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

Gold Chart update and comments

Gold shot up through overhead resistance near $1530 on news that the employment situation in our nation remains in the pits. Quite frankly, this economy is going nowhere, notwithstanding the chatter from the perma bulls in the equity camp who apparently do not understand that corporate profits are strong BECAUSE THEY HAVE SLASHED THE LARGEST EXPENSE FOR MOST BUSINESSES, namely payrolls. While Wall Street cheers the earnings reports, believing that somehow those will turn into more hiring, Main Street continues to suffer from stubbornly high prices for food, energy, medical and insurance costs in an environment in which home prices remain mired in a rut and wages are stagnant.

Methinks I hear the sound of the QE horses neighing in the barn to be released. The payrolls number for May were disappointing but many chose to believe that was an anomaly which would be corrected in the June numbers. Now that the Junes are shockingly low and the May's were downwardly revised further, another month of this is going to set the Fed up to rally forth with further monetary accomodation. The pressure from the Democrats on the Fed will begin rising to obscene levels as they watch their poll numbers heading in the same direction as the payrolls numbers. PANIC, is too mild of a word to describe what they are experiencing right now.

Once again we are back to watching the all-important $1550 level in the yellow metal as that holds the key to its fortunes. Twice within the last 6 weeks or so it has come close to knocking down that door but was unable to maintain its footing above this level. The perma bears at the Comex, the bullion banks, will be attempting to hold it in check near this level as they can read the price charts just like we can and understand the implications of a successful breach of this defensive line on the charts. Should they fail, gold is going to revisit its all-time highs. It has alredy set a new all time high when priced in terms of the Euro.


The more investor confidence in the ability of both the monetary authorities and the political leaders to deal with the structural causes of what ails so much of the global economy continues to fade, the firmer the gold price is going to remain. Recent weakness in gold was a symptom of fears concerning deflationary pressures building back into the commodity sector as a result of the withdrawal of QE. Hedge funds were throwing the entire asset class away. Those fears were replaced by fears of inflation raging in the far-East, notably with China that arose on an announced rate hike. That reminded investors of the negative real rates in many nations in the emerging Far East, an enviroment extremely conducive for gains in gold. Today another set of fears arose, namely fears of a stagnating economy which will keep the Fed on hold as far as any restriction of the extremely loose monetary policy environment that they have created.

Under normal conditions that would have put pressure on the Dollar especially with the Euro seeing a rate hike recently,. HOwever, safe haven bids came into the Dollar as the US Treasury market witnessed a strong surge of buying which boosted the greenback today. The fact that the Yen and the Dollar are moving higher today, with the Bonds also moving sharply higher while the US equity markets sell off sharply is evidence that the risk trades are off for today. This is what explains the volatility in silver in particular as it is being racked by its safe haven status and its perception as a risk trade.

The mining shares are also caught in a type of crossfire between the lower broad equity markets and the strength in gold and relative stability in silver. They have put on a very good showing this week but further work remains if they are going to put in a strong upside breakout of the nature that would presage a trending move higher. The XAU would need a good weekly close above the 210 level first.

Commodity markets in general are mixed with corn leading the way to the upside among the grains as most of us traders have long ago dismissed the recent acreage numbers as utterly worthless. Demand shot through the roof on the recent plunge below $6.00 in new crop corn and towards that level in the old crop. Apparently the rest of the world did not believe USDA either.

The flip side is the energy markets as crude oil was off nearly $3.00/barrel at one point in the session today. Gasoline, while lower also still remains above $3.00 at the wholesale level. The CCI is back to revolving around the 640 level.

The US Dollar looks like it is going to finish the week above the 50 day moving average after closing below it last week. More of the same see-saw type yo-yo action in there. Until it can conclusively post a closing print above 76.50 it is going no where. Support lies near 74.50 on the downside. You can see how tight a range it is trading in.

Broad Dollar Index down near 16 year low

China's Inflation problems continue to be Bullish for Gold

It seems as if every time traders (whose attention span these days is easily exceeded by that of a gnat  - a little Dr. Zeuss here) forget the struggles that many nations in the developing Far East (particularly China) are having with inflation, news arises that serves to remind them that gold is not a US game only anymore.

Overnight, China once again hiked interest rates to try to tame this unruly beast. As a matter of fact, it is the third time this year that they have done so in an attempt to keep the monster from further rampaging through their streets. As they did before, it was another 1/4% or 25 basis points hike that was employed. As of tomorrow, the one year deposit rate will be 3.5% with the one year lending rate rising to 6.56%.

There are several points to take away from this. First, if investors/traders begin to believe that these minimal rate hikes will actually have their intended effect, they will see it as a huge negative to global growth overall.

Second, the Chinese well understand the risk trade and are attempting to defuse the hedge fund commodity buying associated with that trade. Rising agricultural and energy prices do not make the Chinese ruling class happy because those things make the working class unhappy. Get the hedgies selling commodities as an asset class in general, and prices for those goods will work lower, or so their thinking is.

Thirdly, with their officially reported inflation rate running above the interest rate on one year money (the Chinese have taken a page from the US authorities and are playing games with their equivalent to our CPI), REAL INTEREST RATES are negative. That environment is one in which GOLD thrives.


You can see that some of these effects are in play in today's trading session. The S&P 500 was knocked strongly lower this morning as news filtered into the marketplace of the rate hike. Combined with a lousy ISM number, it was enough to take stocks lower across the board.

Furthermore, yields on Portugal's debt continue to rise as Moody's downgrade to junk status of the same has made traders extremely nervous about Europe in general. Their 10 year is now at a record 12.44% while their two year is at 15.72%. YIKES!  There are issues also with Irish debt and chatter is rising about Italy's and of course, Spain is not exactly a picture of robust health. This is serving to pressure the Euro  and by default bringing strength into the US Dollar.

Benefitting from all this has been the US long bond, which after plummeting last week has started this holiday-shortened week off by rising nearly a full 1 1/2 points off its worst level of the past week. Bonds are benefitting from both a safe haven trade and fears that the Chinese rate hike will work to slow growth in China during a time in which US employment numbers remain stuck in nowhere land.

While commodities in general are weaker today based on the CCI, Gold, and silver, are actually benefitting from strong flows linked to safe haven buying. Silver remains as it always does, a schizophrenic market which cannot make up its mind whether it wants to be a poor man's safe haven or part of the risk trade. Today and yesterday is was a safe haven - tomorrow, who knows?

Gold on the other hand has been attracting a very strong safe haven bid ever since the Moody's downgrade hit the market. Yesterday it surged back above $1500, giving the bulls a psychological boost and today it has managed to push past the $1520 level, a level which has been noted previously as the bottom of a recent trading range, and through which gold must push if it is going to put a dent in the "sell the rally" mentality that has arisen in the yellow metal due to its position BELOW the 50 day moving average. It is no coincidence that the 50 DMA comes in at $1520 on the charts also. That is why a push through this level is so significant from a technical standpoint

I am closely watching how this market is going to act the rest of the day to see if it can maintain its footing above $1520. If gold is going to have a decent shot at recapturing its former range between $1520 and $1550, then the former level needs to hold on any subsequent retest back down toward there. As I write this about mid-morning CDT, gold has pushed further north and is now above $1530. Shorts are getting squeezed by some very strong buying.

Helping matters has been the good showing of the mining stocks in general as indicated by the HUI and the XAU. Both have continued to push up from their important recent bottoms with the XAU managing a push through its 50 DMA in yesterday's session. They both look like they are taking a bit of a break in their move higher today however. The XAU has pushed nearly 15 points off its support level near 190 while the HUI has tacked on nearly 40 points from its critical bottom around the 490 level. Traders are now stepping back to take the lay of the land and see whether or not they should take them higher or backfill a bit. If gold can better $1530 and hold there, the miners should move higher.

One very good thing however can be said about the mining stocks in general - both the XAU and the HUI set back and retested their previous swing lows that were made in mid June. The retest attracted BUYING however instead of SELLING and that confirms those lows as an important technical bottom on the price charts. Traders felt that prices for the shares were just way, way undervalued against the metals down at those levels and there were no longer any sellers left that were large enough to take them down through the value-based buying that arose at those levels.

They are not trending yet as that will require a closing push through 560 on the HUI and 210 on the XAU but they no doubt have some of the shorts in that complex nervous. The fact that they are moving higher today while the broader equity markets are seeing good selling pressure is indicative of that.

Oh, and by the way, I find it deliciously ironic that the politically-motivated release of oil from the SPR by the current administration has failed miserably. Have you noticed that crude oil is right back to where it was trading before the announcement of the oil release?