"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 25, 2012

Gold Firm but Unable to Continue through Upside Resistance

Gold is trading firmly today as risk appetite is back on after a bit of a hiccup yesterday. Many investors/traders are growing a bit more sanguine about the impact of any QE program and are still concerned about slowing global economic growth in spite of Central Bank actions to stimulate borrowing and spending. That is leading to more two-sided trade in gold, and in silver I might add, as traders sort out clues to see which direction the economy might be taking.

Frankly, I think it is pathetic that we have reached a point in our nation's history that the actions of the Fed have so discombobulated common sense. No one knows whether to call "Good", "Bad" or "Bad", "Good", as far as any impact on the direction of the stock market. In other words, we really have reached a point where many traders do not know what to do with either good or bad news. If the news were to become too "good", traders are concerned that the Central Banks might not keep the liquidity spighots open as long as initial expectations. If the news were to become too "bad", traders would take comfort in the cornucopia of easy money but then how exactly is such "bad" news conducive to solid economic growth?

I personally have reached a point where I believe the US financial markets have become utterly useless when it comes to actually being an efficient allocator of precious investment capital. The signals are too distorted by Central Bank activity. Call me a purist but I believe that there should have been no QE whatsoever whether it was QE1, QE2 or QE3 as I do not believe the system would have crashed without it.

Yes, the large banks would have taken a huge blow and might have possibly failed but so what? There are many banks in this nation that are rock solid, with conservative  and well-performing loan portfolios. All that would have happened is that the poor performing loans would have been either written off or sold for a fraction of their face value to some of these good banks.

I will be the first to admit that the blow to the economy would have been very severe, but I also believe we would already perhaps be entering the healing period instead of just making the current addiction even worse.

What we have now instead is an enormous money printing scheme that has heretofore a somewhat dubious record of achieving any lasting or permanent success. If you want proof, take a look at the Japanese economy and its stock market index I might add. The Land of the Rising Sun has never recovered from its failed experiment of propping up bad banks with its own version of QE.

As I have said before and will say again, the problems ailing the US economy or those of the Euro Zone or elsewhere, cannot be plastered over with bond buying programs and other government-type stimulus measures. These issues require STRUCTURAL REFORMS and among the number one reform is an end to the madness of spending money that you do not have. Spendthrift political leaders, in their desire to effectively buy votes for re-election, will spend their respective nations into the toilet before they do the right thing for their nation's long term prosperity and economic security. Hey, but why bother with that when you can spend the future savings of the children and grandchildren of this generation? They do not vote so who gives a damn about what we are bequeathing to them!

Back to gold however - while it is up today I am concerned that it looks to be stalling out up here. With the general public (small specs) holding the largest net long position on record there is a risk of downside stop hunting occuring if the short term oriented longs decide to start cashing in their chips. So far gold is merely flatlining along the next "STEP" on the chart. As you can see, it has worked sideways along these steps gathering energy before it then takes a sharp leg higher where it repeats the process. As long as support down at the most recent step holds, it will be okay as attempts to reach the sell stops will be thwarted by solid dip buying. However, if the dip buyers ease off for any reason, these stops will be vulnerable as a large number of small speculators are holding long positions entered into above the $1780 level. Those are underwater already so they remain liable to getting forced out if the market were to break below the $1755 - $7150 level.

I would expect any stop related selloff to generate some buying interest however especially down towards $1735 - $1725, the region labelled as "Secondary Support" on the chart.

The trend in gold is up until proven otherwise but that does not mean we cannot or will not experience temporary price retracements in the short term. That is a far, far cry from a trend reversal. Keep in mind that my perspective is that of a trader, not a longer term oriented investor. Unless you are very nimble and fleet of foot, leave the short term trading swings to the professionals. Acquire the physical metals on dips in price and then let nature take its course. By nature of course, I mean the feckless political leaders and Central Bankers of the West.

Incidentally, news out today shows that there has been some decent buying of gold by Central Banks, among them S. Korea and Paraguay. John Brimelow's excellent Gold Jottings details the tonnage involved. It does show that various Central Banks around the world are providing a solid demand base for the actual physical metal. This is a source of fundamental support that continues to exist underneath the gold market. Remember it was this type of buying earlier this year that thwarted the hedge fund shorts from breaking down the gold price when gold was flirting with the $1550- $1525 level. This buying was able to absorb a huge amount of the supply hitting the market.


  1. Gotta laugh today, the Fed's Plosser came on and started gum-flapping about how QE3 is bad and dangerous to the economy and that the Fed will be viligant about enforcing its inflation expectation mandate.

    Result: Another cascading selling event in the CRB today, as everyone is fleeing out of the burning casino and rushing for cover towards the safety of U.S. Treasuries.

    Well, $35 billion of 2-year notes were foisted off at ridiculous low rates, 260% oversubcribed, as today's stock market selloff and Algo-driven commodity chain-selling once again keeps interest rates low, energy and food prices under control, and inflation expectations non-existent.

    Investors are now jubilant and buying cruise lines, auto dealers, and other consumer oriented names.

    Another golf clap for Mr. Bernanke

  2. Dan,

    Getting gold down to $1725-35 would be a great opportunity for a bull. It just so happens I mentioned the 20 dma as my downside target yesterday, and today that level is...$1733!

    Gold miners too are looking attractive with the HUI perched at 501.


  3. Dan,

    I cannot believe that you think that Caesar cannot control the world. Either Caeser (Bernanke) who believes liqidity will eventually turn into demand. Ben, re evaluate your thesis. I think you missed a few things. Demand is driven by success, leading to increase in sales, leading to increase in profit, leading to capital formation. Nah, the progressives have a "better idea". Lets cap profits, starve small business, increase regulation(more government jobs and oversight from the kings) and government payrolls (because they can do it better). And Bens job to jawbone the country into believing he had to do it (QE...), and it worked before, rather than look at the truth. The truth is this experiment is about to go awry. When it does, truthful money will display that their medicine killed our country.
    I think I will begin a new blog with real world examples of exactly how the government operates. I happen to have been on a very large government contract recently, and, my, my the stories to be told on how America is gettig the big shaft. Especially all the hard working individuals that believed the big lies. Hard working Americans, retired, nearly retired, as well as the next generations inheriting unpayable debts. They can fool some of the people all of the time, they can try to fool all of the people some of the time, but they certainly will lose in trying to fool all of us all of the time. The clock tics. What is that deficit that the safe bet is in US Treasuries? Wow, seems unpayable does it not? Wake up everyone.

  4. By the way, thanks for your commentary. I am sure your site is being "viewed". Just like comments. You are certainly a man of principal, integrity, unlike our masters. I am very disapointed in Ben. I thought he may wade in, but clearly, he is the "Kamakazi" on the loose with Americans on board.
    The scarier future is the "makeup" of the current Federal Reserve Board. 5 Doves, a couple of old schoolers, and that will blow in the wind. Similar situation exists as our aging Supreme Court Court. If I were a betting man, ok I am, the calls for bullish gold may be way undersold, if, and against all of my being, a certain Caeser were re-elected, the roof blows off. The calls for $3500, $5000, $10,000 gold are certainly going to appear. W/O that sad and very "disturbing" outcome, we are still on a trajectory to explosion. Thanks Dan. You really are one of a kind. A wise man. Your world view is Right ON.

  5. Excellent commentary, Dan. Although I can see a theoretical solution to the gargantuan debt mess (The Half Percent Solution to the USA Financial Problems), my bet continues to be that the USA will drop off a financial cliff when foreign nations finally stop accepting the US$ in trade for anything. May we live in interesting times, indeed. Jim Otis, the Optimist


  6. Thanks White Wolf....

    these guys are destroying our children's future.

  7. My view is it will rise from its current step. Its rare for a triple top not to be broken.

  8. re: banks

    a perfect example is sweden in 1990..........took apart big banks.......it was a tough 2-3 years but they got thru it.......and they have been fine since.

    helluva note when you can learn something from a bunch of socialists.

    the only time i can remember anyway.

  9. "With the general public (small specs) holding the largest net long position on record there is a risk of downside stop hunting occuring if the short term oriented longs decide to start cashing in their chips."

    Based on the price action this morning, I would say it looks like another great call Dan. Thanks for sharing.

  10. Another day, more proof that Bernanke is the "Master and Commander" of the financial markets.

    A few "utterances" from some Fed Heads sends the CRB Index reeling and panic selling grips the commodity sector and those funds instantaneously flee into bonds.

    222 trillion in unfunded liabilities don't matter.

    10-year futures on an unabated panic meltup today, and crude is back below $90.

    As long as Bernanke is able to "Whip Inflation" and crush long term interest rates with mere "words" without actually taking any action at all.

    Pure genius.

  11. Mark,

    You have to be kidding me, right? Bernanke is flying blind and using the media, and other fed to jawbone. Yes it is in his bag of tricks. Too bad we cant rely on fundamentals, a strong economy in stead of manipulation and head fakes. Eventually the bond offerings fail. We have solid proof, both in history and in other countries currently. (Appears the recent Monti "mere words" are wearing off. Do you look at the bond curves. Also, one day, head fakes, and mere words, uttered will not save any of them. They (administrations, central banks, Ex government sachs around the world, government handouts, margin calls, releases of oil reserves etc..etc...etc..) and the only thing that will matter is the crushing forces of the market. Pure genius???
    Mere words???? They will not be able to stop Mr. Market when she unwinds. No amount of liquidity for nothing will stop the runs. I am sickened by the whole charade, and more so by people who believe that these additional tools work. I wont sell, when Ben parades lies out there. If you really are a student of the markets, then you also know this will end badly. If you are dyed in the wool progressive, keynsian, idiot, you will be tar'd and feathered before it is all over.

  12. Thanks Dan. I appreciate your well laid out viewpoints. Great job.

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  15. and us bank....... the website might pop up but you can not log in ......went into wells fargo where i bank and they said they were doing maintenance on the website......internet says dds attack possibly iran or ..........


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