"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, September 21, 2012

Euro Gold on Track for all Time High Monthly Close

Gold priced in terms of the Euro notched a brand new all time high today at the London PM Fix and came within a mere Euro of matching its all time high based on the futures charts. It is on track, provided it has a decent week next week, to finish out the month at an all time high monthly closing price. It will be extremely difficult for the bears to mount a SUSTAINED sell off in gold as long as this chart stays firm.

Gold And Silver Fail to hold Resistance Levels

Both of the precious metals had mustered enough energy to finally best those respective chart resistance levels earlier in today's session but were repelled around midmorning and unable to keep their footing above important chart resistance. It sure seems to be, based on the price action, that there was extremely heavy capping action occuring.

It seems to me that the noteworthy strength in the mining sector as evidenced by the robust performance of the HUI has given the bulls a great deal of confidence in stepping up to buy the dips in both metals.

Gold has now entered firmly into a zone in which we can expect opposition all the way to the psychologically significant $1800 level. Keep in mind that gold tends to move towards these round numbers, fall back, consolidate a bit, pop through, fall back and hover near the round number and then move higher with that same round number then acting as a floor of support.

The reason for this, in my view, is human nature. Every time a handle changes on the gold price, it tends to put a bit of a sticker shock on prospective buyers. It's the same sort of thing that causes retailers to mark an item for sale at $19.95 instead of $20.00. We all know it's going to cost us $20 but for some reason it just seems a bit cheaper with that $19 handle on the front of it. This is especially important if you are a guy buying a new elk rifle for $995 instead of $1,000 as it makes explaining to the wife all that much easier when you confidently and calmly assert how "cheap" you bought that rifle! Ditto for the new ATV which you can say you picked up at that "steal deal" of $13,000 ($13,995) instead of having to say that it cost you "$14,000.

I am trying to help the guys out here but I am sure that the same reverse psychology has been and will be applied by the members of the fairer sex when informing us of all the great "bargains" they too have managed to find.

Generally, what then happens is that market participants as well as physical market buyers, become accepting of the fact or acclimatized to the new and higher price level. Having seen for instance a handle of "18" in front of gold, any setback in price that yields a "17 suddenly looks like a good deal where a month ago it was deemed as expensive. This is generally the nature of all bull markets except of course, when they enter a parabolic phase where greed and/or fear take over. Prices will gradually but steadily rise higher, setting back on occasion or pausing, and then pushing higher and resuming the primary trend. At some point the trend will reverse and as it does, the psychology or sentiment towards that particulary market then undergoes a reversal as well.

Where does this leave us from a technical chart perspective? Simple - if gold can push through $1800, I would expect this sort of price action to unfold, with some pausing, some consolidation and then a move higher leaving $1800 behind and it moves towards the all time high once again. The big test of course will be seeing whether it can first breach this $1800 level.

 Actually the price action in gold has been very orderly thus far. A sharp move higher, followed by a few days of sideways action as the market consolidates its gains, followed by another sharp leg higher and again a pause. The result has been a stair-stepping pattern on the price chart, which is a very healthy, steady rise in price. It's those vertical launches that quite frankly make me nervous as they can fizzle out nearly as fast as they began.

That being said, the late price action looks as if the market is a bit tired. I would not be surprised to see some additional early week selling as trading kicks off to start the new week Sunday evening. Dip buyers should remain active however on any tests of downside support. See the chart below for those levels.

I will give a more detailed look at the Commitment of Traders report this weekend but for right now, I want to note that the overall net long positions of the nonreportables, the smaller traders/general public, is at its highest level ever. Combine that with the late session selling and the retreat from a strong resistance level, some caution among short term oriented traders is warranted.