming in here, then it has a good shot at moving to near $34 before any serious resistance arises. Above $34, and we have some real potential to trend, especially if the specs come roaring back into this market. They have been fleeing in droves and at extremely low levels of concentration on the long side based on last Friday's Commitment of traders report.

The HUI thus far (it is still early) looks very strong and is trading right at a tough resistance level (540). If it can push through this level and close strong, it should have enough technical momentum to try a run at the 20 day moving average near 558.

The Dollar is getting the fire beat out of it today as Treasuries sink over a full two points and the forex crowd is salivating over the Euro. If it cannot claw back above the swing low noted on the chart, there are a large contingent of speculative longs in the greenback which are going to be in some serious trouble. Many of these guys ( and a large number of them are undercapitalized small traders) bought in above this level and those positions are going to be seriously underwater if this support level fails to hold.