Gold backs off from chart resistance

The region near $1434 - $1440 is proving to be a bridge too far for the gold bulls for the time being. You can see that this level held the market in check twice previously, once in late May and again in early June.

Bulls ran it up into this resistance zone this week but thus far have been met by solid selling. As stated in yesterday's comments, the market is overbought and is thus susceptible to a bout of profit taking.

There is psychological support first at $1400, then at $1380 and much better chart support down near $1355.

Markets which are reacting to news events can be very treacherous often making wild swings in price so traders be careful. Do not get too aggressive in here unless you have very deep pockets and are not overly leveraged. Better to make a smaller sum of money on a winning trade,  or lose a smaller sum of money on a trade gone bad, then to bet the farm and end up being a tenant worker!

There is a time to be brave and a time to be cautious.

Mining Shares Run into Chart Resistance

The mining shares, as evidenced by the HUI, have been very strong over the last three weeks making a nice run from near the 220 level all the way to 280. It is at this latter level that they have hit a wall for the time being. It was this same level back in late May/early June of this year which stymied their upward progress and sent them back to a test of the 245 level, a test which they subsequently failed before making a final low just below 210.

For now this level has been reinforced on the price chart. Translation - bears are digging in up at the recently made highs in the stocks that compose this particular index.

Based on some swing pattern analysis, the HUI has the potential to make a move lower into the 245 region ( the rectangular red box labeled support) where, if the uptrend is going to continue, they should uncover some decent buying.


If that were to fail, the index could sink back into the former gap region which extends down to 235. I would not expect that to fail should it happen for if it did, it would foreshadow a move back to 220.

For the bulls to ignite a sharper advance, 280 needs to be cleared and HELD.

The gold market is going to be very similar to the crude oil market for the near term in the sense of volatility tied to the situation in Syria. While I believe that gold has priced in a missile strike, I am unclear as to the extent or duration of such a strike. If it is indeed the pin prick which many feel it will be, it will accomplish nothing and will soon be forgotten. If it were to escalate into something deeper, then I feel that gold and crude will react more strongly.

The President's foolish blustering about "red lines" and ultimatums have boxed him into a  corner in which he appears buffoonish and inept if he does nothing but which runs a serious risk of further undermining the already sinking credibility of the US if the response is seen as a mere effort for him to save political face.

This is not our battle as there is no good outcome to intervening in this internal fight in a nation that has not threatened us or our allies directly. Either way, we will have to stay on our toes as traders as no one can be quite sure how all of this is going to play out or of the market reaction.

Syria News Sends Gold and Safe Haven Treasuries Higher

There are two news stories serving as catalysts for the move higher in gold in today session.

The first of these is talk that the US is planning on lobbing some cruise missiles into Syria in response to unsubstantiated reports that the Assad regime has used chemical weapons against civilians. The has the attention of not only the safe haven markets, (the Yen is also getting another one of those goofy safe haven bids) but also the crude oil market, which is soaring moving above $109 at one point in the session.

The second news item is that the US is up against that pesky debt ceiling once again. It never ceases to amaze me how damned inept these politicians are and how they cannot live within their means.

Either way, that has the focus of the markets back on the US fiscal house disorder which is helping to put a bit of pressure on the Dollar in spite of the fact that global investors want to own the thing whenever a crisis or shock event appears on the radar screen.

I mean the entire thing is weird. Here we are talking about a nation that is running over $17 TRILLION in its national debt ( and remember we are not even talking about unfunded liabilities here) and there are those who are dense enough that they want to own more US Debt as a SAFE HAVEN. I honestly cannot stretch my mind around the two sets of words ever being coupled together in the same sentence; it is a fact however that the global investment community has been conditioned as well as Pavlov's dogs to buy the blasted things every time they get nervous.

Gold has run into some pretty good selling at the highs made back in late May/early June after putting in some sizeable gains since Thursday of last week.  Working against further gains in today's session is the weakness in the mining shares ( HUI ) as those are following the broader stock market lower due to Syria fears.

Remember, gold buyers never like to see the shares going lower with the metal moving higher as it makes them nervous and more likely to snatch profits rather than dig in and buy more at the highs. Additionally, gains in gold due to geopolitical events tend to not hold as a general rule unless the events indicate a worsening of the situation. It looks to me like the market has priced in a missile strike; whether that escalates into something further is unclear.

I personally think it is ill-advised for the US to be meddling over there in Syria as I see no strategic interest of ours being threatened. Assad is a dictator of that there is no doubt but whose business is it of the US what he does or does not do in his own country? As long as he is not threating us or any ally or ours, why should we be lobbing million dollar plus missiles into that nation? To do exactly what anyway? If he were to go, who exactly replaces him?

Also where is the US Congress on this? Apparently Congress has ceded its war making authority to the executive branch. That seems to be a pattern nowadays.

No doubt some of my political views on this will offend some but that is a perk that comes with writing at ones own blog!

Back to gold however - the market has run into a band of resistance just shy of $1440. You can see how price has met up with selling at this level since late May of this year. Bulls have taken it firmly above the 100 day moving average however and three major moving averages ( 10, 20 and 50 day) are all moving higher with price trading ABOVE those levels. Also, the ADX line continues to rise and is at 23.45 indicating the presence of an incipient uptrend.

The lower indicator is nearing overbought levels however so some caution is warranted if you are long. That does not mean price is ready to collapse; it merely means that one might wish to protect some profits while they wait for another entry point if we get a correction lower in price. Any correction should encounter dip buyers just above psychological support at $1400 and again at the confluence of the 10 day moving average and the 100 day moving average in the vicinity of $1375 - $1370. The trend is up and that is the key right now. If it changes, we will try to pick that up using the indicators.

Syria is a wild card however and no one can predict exactly how events are going to unfold over there so traders with a short term horizon need to be vigilant. If that band of overhead resistance  gives way gold will catch some upside wind due to the plethora of buy stops sitting just above there that should carry it on towards $1480 where I would expect some formidable selling to appear.

The miners need to find some sponsorship.....

by the way, Silver knocked RIGHT ON THE DOOR of its April high today before setting back a bit. That is near $24.80. Frankly, I do not see much in the way of resistance to a move higher if it clears that until one gets near $26. This market is extremely overbought and can spin on a dime so caution is also warranted. Bulls, do not get too complacent but stay alert for any shift. A 25% gain in the price of the metal since late June is nothing to sneeze at.

Trader Dan Interviewed at King World News Markets and Metals Wrap

Please click on the following link to listen in to my regular weekly audio interview with Eric King over at the KWN Weekly Markets and Metals Wrap.

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/8/24_KWN_Weekly_Metals_Wrap.html

Weak Housing Number Propels Gold Higher

Here is all one needs to know to explain why gold did what it did today:

The new home sales number showed the steepest drop in three years! Any questions?

What that translated to is very simple - Death to the Tapering! Long Live the QE Kings!

If that rotten July number was not bad enough, the insult to injury was the downward revision to the June number.

My view on this is simple - I have been posting charts of the Ten Year Treasury Note yield for some time now and have been remarking that it keeps pushing higher and higher and is closing in on that 3% mark. There is no way that rising interest rates in an environment in which salaries/wages are stagnant and job creation consists mainly of part time jobs is NOT GOING TO IMPACT HOUSING SALES.

I feel like I have been beating a dead horse but I repeat - the FED cannot be pleased with what has been going on in the Treasury markets because this entire phony "recovery" is predicated on one thing and one thing alone - CHEAP MONEY. Take that away and there is nothing else to support it.

The other side note to this is that these rising rates are going to significantly impact the US Federal Governments borrowing costs.  When the national debt is over $17 trillion-gazillion-bazillion-whatever, and rising, even small rises in interest rates will have a significant impact to the nation's bottom line.

Bottom line - rising interest rates are a pox on the nation and on the economy and the Fed knows it.

Take a look at the Homebuilders' ETF. It is on course to close below its 50 week moving average even though it is valiantly trying to remain above it. The shorter dated moving averages have already turned lower indicating that the short term trend is down. I am monitoring this to see if we get any bearish downside crossovers of that 50 week. Either way, this sector is not particularly friendly on the charts.

It was easy to see that for today, the bonds were the beneficiary of buying related to no end to the QE bond buying program. When that housing number hit the market, they never looked back erasing all of this week's earlier losses and then some. The yield on the Ten Year backed down towards 2.81% after peaking near 2.92% this week. A collective sigh of relief along with a great deal of backslapping and hi- Fives was heard at the offices of the Fed.

Gold is right on the door of the psychological $1400 level in the aftermarket today. The December contract has missed that number by a mere $.10 as I type these comments.

Silver pushed up through $24 and looks very strong heading into next week as well. It looks to have very little in the way of impediments until it nears $24.70. If it clears that, silver could get quite exciting, very quickly. It will be interesting to see if it can hold above $24 as it goes out here on Friday afternoon. There are sellers around at that level as well as the $1400 level in gold.

The US Dollar was undercut by the weak housing number as it lost any gains it had against most of the majors with the exception of the Yen (barely) and the Pound (barely). The forex markets are ultra sensitive to any news whatsoever right now that they regard as potentially impacting Federal Reserve policy. Thus, we will continue to see more volatility and unpredictable price swings upon the release of each bit of economic data. I for one have sworn off trading the currencies until I see something more definitive as far as a trend goes. I am not a masochist and will leave them to others who are more tolerant of ulcers and other stomach wrenching maladies.

The HUI still needs to clear 280 on a weekly closing basis to kick the mining shares into a stronger uptrend. Price action has been very constructive but there remains work to be done on that price chart to dispel any doubts.

Today was one of those days in which it was hard to find any commodity that moved lower. Cattle did but they have been so bullish of late that I can understand them not participating in the buying orgy today. Soybean traders have effectively managed to kill the crop once again, as they do every single year without exception. First it was too cold and too wet; then it was too hot, then it was too cool and the crop was lagging and needed heat to mature. Now that it has turned hot, it is too hot and too dry so it is time to kill all the beans once again.  If you think gold and silver are nuts, try beans. They are worse especially when the mindless machines are buying.

Sharply rising soybean prices which are oftentime viewed as a proxy for food prices by some, tend to feed into silver buying on the thoughts of an inflation play. Remember, silver will outperform gold to the upside when inflation fears are dominant.

Personally I think the funds are driving soybean prices to ridiculous levels as all they are managing to do is to destroy foreign export demand for our beans at current levels. Old habits die hard in the commodity markets however and the combination of two words, "hot" and "dry" is all that is needed to spark a wave of short covering and more buying.  We are not going to run out of beans anytime soon with those massive S American crops and even if this year's crop does get smaller from previous projections, there are more than ample supplies of soybeans that are going to be around. Wait until the combines start rolling...

Maybe silver can take out chart resistance before that happens. We'll see. I will be talking about this on the KWN Weekly Metals Wrap so tune in to listen to my comments. I will get some price charts up later this afternoon as my schedule permits.

By the way, J P Morgan continues to stand for delivery in gold. They have taken the lion's share of all deliveries this month.

FOMC - More uncertainty

The way I am reading today's release of the FOMC statement is more of the same - some on the FOMC are ready for tapering; some are not. Translation - we are back to watching the economic data releases and attempting to ferret out what is in the mind of these monetary masters from which the markets are begging their crumbs.

I still think that when it comes down to brass tacks, the key data is going to be the payrolls numbers. As far as the Fed is concerned, inflation is non-existent and thus there is no need, as of now, for them to cut back on the bond buying. What will tip the FOMC in favor of tapering sooner rather than later is strength in the jobs market and there is not a lot of that which I can see.

Part of the reason is this damnable Obama-care. It is a job killer and everyone in Washington, including the administration, which rammed it down our throats, knows it. That is the reason they gave the exemption or delay to corporate America in implementing this disaster.

Until this albatross is taken off the necks of the US job creation machine, I do not see any SHARP increases in hiring. Instead, I think we will see more of the same - mediocre increases in hiring which a large percentage of that in the form of part time jobs.

The bond market however seems very concerned that those who favor the early tapering are going to win out and thus we are watching interest rates on the long end of the curve continuing to rise. The yield on the Ten Year just missed 2.9% today!  Methinks that those in the FOMC who are watching these long term rates rising are getting more than a bit concerned about that.

Gold is trading in the same confused manner as some of the other markets with it bouncing higher, dropping lower, bouncing back up again and then moving lower. It is readily apparent to me that there is simply not much in the way of very strong conviction when it comes to gold right now. The bulls have brought prices a long way from off the lows under $1200 but the bears seem fairly resolute in selling shy of $1400. We need to see that handle change from "13" to "14" to spark another strong wave of hedge fund short covering and bring in some more hot money.

That being said, thus far the metal is holding above the major moving averages with the 50 day down close to $1298 and rising. There looks to be a pretty good zone of support between $1344 and $1324 on the chart with resistance just above $1380 and then again just shy of $1400.

Silver is being buffeted by the same winds that are blowing through the rest of our markets but has been able to maintain its footing above $22 with buyers emerging down near $22.50, a former resistance level now turned chart support.

The mining shares as evidenced by the HUI were spanked fairly hard today closing down 4.60%, which is fairly dramatic. The chart shows hefty resistance at 280 with good support near 255 and again near 237 or so. The 50 day moving average is moving higher with the market trading above that level so the bulls currently have the advantage.

It is a damned shame that our once proud system of financial markets, the envy of the civilized world, has been reduced to a quivering blob of Jello, sitting at the feet of the FOMC like some sort of lap dog begging for scraps of food from its master. I for one wonder how historians are going to record this period and whether or not they will chronicle this as just one more step down the path towards mediocrity and decline in our nation. Personally, as someone who loves the markets and the study of fundamentals upon which solid investment decisions were once made, it disgusts me to witness this unseemly beggary and sycophantic attitude.

Since when did the well being of our markets become so utterly dependent on the vicissitudes of 12 men and women sitting on a committee? This is not the capitalism that made our nation the marvel of the world.

US Dollar - no clear trend

The US Dollar, as measured by the US Dollar Index or USDX, started the year off on the strong note and looked to have regained its status as "King Dollar" until the beginning of last month when it put in an outside reversal week lower on its weekly chart. Interestingly, it put in the same exact pattern a year ago in the same month. (By the way, for those are not technical analysis geeks like I unfortunately am - an outside reversal week pattern is one in which a market which has been trending higher makes a NEW HIGH for the week only to then CLOSE LOWER than the previous week's LOW. It is generally regarded as a fairly reliable BEARISH signal).

It is difficult to point to an exact reason for this change in sentiment towards the Dollar right now given the fact that the US economy is in better shape than Europe and Japan ( that is not saying much) and appears to have entered a season of rising interest rates accompanied thus far by a soaring stock market. For the first half of the year that was all that investors needed to see and into anything US Dollar related they ran. Something has changed that - or at least it so seems.

It might well be that the US fiscal house disorder is coming back to the forefront of investors'/traders' minds once again as the federal government is up against its borrowing limit and once again the usual circus in Washington on the Potomac is back in town. Whatever the cause, the Dollar has now moved lower in 4 out of the last 6 weeks and in the two weeks that it did manage to close higher, the high of that week did not exceed the previous week's high price. That is not exactly a show of confidence as it is certainly not bullish.

While it is still higher on the year (barely) the chart is picking up some signs of waning upside momentum. The high price made this year in July exceeded the high of the previous July 2012 and that outside reversal pattern but the indicator did not score a fresh high; instead it registered a lower high resulting in a BEARISH DIVERGENCE. This in and of itself is NOT A SURE Sell signal unless it is confirmed by subsequent price action, which of course the market did. Even at that, the Dollar has not broken down technically on the price chart .

I would have to see  a weekly close BELOW the band of "MAJOR" support noted on the chart to turn bearish the Dollar. Right now I am ambivalent towards it, being neither bullish or bearish except for the shortest of term trades.

Trader Dan Interviewed at King World News Markets and Metals Wrap

Please click on the following link to listen in to my regular weekly audio interview with Eric King over at the KWN Markets and Metals Wrap.

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/8/17_KWN_Weekly_Metals_Wrap.html