"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


Thursday, December 6, 2012

Gold Pops above $1700; Silver above $33

Shorts decided to book profits today when the market appeared to have encountered some decent sized buying down near the session lows. Additionally, the upcoming payrolls report has traders uneasy and it seemed like the better part of wisdom for many was to take what money you might have had on the table and go home and watch the action from a safer vantage point.

Open interest declines are telling us that traders are heading to the exits, both longs and shorts as right now uncertainty seems to be the name of the game.

Tomorrow will provide us with a clue to market direction into next week as we close out the week.

Gold did run down towards the very strong support level noted on the chart at $1680 before running out of sellers. A push back through the $1700 that can remain above that point will be constructive from a technical perspective as it will reinforce the $1680 - $1685 region as good support on the chart.

I would not be the least bit surprised to learn in the future that foreign Central Bank buying of gold is occuring down near these levels.

John Brimelow's excellent Gold Jottings detailed very strong Indian buying of gold overnight. Once again it is the physical market which serves as to remind these paper pushers that there exists life outside of the Comex pits.

One continued fly in the ointment for gold is the pitiful price action of the HUI. At a bare minimum, it will need to close the week ABOVE the 440 level to give any hope of an intermediate term bottom. Seeing that it remains below the various Fibonacci levels shown on the chart, the bears are evidently in solid control of this sector for the time being. Something needs to change on this chart to spook some of them out and convince them to ring the cash register on their tidy profits.

The miners continue to lose ground against the price of gold itself. The ratio of the value of the index compared to the price of the metal is threatening to make a new ELEVEN year low. Keep in mind that this is the CLOSING price for the month so there is yet time to avoid this but the sector needs some help from somewhere.

ECB's Draghi Undercuts the Euro

Over the last few weeks, the Euro has benefitted from growing concerns over the fiscal health of the US. The current grossly misnamed "fiscal cliff" talks have allowed money flows to make their way back into the common currency at the expense of the US Dollar.

That has changed in today's session. ECB President Mario Draghi's comments at a press conference have been interpretted as quite dovish by the trading community. Even though the ECB kept interested rates unchanged, the talk in the market quickly moved in response to what many feel was Draghi's leaving the door open for rate cuts in the not-too-distant future. What this means is that the interest rate environment in the Eurozone will remain negative in real terms. This is the type of scenario in which gold thrives.

While Goldman's report from yesterday pronounced an end of the negative real interest rate environment in the US sometime late next year or early in 2014 (something which I strongly disagree with by the way as higher interest rates will crush this economy), Draghi's comments seem to have paved the way for the continuation of such over in the Euro Zone for teh foreseeable future.

The result can be seen in the EuroGold chart which has experienced a nice bounce even as the Euro itself has come under some strong selling pressure here in the US session.