HUI Demonstrating extremely Bullish Technical action

The gold mining stocks, as illustrated by the HUI index, are storming higher again today as it once again defies the lower trend in the broader stock markets. This pretty much confirms the fact that the miners have now separated themselves from the action of the stock market and are trading on their own fundamental merits. This is not to say that the broader equity markets will no longer have any impact on the mining sector whatsoever; it is merely to state that we no longer are going to see a nearly direct relationship between the performance of the mining shares and the performance of the rest of the stock market.

Note that the miners are now strongly outperforming the rest of the market. This is the reason we recommended to the hedge funds that they close out those ridiculous ratio spread trades that they had been employing with a long bullion position against a short position across most of the mining shares as a trade strategy. It was a trade that would only work for a while until the sheer lopsidedness of it depressed the shares to insanely cheap levels when valued against gold bullion.

I am sending a few charts in this post for consideration. The first is the HUI itself which is exhibiting classic technical price action from a bullish standpoint. Towards the end of August it finally managed to clear the very stubborn and formidable 580 level which had held it in check for some time. It then mustered that strength and pushed to its all time high near 610 before retreating somewhat. However it found willing buyers on the dip lower (most likely hedge funds who were prescient enough to realize that they had overstayed that damned ratio trade) and then rocketed right back up to that level at the end of the month. Once September trade commenced it GAPPED through overhead resistance forming a GAP and GO pattern ( some like to refer to this as a BREAKAWAY GAP), which is extremely bullish as it indicates strong, pent-up buying demand from both trapped shorts who are now panicking as well as fresh buying from eager, would-be longs.

Upon breaching the all time high at 610, price subsequently retreated and retested the GAP region from which the move higher commenced. It acted perfectly, uncovering buying as it moved lower and filled the gap as guys who missed the initial move higher but were anxious to get in on the long side, jumped in. Today, we see additional short covering as well as fresh buying taking the index to yet another all time high.  I would have liked to see a bit more upside strength which would have formed a stronger candle signal on the chart instead of the potential spinning top but the index held very well all things considered. Tomorrow's close is setting up to give us the clue as to where we go next. A weekly close above 622 will be very bullish.

Looking at the ratio of the HUI to the Gold price, we can see that the shares have recovered some ground against the metal and are attempting to catch up to the gains in the bullion but they also have some additional work to do.

Gold holding firm in terms of the Swiss Franc

Note the chart of gold priced in terms of the Swiss Franc. While it is sharply lower today as the Central Banks of the West declare war on the metal, it has only retraced about half of its strong gains made against the Swiss Franc after the Swiss National Bank effectively devalued their domestic currency on Tuesday of this week. While the SNB set about to debauch their currency, those Swiss wise enough to have accumulated gold have fared quite well as their wealth has been protected.

This is what gold does historically  - it serves as a haven against the depradations of Central Bankers, monetary officials and inept political leaders who look only at the short term and do not focus on the longer term. This group of leaders seem intent on plundering the wealth of the citizens of their nations.

Carerfully compare the two charts and you will see that gold's strong, sustained rise against the Swiss Franc began exactly on the same day that the SNB first announced efforts to derail the strength in the Franc. It moved steadily higher, retraced some gains and then exploded into new highs Tuesday of this week when they effectively devalued their currency and destroyed its safe haven status in the process.

CENTRAL BANKS WAGING WAR ON GOLD AT THIS HOUR

If it is not obvious by now, it should be -an attempt by the Central Banks of the West to derail the rise in the gold price is currently underway.

I mentioned in my midday comments that an effort would take place to prevent gold from moving beyond $1900 in an attempt to paint a double top on the daily price chart and induce a round of technically related selling from speculators on the long side.

This effort can clearly be seen in the following ONE MINUTE BAR CHART which reveals an enormous spike of 4,000+ contracts in the middle of the evening during a time period in the gold trading not normally known for this sort of volume. The question must now be raised - if this was a hedge fund blowing out of a long gold position, why wait for such a low liquidity environment in which to execute to trade knowing full well that by so doing, one would be guaranteed the worst possible exit price for the trade. Also, since the price of gold has been RISING and NOT FALLING, why would any gold long be forced to unload a position. It certainly is not under any duress from price action.
We can probably eliminate this as the cause therefore since only the rankest of fools would attempt such a thing.

The next question that must then be raised is if this were a hedge fund doing the selling to establish a fresh short position, why would they sell in such size at such an hour guaranteeing themselves to be filled with a fresh short position at the worst possible price by selling into a hole? The logical answer is that they would not do such a thing.

By the process of elimination and due to the fact that a major attempt by a Western Central Bank (the Swiss National Bank) to deliberately debase their currency occurred less than 24 hours previous to this selling barrage, added to the fact that an obvious raid took place on gold knocking it down below $1900 during the time frame in which the Swiss Franc devaluation was announced, this huge sell order must be therefore traced back to the Western Central Banks which are now going after the gold price in an attempt to cloak their utterly incompetent, impotent and predictable response to the current economic woes of the West.

To assume that the ECB, the Federal Reserve, the Bank of England, the BAnk of Canada, and any other major Central Bank of the West did not have previous knowledge of the plans by the Swiss National Bank to debase the Franc is to live in a fantasy land and be devoid of all sound wisdom. Of course they knew beforehand as something of this importance would not be done unilaterally by the Swiss.

The attack on Gold is therefore an effort by these modern day alchemists who are attempting to achieve prosperity by magically altering slips of paper into something that might constitute value in the eyes of the beholder to discredit the yellow metal and send it carreening lower.

China must be watching this with both disgust and delight. Disgust in seeing the depths of corruption that ails the Western monetary system and delight in the fact that the machinations of these conjurers is providing a discount in the price of the metal which they will be more than pleased to accept.

Take a look at the following chart and tell me with a straight face that this is NORMAL trading action. Any trader worth his salt knows this chart looks amazingly like a chart of a currency facing INTERVENTION PRESSURE from a Central Bank

Daily Comments

Another day of volatility furthered this time around by the meddling of the Swiss National Bank. Have you noticed by now that the only thing Central Banks these days seem to be providing is more confusion, uncertainty, and volatility?

I am of course referring to the SNB's attempt to fix its currency against the Euro and derail its strength. I remember a time (it now seems long, long ago) during which a nation longed for a strong national currency as a vote of confidence by the global investing community. It attracted capital that could be used for economic expansion and growing a manufacturing base, kept the cost of imported goods low and provided a stable price environment. Not any more - now it is a case of each nation outbidding the other in their attempts to cut the props out from beneath their own currency.

This attempt,which will inevitably prove to be a failure (see Japan's futile efforts as EXHIBIT ONE), introduced a dose of confusion that allowed the bullion banks to regroup, after they have been sent reeling as Asian trade took gold to an all time high overnight. Their fierce selling took the metal lower on the day, although it is moving higher in the aftermarket hours.

Keep in mind the comments I made the other day on the KWN WEEKLY METALS WRAP in which I remarked that the enemies of gold would throw everything, including the kitchen sink, at the gold market in an attempt to keep it below $1900 and attempt to paint a double top on the technical price charts. If they fail here, gold goes to $2000 before you can blink. The battle has been joined with the East bidding up the market and the West attempting to take it down. Batten down the hatches because the sea is not going to get any calmer here on out.

Also, watch for the ESF to try continuing propping the sagging equity markets. We are quickly reaching a point where the realization that the economy is spiraling downwards is dawning on more and more of the investing public, with the current crop of political leaders offering nothing but more of the same failed policies as a cure. Not only that, but the monetary authorities have nothing left to do except print more money as they are effectively zero bound. Translation - when all else fails, resort to market chicanery.

Back to gold however - after setting a new all time high overnight, it then retreated moving lower throughout the rest of the session before settling down on the day. Some decent buying surfaced near the $1860 level as bulls attempted to take the metal back above $1880 but the effort looks a bit half-hearted right now. They will have to quickly recapture $1900 to put the pressure back on the bullion banks.

Gold bears will try to shake out some more longs and see if they can get enough sell stops targetted to drop the price back towards $1840.

Silver acted as a heartbreaker once again in today's session as it once again could not muster enough upward energy to break free of the shackles being imposed upon it just shy of $44. Note that today it failed at the 61.8% Fibonacci retracement level.  Its short term uptrend remains intact however so as long as bulls hold it above $40, odds favor an eventual breach of resistance at $44. Currently it is bouncing back and forth between the 61.8% retracement level and the 50%.

The HUI added to its gains from last week further confirming the strong upside technical breakout, although it was pulled off its best levels of the session by the selling that hit the metals themselves. A second consecutive weekly close above 610 will be very bullish.


I will be most interested in observing the subsequent price action if the HUI comes back and retests the GAP area shown on the daily price chart. If the uptrend is going to continue and the shares are going to rapidly move higher, the shares comprising the index should find willing buyers that cause the price to bounce off that level and recover higher.

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 of King World News on the Weekly Metals Wrap.

http://tinyurl.com/3qq62d7

 

Gold - 4 Hour chart update

Gold has solidly taken out resistance centered near $1840 - $1845 and has now moved directly to the next level of chart resistance near $1880. This is the last barrier before a retest of the former all time high near and just above $1900 is in order.

That gold is doing this even as the Dollar is moving higher is evidence that it is trading primarily on currency related issues now ( currency debasement by the respective monetary authorities).

We are back to looking at the same issues that have driven the metal higher in the first place - deliberate currency debasement efforts by the monetary authorities ( aka loose and extremely accomodative monetary policy combined with official sector buying of government bonds ); raging inflation in the far East, particularly China and South Korean; and three, enormous federal budget deficits in the West. Throw in a good dose of rotten economic data releases which will reinforce the need for accomodative monetary policies resulting in NEGATIVE REAL TERM YIELDS for savers, and you have a perfect storm for higher gold prices.

That is the situation from a fundamental perspective. From a technical chart perspective, we will watch to see how gold acts should it make a move towards $1900. I would expect an all-out effort by the perma bears at the Comex (bullion banks) to check the metal at this level and attempt to paint a technical chart pattern known as a double top. They know full well that if they are unable to absorb the plethora of bids or buy orders that will come into the market as its price rises and thus fail to hold it below $1900, gold will be at $2,000 before the month is out.

I should point out here that gold has also made a Brand new all time high WEEKLY SETTLEMENT PRICE.

Markets continue to Beg Bernanke for more Jelly Beans

By now you have all learned about the absymal payrolls number. What more can be said at this point except for the fact that the current Administration seems intent on gutting the American economy.

Remember at the last FOMC statement when the Fed announced that short term interest rates were going nowhere for the next two years? They then went on to say that there is only so much a Central Bank can do and if the economy is going to grow, it is going to require policy changes that reduce structural impediments to growth. That was a not so subtle dig at the current clueless occupants of the Executive Branch to get off their Marxist redistribution wagon and start putting forth some business friendly policies (not to mention spending us all into the toilet). Well guess what? After today's jobs number, the markets have given up waiting for anything coming from that quarter and are now practically begging the Fed to save them.

This is being evidenced by the fact that the long bond is rallying as traders now are fully expecting the Fed to roll the proceeds from maturing short term Treasuries into longer term Treasuries. In other words, exchanging short term debt holdings for long term ones with the idea that the Fed will now engage completely in focusing on keeping those long term rates low for an extended period of time as well. My thinking is that were it not for this thinking, the equity market would have utterly imploded today.

What has been occurring is that the more bad news we get, the more stocks refuse to break down, in some instances actually rallying in the hope, wish, prayer, etc, that the Fed will be FORCED to act. Personally I find this sort of activity repugnant. The greatest nation on the face of the Earth, its entire economic hopes are now hanging on whether or not a group of monetary authorities are going to buy US government debt. Am I the only one out there who shakes my head in dismay and disgust at what we have all been reduced to? Instead of being able to witness the unleashing of American ingenuity, drive, ambition, know how and hard work, we sit around and buy stocks because we think the dispensers of slips of paper known as Federal Reserve officials will inject us easy money addicts with more of the same worthlessly ineffective stimulus? This is America early in the 21th century! Sigh....

Anyway, gold is reacting to this nonsense as it rightfully could be expected to do - it is moving sharply higher because it instinctively realizes that the only "solutions" going to be offered for the current economic disease is going to be additional currency debasement. Whether it is Europe, the US, Japan or even Switzerland, all are going down the debasement path. That is why gold is either making new all time highs in terms of these various major currencies, or just shy of those record high levels.

Silver too is now catching a safe haven bid as many investors are viewing it as undervalued in relation to gold and as offering the potential for better gains on a percentage basis than Ol' Yeller.

I will kick some of this around on today's Weekly Metals Wrap with Eric King over at King World News but wanted to note that those who keep insisting that gold is in some sort of bubble are utterly clueless as to what is driving this market higher. It is going up because a steadily growing number of investors are wising up to the game that is being played by the monetary authorities at the expense of the wealth that they have spend a lifetime accruing by the sweat of their brow and the labor of their hands. As more and more of these investors and average folks learn the role of gold in protecting that wealth from the depradations of Central Banks and spendthrift politicians, gold demand (and silver demand) is going to grow.

It basically comes down to this - whom or what do you trust more - monetary authorities and Central Bankers who have a distinct bias towards problem solving in the most painless manner possible or gold, which cannot be conjured into existence and which has stood the test of time and history. The market always votes with its feet and the voting is obvious.

The only additional comment I might want to make in regards to the ignorance of those who insist that gold is in a bubble, is that they obviously have incredible confidence in Central Bankers and politicians to fix all that ails us - also noting that it is this very same group of people who are the most responsible for creating the current miserable economic climate in the first place.

Note that the HUI has smashed, and I do mean "smashed" through overhead resistance near 610 and is charging higher. I mentioned not that long ago that the hedge funds who were employing this damned ratio trade had overstayed their welcome and that the first one to cover those mining share shorts and get out would be the only one which would make money on that crowded trade. That is now the case as the shorts are now in serious, serious trouble with all of them looking to buy and very few looking to sell.
We'll see how these indices close the session out today but I do find it very telling that the mining sector shattered upside chart resistance on a day in which the broader stock markets are cratering.

One more thing in reference to the mining shares - how many times in the last two months have we urged the hedge fund managers to get out of that  overcrowded and worn out long gold/short mining share ratio trade and to instead institute a ratio trade employing a long mining shares/short broader equities trade mainly because of the severe undervaluation of the mining shares?  Just look at the following ratio chart to see how successful this recommended trade would have been instead of trying to squeeze the very last nickel out of their former strategic trade.

Note that a rising line indicates the mining shares in general are OUTPERFORMING the broader US equity markets and have been doing so since June of this year.

Monthly Gold Charts - August 2011

What an impressive performance by Ol' Yeller for the month of August! Note that Gold has bettered the all time high CLOSING price on an inflation adjusted basis.