"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
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Barrick Gold was downgraded this morning to sector perform by some of the "analysts" citing concerns over delays and cost escalations at new mines under construction. Tie that in with weakness in both gold and silver, which ran into long liquidation and some fresh selling after failing to better the chart resistance levels noted yesterday, and that has resulted in the HUI sinking down to the bottom of a critical support level on the price chart once again.
The gold shares in general are becoming dogs that cannot hunt or in the case of some, not even bark.
The same hedge funds that have been buying them down at this level late last year and early this year had better not have a change of heart. Still, it is only Tuesday so they do have time to recover before the end of the week. They will certainly need to or we are going to see a technical chart breakdown.
Pressure in gold and silver today is coming from a slightly stronger Dollar and some increased chatter over Greece and woes associated with that running sore. Traders are a bit hesistant to get too aggressive on the risk trades as a result and are exercising a bit of caution. That is allowing for some long liquidation and fresh short sellers from top pickers.
Silver stills need to get a solid close ABOVE $32.50 to avoid sagging here while gold needs to close over $1680 to avoid a setback towards $1650.
Bonds, a good measurement of the willingness of traders to take on risk, are basically flat today reflecting the lack of conviction either way for today's session. We'll see what we get in tomorrow's session which should be more telling as to where we might head next.
Note on the following HUI chart that all of the major moving averages are trending lower. We need the shorter term ones to at least stop heading lower and flatten out if the HUI is going to attract any sort of momentum based chart buying in the gold sector.
Gold has made it into a formidable resistance level near $1680 which has served to bring out some heavy selling, just as expected seeing that a breach of this defensive line by the bulls will set the market for a run to $1700 and higher. Gold bears can read the charts just as we can and understand what will bring in the momentum buyers if they fail to hold it here.
If the recent price advance falters here at this critical zone, then we will see a setback towards $1650 - $1645 initially followed by a bit deeper drop to $1620 or so if the dip buyers are a bit sluggish in making their appearance.
On the topside, a push through $1700 sets this market on a course to challenge $1720 - $1725, above which lies much stronger resistance just above $1750, a level which I might add, needs to be taken out to accelerate the recent move higher.
Risk trades continued today with the Dollar seeing some selling pressure as the Euro moved further away from its recent 52 week low. The Dollar is sitting on top of some important chart support which coincides with both the 50 day moving average and a horizontal support level. I would not be surprised to see it bounce higher from here. If it does not, then we could see it drop down to 79 very swiftly. Bonds would probably drop off rather sharply also as it would indicate another wave of money flows into the risk trades and away from the safe haven "risk aversion" dollar.
That generated commodity-wide buying as the CCI (Continuous Commodity Index was up nearly 1.4% today. It is closing in on some important overhead chart resistance so we will see if the bulls can continue to take it higher or if the urge to snatch some money off the table strikes first.
Even natural gas put in a very strong rally off its 52 week low made early in the session on the news of cutbacks in production by Chesapeake.
The natural gas market may have bottomed today based on the very bullish chart pattern. This market however has had a habit of putting in some strong moves higher only to then resume a downtrend when the field resumes focusing on the enormous supply picture once the short covering rally is over. With the huge amounts of shale gas being produced, it is going to take other suppliers to follow the lead of Chesapeake if this is going to be a definitive bottom. That being said, natural gas is incredibly cheap. Consumers are most definitely enjoying this even if the industry as a whole is not!
Just as if on clue, Silver bulls came out of the gate bucking high and hard but were unable to throw the bears who have dug in at the exact spot on the chart which says they should.
Take a look at this chart which I posted last week and which is still applicable after today's trading session. Notice how silver shot up throw that "formidable resistance zone" near $32.50 but then faded to close almost right on the line instead of solidly above it.
Still, the bears dodged that bullet only by the slimmest of margins as the market put in a strong close to end the session, although it has retreated a bit this afternoon.
Tomorrow's session is now set up to be an important near term juncture for this market. If the bulls can take out today's high and hold the market above $32.50, this thing has a real shot at making a quick run at $35. If they hesistate here, we could see it set back about $1.00 or so to see if it can uncover some good quality dip buying.
Support should also emerge down near $30.95.
One look at this tells you all you need to know about whether or not silver is going to perform. If risk is in and hedge fund money flows are coming into the commodity complex in general, it will move higher. When it does, silver goes right along with it.
When risk is out and money flows OUT of the commodity complex, silver sinks like a lead brick.
Notice that chart pattern is almost identical between the two.
You will note on this chart that since Silver peaked near $50 back in April of last year, gold had generally been outperforming it for the remainder of the year. I am of the opinion that this was due to the anticipation of the end of QE2 in June of last year. Traders began preparing for the loss of the liquidity being supplied from that front. When you couple this with the fact that European sovereign debt woes began to gain ascendancy in the minds of traders worldwide, it is easy to see why gold held up better than silver. DEFLATION was back in; INFLATION was out.
If, and this is a big "IF", traders become convinced that deflationary forces have been left behind, then the environment in which the grey metal will outperform the yellow metal is created. In such a case, this ratio will begin trending LOWER as silver outperforms.
Every single bit of this is dependent on the attitude of traders towards risk, which is simply another way of saying whether they are leaning more towards improving global growth prospects and inflation rather than slowing global growth and deflation.
Stay tuned as the environment is still very volatile. For this week at least, the inflationary (risk trade) forces have won the battle.
Please click on the following link to listen to my regular weekly radio interview with Eric King on the KWN Weekly Metals Wrap.
The Ten Year Note Interest Rate has been trading in a range between 1.80 and 2.10 or so for the better part of the last three months. Rates would move higher on improving economic data coming out of the US or China but then retreat on any sour news particularly coming out of Europe.
This week saw rates drop on Monday and stay stagnant on Tuesday but for the remainder of the week, they were on a tear higher. This is attributable to changing sentiment in regards to the global economy, especially in relation to fears surrounding the European debt situation. When traders saw French and Spanish debt finding buyers, they dismissed contagion fears and rapidly shifted from risk aversion trades to risk trades. In other words, they dismissed Deflation concerns and began leaning towards Inflation concerns in association with the tremendous amounts of Central Bank liquidity being supplied to deal with these issues.
Note this chart carefully for it is, in my opinion, a roadmap as to where Silver is headed in particular and to a lesser extent, gold. There is the POTENTIAL, (please note the emphasis) for rates to have bottomed. If that is indeed the case, then we are going to see strong rallies in Silver and in gold as the inflation trade (RISK ON) will be back in vogue. I would want to see this chart get a WEEKLY CLOSE above 2.25% to feel that we are now leaving the period of low interest rates behind us. Keep in mind that we could still see eruptions out of Europe at any time and that is going to keep traders on edge a bit but if the investing/trading community becomes convinced that we are now past the debt meltdown stage and will be dealing with INFLATION next, then this chart is going to show it.
ON Wednesday of this week, silver finally managed to get a CLOSE above strong chart resistance at the $30 level. The next day, while it was unable to advance much, it refused to back down below that resistance level and eked out another close above $30. Two consecutive closes above a strong chart resistance level and the bears had no choice but to begin running. Fresh money is now chasing them out as it appears that the hedge funds are beginning to move back into the grey metal after having fallen out of love with it in December of last year.
The technical chart picture is much improved with all momentum indicators now in a bullish mode on the daily chart as price is trading ABOVE the 50 day moving average in today's session. The 20 day moving average is now turning higher indicating the short term trend has flipped up. The 50 day should prove to be some support if we get some retracements lower.
A strong finish to the session today will set this market firmly on track for a test next week of another band of formidable chart resistance centered near the $32.50 region.
Note that the short term downtrend line drawn off the August 2011 peak was broken last week but that horizontal resistance at $30 had not as of yet fallen until it was bettered this week.
If the bulls can take out $32.50 next week, they should have relatively clear sailing all the way to $35 which is where one helluva battle royale is going to be waged by the perma bears. If that group fails to stem the advance, this market has a real shot at launching an upside trending move.
It should be noted that the move higher in silver is being accompanied by a sharp move LOWER in the bonds. Bonds are breaking down on their price chart indicating the LACK OF RISK AVERSION trades at the current moment. Keep in mind what I have repeatedly said - Silver will outperform gold in an environment in which RISK is IN. That is what the movement in the bond market is suggesting.
Only a sharp reversal to the upside in the bond market would derail the move higher in silver as it would be accompanied by a downside move in equities and a move higher in the US Dollar once again. Such an event would signal that investment funds would be back to shunning risk with money flowing back out into cash and cash equivalents and away from "risk assets".
