Gold stymied as sellers dig in

There are some very strange happenings in today's trading session with some very contradictory (or to use a favorite expression, 'counterintuitive') price movements in some of the major markets.

Let's start first with the bond market which for some bizarre reason ran up over a full point on the long end supposedly on the (news??) that was made when Obama said an agreement on the debt ceiling looked a bit better. The equity markets went beserk to the upside on the same news while gold and silver were trashed as the need for a safe haven supposedly was decreased but then why would the long bond soar to the upside if traders were throwing away safe haven trades and putting the risk trades back on? In other words, if the intensity to own gold as a safe haven against all of the ungoing turmoil and uncertainty was lessening for today, why would traders trip and drool all over themselves to lap up ever single long bond that they could get their hands on and drive long term rates even lower at the same time the entire commodity complex as indicated by the CCI was marching higher and equities were completely erasing yesterday's losses and then some for added good measure?

The article on gold in the Times worked its usual magic as the bullion banks seized on the news story about a debt ceiling agreement to eat through all of the bids coming into the gold market. That had the effect of stymiing the move higher in gold and induced the short term oriented day traders to ditch their longs once it was evident that the selling cap above the market was not going to give way as it had previously done. Other longs seeing the selling pressure began to dominate then bailed out and down the metal went.

This is the type of action I had expected PRIOR to taking out the $1600 level but not after the fact. Certainly I would not expect to see safe haven gold get knocked back while simultaneously witnessing some sort of inexplicable short squeeze in the ten year note and the long bond. One would have expected to see them going in the same general direction if any safe haven trade was coming off. There was some nervousness in the bond market about a potential downgrade to the US credit rating which would have had negative implications for that market but to see them tack on such a ridiculous gain on ideas that the debt ceiling was going to be extended is the perfect example of what has happened to our once halfway rational markets.

Let me see if I have gotten the message from the markets today correct - here it is:
Since we are now convinced that the US is going to extend the debt ceiling, plunging it further into debt, we can safely buy US Treasuries as our choice of a safe haven while we also simultaneously reject the safety of gold and opt for the safety of US promises to pay. But then again, we really do not need any safe haven the more we think about it so let's bid the price of nearly every commodity out there higher today, including crude oil and gasoline and reload the boat on equities.

I remember the old TV commercial from some years back where they used to show an egg with the words, "THIS IS YOUR BRAIN";  only to then switch to a picture of the egg after frying it up in the pan with these words, "THIS IS YOUR BRAIN ON DRUGS".  I think the hedge fund community collective brain must be heavy drug users since try as I can I do not see how some supposed agreement on the debt ceiling justifies a nearly one and one half point rally in the long bond.

The price action of so many of these markets seems so bizarre today that I am going to have to wait and see the price action tomorrow in order to see if some of these knee-jerk traders have  second thoughts about their panicked buying and selling today. Maybe we will note some regrets. If not, then there is some kind of shift in sentiment that I am currently at a loss to explain and will only be able to understand what that might be after a day or so of further developments.

One thing is for certain however - if the US long bond is going to embark on a strong rally based on some need for a safe haven from the mess in Euroland, then gold is not going to stay down very long as it will find very eager buyers on this setback in price. Either the safe havens will be moving higher together or they will both be moving lower together but we are not going to have a situation where we have one going one way and the other going in the opposite direction for very long. Just ain't gonna happen.

Back to gold however - we are seeing a battle being waged to hold the metal down below $1600, nearly exactly was what happened the first time it ran to $1500. This is normal. The short term chart indicates the reversal pattern that was forced by bullion bank selling leading to the liquidation from some of the weaker longs and the day trading crowd that had enough momentum behind it to take out some light support near the $1595 level. Price then dropped down towards $1580 where buyers surfaced.

We now want to see how it performs in Asia, particularly if it results in some drying up of the scrap sales that JBGJ reports from India. There should be very good technical support near the former all time high at $1578 or so if the market is going to find a floor. To kick off the next leg higher gold will now need to get back through $1600 for starters but also $1610, it's new all time high in Dollar terms.

Gold clears $1600 in convincing fashion

A further deterioration in the sovereign debt woes involving the Euro zone coupled with an increasing loss of confidence in the monetary authorities of the West led to a strong opening in Asian trade last evening as gold came in well bid from the get go.

The buying picked up steam as it moved into very early European trading and continued to be firm as the action shifted into New York. One could see the attempt to cap the rally at $1600 by the bullion banks who no doubt had recruited some of the pit locals to their side but shortly after the close of lunch hour there in New York a burst of buying came in that startled the shorts for its intensity and drove them back decisively from the $1600 level.

The market pushed as high as $1608 ($1607.90) to be exact and has stayed strong going into the afternoon hours. This is no mean feat as one would normally expect a sizeable amount of profit taking from longs to come in at a round number like $1600, particularly after a rally of over $120 in the last two weeks time. I think the shorts were expecting that to occur also based on the attempt they were making to hold it below $1600. The idea is that they could induce a bout of long liquidation beginning with the short term oriented day traders who would be inclined to sell seeing the market stall at $1600. Instead of that occuring, some powerful long or group of longs came in and snatched up the offers to sell on the dip back below $1600 and then never let it go the rest of the session. If that group sticks around and pulls a repeat of today's showing, this thing will go to $1650 faster than some of us are already imagining.

Since we are basically in uncharted territory (unless we use an inflation adjusted chart to mark resistance levels) I am attempting some price projections levels to try to get an idea of where the technical chart resistance might appear. I am using the weekly chart to do so.

If you look at the chart below, one can see the solid red line that is the upper prong of the pitchfork which should provide some levels against which selling should enter. Above that is the center line of a longer based pitchfork (blue) which as you can see is well above $1700 and for the next few weeks out sets up a run towards $1720-$1750 should $1650 give way.

One thing I have also noticed about this chart is that while it shows the powerful uptrend that gold has been in since early 2009, the angle of ascent, even after the past two weeks strong showing, is still not all that steep. In other words, gold has not yet gone parabolic but is rising in a strong, yet relatively tempered fashion. For all the buying that has been and is presently occuring, there is not yet evidence of any PANIC. What there is evidence of is increasing fear and concern but not PANIC. It is that emotion which produces nearly vertical moves up.

Downside technical chart support remains near the previous all time high made earlier this year close to $1580 followed by stronger support near $1550. As said previously, the close above $1600 targets $1650 but as I honestly do not see much in the way of any sizeable technical resistance until then. There might be some selling at the $1625 level but that would be more psychological rather than technical in nature.

By the way, gold notched a print above the 1,000 British Pound level today as well as scoring another all time record high when priced in Euro terms. Clearly, it is trading as a currency as that makes three record highs now in three various major currency terms all in the same day.

Trader Dan on King World News Weekly Metals Wrap

Please click on the following link to listen to my regular weekly interview with Eric King of King World News on the Weekly Metals Wrap.

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Gold closes the week on a strong note

Some brief comments on gold as it is displaying some very impressive strength. I hope to be able to write a bit more thorough commentary on it later this weekend.

One of the things that has me so impressed about gold is the fact that its rally from off of major support at $1480 has been one which contains hardly any dips or retracements in price that are worth mentioning. The dips have been extremely shallow and very short-lived sometimes only lasting a few hours before the market has resumed a powerful leg higher.

What this type of behavior is telling us as students of the market is that the forces driving gold higher are INCREASING in intensity. I mentioned in my comments from the other day that any lessening of the INTENSITY of fears or concerns on the part of investors/traders would see gold halt its upward movement and bring on some selling by the very short term oriented trading crowd (the day traders and one minute or three minute bar chart geeks). The more longer term focused crowd would then use those occasions to look for a setback in price to buy back in at a lower level. What seems to be happening is the latter crowd is so eager to buy dips, that the dips are being erased within the matter of a few hours time.

Gold did stall out near the $1590 level this week and was unable to initially punch through this level and MAINTAIN it as it tried on 4 separate occasions on the chart shown below yet failed each time. Today it did not. It closed the pit session above that level (barely) but as the afternoon trading on the screen continued, the market garnered additional buying that took it out on the high of the day and pushed it solidly above the $1590 level. What strikes me as noteworthy is that this development in the market occured on a Friday afternoon, a day during which we can normally expect to see profitable long positions see some liquidation as those traders pocket some of their winnings and head into the next week with money in hand to await their next move. They did none of that once the trading rolled into New York. They bought more instead. The overnight dip down toward $1575 was all that they could get as far as a break in price before they realized that this market was not going to let them in at a better level. The result was that a steady stream of buying kept coming in from both frustrated shorts and from eager bulls that keep the bids flowing all throughout the entirety of the session.

What I take away from this as a student of the markets and of the chart patterns is that FEAR and CONCERN is rising. This fear is being reflected in the price action in gold. There seems to be a growing consensus that the problems affecting the economies of many nations of the West are too complex, too deep-rooted, too structural and too ingrained to prevent any short-term, transitory fix. An unnerving realization is fast taking root in the minds of investors that the West is in serious, serious trouble and the cure is going to entail measures which are going to result in severe social dislocations within their respective nations. Divisions along financial lines are going to occur as a result causing severe political pressures among politicians representing diametrically opposing segments of the population. I personally see a very strong likelihood that we are going to witness riots in our streets in the major urban areas here in the US. Imagine the fault lines that are going to be revealed in the nation when once that occurs.

Again, this is not to try to paint the worst possible picture of finanical mire that many nations of the West are currently quamired in. It is however an attempt to translate the price action in gold to the underlying sentiment that is taking hold of investors' minds. There is a growing suspicion or should I say, lack of confidence in the fiat currencies of the US, Great Britain and the Euro zone and in their respective monetary authorities and political leaders. Gold is signaling that things are going to be getting worse before they get better. A close over $1650 and things could intend turn very ugly on the social front.

Bernanke trying to walk back expectations for QE3

The past couple of days have seen the commodity markets wake up as hedge fund money flows have poured back into the sector with that community rightly interpreting the recent FOMC comments as signaling that another round of QE (this time QE3) was soon to be on the way.
We have been led to think that any further sluggishness on the part of the US economy to gain its traction was going to be met with further monetary accomodation.

The problem for the Fed however was that the hedgies had the temerity to shove the energy markets higher and ended up pushing crude oil to within striking distance of the $100/bbl mark. They also pushed gold into a new all time high in Dollar terms; something which caused Chairman Ben to make a total buffoon out of himself as Ron Paul's intense cross-examination yesterday resulted in what will soon become the infamous, "Gold is NOT MONEY" statement to somehow excape the confines of his lips.

The hedgies should have known that was a big NO-NO. Thus instead of "ENTER THE DRAGON" starring Bruce Lee we get "ENTER THE DRAGON" starring Ben Bernanke who proceeded today to administer a nice snap kick to the current market psychology as he basically walked back traders' expectations on QE3. His comments derailed the rally in stocks and send money flowing OUT OF the energy markets and some of the food markets. It also led to both gold and silver coming off their best levels of the trading session.

I have said it before and will say it again - the Fed wants to have their cake and to eat it too. They want the hedge funds to bid the price of equities into the stratosphere. Their plan is actually very simple - once the stock market moves higher, 401K's and other pension and retirement plans will be showing nice gains on the year. The public will then be able to say: "My house value stinks, my job stinks, my wages stink, gasoline prices stink, Corn flake prices stink, but at least my 401K has made me some money. I will henceforth proceed to begin spending money and buying more STUFF". That of course will be reflected in a boost in consumer confidence numbers, increases in retail sales and increases in corporate profits who will then happily turn on the jobs spigot and begin hiring gobs of people. The other piece of that cake however is that the hedgies are not playing ball. They are not going to tell Uncle Ben that; "We will buy equities but will leave those nasty commodities alone and will of course not buy crude oil, gasoline, corn or anything else" that might actually impact the inflation numbers and tie up what is left of consumer disposable income.

So what happens? They come in and bid up the price of energy and food and Ben has to go and deal with that brush fire and attempt to stamp it out while at the same time not stamping too hard lest he stamp on the stock market rally and send the equity markets in the wrong direction. Like I said, they are attempting to play the hedge funds like a finely tuned fiddle and get their lemmings to behave properly which means leave commodities alone and only buy stocks.

Once the comments became more widely circulated, gold has encountered selling pressure just above the $1590 level which is keeping it from making a push at $1600 and testing that nice even round number. Bernanke sowed just enough uncertainty now that he has produced enough hesitation on the part of the bulls that they are unwilling to push hard enough to take it through $1590 and hold it above that level. We do have a lot of new buyers at these higher levels so we will have to see if this thing can quickly push up towards $1600 or the short term guys will dump some longs and temporarily stymie some of the strong upward action. Medium term and longer term oriented guys will be looking for another buy-in point a bit lower should that occur and we will be able to catch that on the charts.
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The break into new all time highs across three major currencies, the Dollar, the Euro and the British Pound, is ample proof that the market is attracting a great deal of buying. Those factors responsible for this remain firmly in place and while the INTENSITY of fear or distrust in the respective monetary authorities may ebb and flow somewhat, the root causes are not going anywhere.

What we will need to take it up past $1600 is some more food for the bull that is of a fresh nature. We have the three factors I mentioned the other day that are driving gold but those are all currently baked into the market so we need something from another source or a development from another front to give the bulls reason for another strong push higher. Italy supposedly has agreed to some sort of austerity package so that has temporarily taken some of the immediate concerns related to a further sovereign debt issue eruption off the table somewhat. Remember however that these problems are deep-rooted, structural in nature (too much government spending and too slow growth) and are not easily solved because of the social implications. For the time being however the urgency to push gold strongly higher has abated due to that development especially when it came in conjunction with Bernanke's attempt to damped down QE3 expectations.

There should be some light chart support near the former all time high of $1578 with better support down near the previous breakout level at $1560 followed by our old friend at $1550. For the bulls to extend the gains and set the market up for a run to put a handle of "16" in front of the metal they now need to clear today's peak and new all time high at $1595.

Incidentally, the US Dollar continues its Yo-Yo like action as it once again fell BELOW the 50 day moving average but has since recovered (after the Fed chairman's comments) that level. It failed to hold 76.50 on the top and went down to test the bottom of the recent range but this time attracted buyers up a tad higher than previous trips to the downside. The level near 75 seems to have held for now. Bears need to take this out with authority to run it down to 74.50.

Silver ran into some selling pressure due to the reasons impacting gold today. Technically it has managed to clear two significant resistance levels on the price chart. The first was near the $37 level and the second was a bit shy of $38. It needed to push through $38.75 - $39.00 in order to set up a test of the $40 level but has been unable to hold its gains and keep its footing above the latter level. Bulls will need to assert themselves here.

Gold breaks out; ready to take on its all time high

Judging from the price action in gold, it seems as if all three factors that are currently driving this market are gelling together into one powerful inducement to buy the yellow metal. As discussed in my recent radio interview over at King World News on the Weekly Metals Wrap, sovereign debt fears originating out of Europe, inflation fears in China and elsewhere in that region of the globe, and a continuation of the extremely loose monetary policy currently in place by the Fed are producing a toxic mix for the bears in the gold pit as buying momentum is driving them back as bidders are overwhelming their offers.

Gold was strong all evening last night with buyers eager to snap it up below $1550. That was a good technical signal that dip buyers were coming in and that long side liquidation was not going to be a problem this time around. As the market moved into the early part of the New York trading session, it held well even as sellers were making an appearance near the $1555 level. Once the minutes from the Fed's recent meeting were released, it was Katie bar the door as traders rightly interpreted those minutes to read the strong possibility that additional monetary stimulus in the form of another round of QE will certainly be forthcoming should the economy remain stuck in its current moribond condition. My pal Jim Sinclair has been saying this for quite some time now and I have been echoing the same - namely - the hawks on the FOMC have gone into hiberation and the doves are currently in the ascendancy. Unless we get some real humdingers of economic reports coming our way, chances are very good that a few more stinkers of a job reports are going to get the QE guns a blazin' again. This goes back to the third of the points I raised at the beginning of these comments - Fed monetary policy is not going to turn tight any time soon and such an environment is strongly bullish to gold.

Gold now is in position to challenge its all time high. It is difficult to see how it will not best that level if conditions in Euro land continue to deteriorate. Downside support lies first near $1550 on followed by $1530.

Regardless, once these minutes began circulating around the wire services, the gold market saw a strong influx of fund buying that drove the metal right through overhead resistance centered near the $1560 level and shoved it to within a few dollars of its recent all time high. I also noted that the US Dollar, which had been very strong coming into New York and looking as if it was finally going to get a strong close over the stubborn chart resistance near 76.50 on the USDX chart, simply fell apart and sank well off its best levels of the session, once again failing to close above that critical level. That Dollar weakness then saw another round of commodity buying by the hedgies in general which benefitted silver, although it moved into the plus column once gold took out $1560.

My read on all this price action was the speculative side of the market was already looking ahead for more QE and was loading up on the long commodities/short dollar trade once again. In other words, risk was back in even in spite of the fact that many investors and traders are extremely worried about what is transpiring in Europe.

Where we stand now is very simple - gold once again scored brand new all time highs when priced in both terms of the Euro and of the British Pound - and is within easy striking distance of its all time high in US Dollar terms. This is signaling the lack of confidence in the respective monetary authorities of those nations and in their political leaders to take the necessary steps to actually get to the root of the structural problems that have led to their terrible fiscal condition.

I might make mention here of the Japanese Yen. Remember that big, coordination intervention by the ECB, the BOJ and the Fed to knock the stuffing out of the Yen after the tragic earthquake and tsunami hit struck? The Yen is within 3 1/2 points from its strongest level, or the high point, from which it rapidly descended when the Yen selling spree by these Central banks began. In hindsight, we can now see how even coordinated intervention cannot completely reverse a currency's trend if speculative money wants to keep coming in and buying up that currency. The Yen rally is tied to more risk aversion trades as the carry trades using that particular currency get unwound driving it higher in the process. There is also a type of trade which takes the Yen as a type of proxy for the entire Pacific reason, and just bids it up as trading the Yuan is not nearly as liquid as the Yen or even the Korean Won for that matter.

The mining shares withstood all of the selling pressure originating from the weakness in the broad equity markets today as traders were drawn to them on account of the strength in gold and the later-session climb in the silver market. After moving lower yesterday and furthering distorting the HUI/Gold and XAU/Gold ratios, the shares appeared to be undervalued against bullion.

Gold now poised for a technical breakout to the upside

Sovereign debt fears out of the Euro Zone are filling investors' minds with fear and trepidation as many believe a contagion effect is inevitable. News concerning Italy has sent stock market bulls scurrying for cover today and has emboldened the bears who have been mericlessly squeezed out over the last two weeks once the S&P was miraculously recussitated from the 1250 level on the price charts. The thinking is that a rash of credit downgrades might commence hitting large bank balance sheets in particular which would have a similar effect on Europe as the collapse of Lehman did on the US back three years ago to this very month.

Risk trades went out the window today as most commodities were jettisoned along with equities while the bonds and the Dollar were both sharply higher as the latter two were beneficiaries of a safe haven flow. With the Euro looking shaky, traders were willing to buy the greenback in spite of the lack of any serious effort on the part of the current US administration to come to terms with the runaway costs of entitlement programs, which is where the serious money is going to have to be cut in order to get federal spending under control.

An interesting thing happened however to the gold market - it completely ignored the reversal of the risk trades and actually functioned exactly like a safe haven market is supposed to function in such an environment. It shot up through the critical technical resistance level at $1550 and while it did fall below that level briefly as silver get slammed, it clawed its way right back above that level and ended today's trading in New York firmly above $1550. That bodes very well for the future prospects of the metal as the bears have been able to successfully block its upward progress there for three separate attempts over the last 6 weeks. Given the strength in the Dollar, this is excellent price action as it translates into higher prices for gold measured across a wide variety of various major currency terms.


What we are now watching to see is whether or not it can attract buyers on any dip back down below that level or whether it sinks below $1550 and fails to regain its footing and incurs speculative long lonquidation instead of dip buying. If it can hold $1550 and plow through the last technical level shown on the chart below ($1560), it will be at its all time high very quickly. As it stands now, it has already made a new all time record high when priced in terms of the Euro and in the British Pound. That strength will aid the metal and SHOULD attract dip buyers as it is extremely difficult to be bearish on any commodity when it is making new all time highs when priced in terms of other currencies. What adds another element of interest to this current drama is the fact that gold is moving higher during the summer doldrums. Quite frankly, a fair contingent of traders are off of vacation with their families right now. Unless they are checking in regularly, they might well be surprised when they return.

The fly in the ointment is the weakness in the mining shares which succumbed to the selling that hit the broad equity markets. I would prefer to see those things moving higher in conjunction with the metal but no dice. The price action today confirms the 210 level in the XAU as the next formidable resistance level through which the index will have to climb in order to presage better prices for the sector lay just ahead. There is some technical price support down near the 200 level.

Silver today was viewed as a risk trade as it sank sharply lower alongside of copper and the energies and softs. That market is so schizophrenic in nature that one never knows from day to day how it is going to be regarded by traders. Is it a safe haven or a risk asset? The answer depends on whatever the hedge funds say it is on any given day. See the chart below for the technical posture.

The US Dollar was sharply higher today on a safe haven bid but was once again unable to successfully clear overhead resistance centered near the 76.50 level on the USDX chart. This level is taking on increasing signifance therefore as sellers have been able to hold it from breaking through even when volume has been good. IF, and this is a big "IF", the Dollar can punch through this level and hold its gains, it will have managed a breakout to the upside and should be able to garner enough buying momentum from trapped shorts to initially take it up towards 77.50 - 78.00. Should it do so, we will want to see how gold responds to any such event. If gold does what it did today and ignores Dollar strength, the Gold bears are in trouble.

The S&P 500 dropped down and bounced lightly off of its 50 day moving average. It looks heavy here as it is still reeling from the absymal jobs number from last Friday but today had to contend with traders running out of equities and into bonds. It will need to climb through 1350 to set up a run for 1375. On the downside there is additional support near and just below the 1300 level.

My last comment for today is a sure fire trade for the summer. Get ready - BUY FROZEN YOGURT at the market. Can't miss on that one!

Trader Dan on King World News Weekly Metals Wrap

Please click on the following link to listen in to my regular weekly radio interview with Eric King on the KWN Weekly Metals Wrap.

http://tinyurl.com/3un3pys