"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, March 17, 2014

Gold Loses Steam as Market Dismisses Sanctions

Pardons for the brevity and lateness of this post - it has been a busy day - again....

Gold has been reacting down since about mid-morning on Monday as word spread about the extent of the sanctions that the US was imposing to ostensibly punish Russia for its "invasion" ( US view) of the Crimea region.

I have made no secret of my view that the people of that region consider themselves as part of Russia and wished to remain that way. Why we are meddling in that matter escapes my comprehension as the turnout among the voters was spectacular and the vote was overwhelmingly lopsided in favor of that region becoming a part of the Russian Federation.

To express US displeasure the sanctions were so limited and so puny that one of the Russian ministers or deputies mocked them openly.

Gold wasted no time in properly interpreting them - much ado about nothing and promptly sold off.

Remember, a market that is being news driven especially when that news is geopolitical in nature, requires a constant barrage of bullish events or an escalation to propel it higher. Markets tend to factor in the worst possible outcome - if they get it fine - if they do not get such an outcome, they usually sell off. That is what gold is currently doing.

At this point, gold is going to require a further deterioration on the ground over there to keep driving higher. This is the reason why buying any market on geopolitical events requires one to be extremely fast and nimble on their trading. Everyone who bought the market on expectation of the worst is now in the process of taking profits while they can.

Let's see at what level the dip buyers show up again but for now, gold has failed to extend to psychological resistance at the $1400 level. It made it close but that move higher was met with plenty of profit taking by longs who realized the end of the world did not occur Sunday evening here in the West and new selling by opportunistic shorts who sold against what they believed was a $1400 ceiling.

Interestingly enough, the US Dollar still seems to have few friends. That should tend to keep gold supported on this retracement lower.There looks to me to be some resistance among Forex traders to take the Euro to 1.40 for now and that is keeping the greenback from moving lower. The currency markets are so volatile right now that trying to read where they are going next is relatively fruitless. All I can say is if the Euro can power through 1.40 then gold should respond positively and move higher. If it cannot and the Dollar remains stable, some of the "war" premium is going to be bled out of the yellow metal.

I am observing the ADX line beginning to flatten and possibly turn lower. If it does, that would signal that the current trending move higher is going to take a break. As long as the Blue Line, the +DMI, remains ABOVE the red line, the -DMI, the bulls are in control of the market and the setback in price is just that, a setback in a trending move higher. If it does not however, in conjunction with a turn lower in the ADX and a downside cross of +DMI below -DMI occurs, then I would look for some long liquidation to begin occurring. While not excessively large, we have seen a fairly decent build in long positions although I remind you that the bulk of this move higher in gold has consisted of SHORT COVERING, as I have noted repeatedly. If the shorts are done running for a while, the bulls are going to be in trouble as they are going to need to recruit some new converts to their cause quickly if they want to keep control of this market.

I have two support zones noted here...the first is the zone that was formerly resistance and extends from near $1352 to just below $1350 near $1348 or so.  I would look for any dip buyers to first show up here. If they do not appear in sufficient size, then expect a drop back to stronger support centered near the $1330 region.

Let's see what we get...