Silver Chart notes

Silver is responding to the "Free Money" environment being maintained by the Fed to keep the US economy limping along as it shot higher when the Dollar dropped lower and fell below the 79 level on the USDX chart.

It is once again knocking on the door of a heretofore very stubborn level of chart resistance that begins at today's high and extends into the region just north of $35. If silver is going to mount a breakout move and start a trend higher, the bulls must beat back the selling that is going to come in at this level. If they do, they have a very good shot at a rather quick move to $40.

Downside support is coming in from dip buyers who are currently attracted to the metal near $33.

Turning to the Dollar chart, note that the price has now decisively broken down below chart support at the 79 level.

Chairman Bernanke off the Administration Reservation

Someone needs to inform Ben Bernanke that he is not reading from the proper script. After all, he is employed there as head of the Federal Reserve courtesy of his boss, the President. One would think that he would get the memo to "help re-elect Obama" by spinning last week's fabrication, aka, the payrolls report, and spelling out in glowing detail how the President's policies are taking us all in the right direction and "not to muck things up".

Whoops - Bernanke went and did the exact opposite by basically confirming 100% what many of us have been saying about last week's government propaganda publication on the jobs situation here in the US. I am paraphrasing what his comments were this morning in front of the Senate Budget Committee but they were blunt and direct when he said that the 8.3% unemployment rate in January understated the real weakness present in the US labor market.

And what exactly did he say to prove this - Voila! the same thing many have been noting - it is a simple matter to manipulate this official number downwards if you stop counting people who have been dropped off out of the labor force. He spoke to the "unusually high level of long term unemployment" and noted that "we still have a long way to go before the labor market can be said to be operating normally". KERPLUNK! That was the sound of the Obama spinners' lies hitting the floor.

As I have stated before and will do so again - IGNORE all the political spin coming from the re-elect Obama friendly media and watch what the Fed does and what its members say in public. So what did they say this morning that should be noted? Interest Rates will stay near ZERO until late in 2014. That is all one needs to know about the TRUE state of the US economy. If things were improving at the pace that the Obamaites were assuring they were, we would not be getting any ZERO interest rate talk for another 2 years!

This is what got gold moving so strongly to the upside once again. Once those remarks began circulating, traders wasted no time responding in the exact same fashion they did when the FOMC first informed the hedge fund community that the speculative party was back on. Up went gold, down went the Dollar, into the toilet went the long bond and up went the commodity sector in general. What was this all about? Simple - the market took back all the losses that it incurred when fears arose that the payrolls number was so strong that it would signal an abrupt end to the FREE MONEY environment and would usher in the first interest rate hikes. That is a big no-no to these leveraged funds who want a green light to keep piling on the leveraged bets.

This news was once again large enough to overshadow any worries about Greece or any other sovereign debt problems out of Europe in the mind of traders. FREE MONEY trumps debt defaults any day.

Once the Dollar started getting thumped, gold and silver both moving higher with gold in particular loving the news. After all, there is little to no opportunity cost to hold and own gold in a zero interest rate environment.

On the technical price chart, gold had dropped into the support level I had noted on the chart and then violently spiked higher. That move has taken it right back up into the resistance zone near the $1750 level. Bulls need to clear this level and keep the price ABOVE $1750 to send it towards $1780. With the bears still reeling, thanks to Bernanke, it is going to take the deep pocketed bullion banks to stem the advance as the weaker shorts have run once again just as they did when the FOMC scared the hell out of them when it first announced the easy money policy would last for nearly another 2 years.

Trader Dan on King World News Weekly Metals Wrap

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Gold Bulls unable to break through resistance

Today's payrolls number, something which I might add is more akin to an Alice in Wonderland creation, was the factor responsible for the selling in both gold and in silver. The thinking was that if the economy is gathering steam at such a fast clip as the numbers suggest, then any notion of additional QE3 is a pipe dream. That means no Dollar debasement and little to fear on the inflation front so out came the sellers in the gold market. It also did not help the bullish cause that the market failed at a critical technical resistance level.

Between the two developments, longs who have had a nice run lately, decided to go ahead and take the profits while they were still there and wait for a better buy back in point. Short sellers looking for a top were also emboldened and made their presence felt as they have been on their heels lately due to the strong buying present in that pit.

The Euro gold chart also retreated from levels near its all time high so it looks like we have some confirmation from two different charts that a retracement is occuring. We will now wait to see where dip buying emerges and how much lower the shorts can press it.

Remember that copper chart that I posted yesterday noting the stall in upward momentum just short of the $4.00 level. Goodness - it looks like a veritable orgy of buying occurred in that pit today as copper put on a ridiculous 3%+. I am not sure who in their right mind wants to chase copper higher at these levels but with the hedge funds loading up on the red metal, that sort of thing does not matter much. I find it difficult to envision a rally in copper based off a payrolls number that is highly suspect when one digs below the headline number but who cares when the hedge funds algos start eating up all the offers.

Euro Gold comments

Once again, as has been the recent pattern in the gold market, gold priced in terms of the Euro, or "EuroGold", is putting in a very strong showing in today's trading session. If you note on the weekly chart, it has moved to within about 32 euros of its former all time high in price. Many traders/investors may be dismissing European Sovereign debt issues, but the gold market certainly has one eye on it.

I want to see how this market acts now that we are moving into these regions as this will be a decent barometer of sentiment towards the woes surrounding Europe. Any further escalation of issues associated with those problems will carry this market to the all time high. The flip side becomes if traders feel that the worst is over and is behind them.

I should point out that as gold nears this all time high in euro terms, it is also moving into a region where I expect it to encounter significant selling resistance in US Dollar terms, namely the zone near $1775 - $1780. That makes two separate charts showing two distinct resistance levels. If the bulls can power it through both levels, we will see a sharper move higher in gold. If it fails here, expect some longs to begin booking profits and liquidating longs while awaiting a lower buy back in point.

I find it noteworthy in today's session that two key markets that are heavily tied to liquidity conditions (risk on trades) both moved lower - Copper and Crude oil. Those markets bear close monitoring as they are closely attuned to sentiment towards the overall global economy and by inference, the risk trades and hedge fund money flows into the commodity sector in general.

Copper Chart:

As you can see copper has been moving higher in anticipation that the worst in the global economy is behind us and the Central Bank actions to provide liquidity would be forthcoming. Hedge fund managers have had a lot of money sitting on the sidelines since the end of last year and need to do something with it if they are going to show any profits for their clients. They have taken the price of copper $0.50/pound higher in a month's time but that has been on the expectation of improvements in demand. It appears that this might be as high as they can take it without some sort of actual evidence that demand for the red metal is really out there from anyone besides speculators. This market is notorious for big players taking the actual metal out of warehouses in one city and moving it to another in an attempt to paint a picture of strong demand so getting a read on it can sometimes be quite tricky. Still, the charts are showing a stalling of upside momentum just shy of $4.00. The fact that it has not been able to best this level yet in a convincing fashion is reason for pause in the commodity sector party that has been going on thus far this year.  While copper has not broken down technically on this price chart just yet, any failure to stay firm could signal that risk traders are having some second thoughts.

Crude Oil:

This chart looks heavy as it continues to reinforce the ceiling for crude just above the $100 mark. It is evident that without some sort of conflict in the Persian Gulf that the market will not tolerate $100 crude oil for long as the global economy is simply too sluggish. Crude has backed off from $100 once again and is now moving down towards the botom of its recent range near the $94 - $93 level. One would expect it to hold this level and move higher again if traders are convinced that liquidity measures will be sufficient to keep the global economy moving forward and prevent any slowdown or contagion effects from European debt woes. It might however take an actual burst of QE3 to take this market through $100 and hold it there. Watching this chart should help us get a feel for where hedge fund money is going in the immediate future.

I get the distinct impression from examining this chart that crude oil traders, after taking it above $100 on liquidity expectations and tensions with Iran, turned to each other in the trading pit and remarked, "Now what?".

Gold Chart

Gold bulls breached resistance at $1750 but have been unable to keep the market ABOVE that price. That will be necessary for them to set up a run towards $1775- $1780 where a major upside resistance level is located.

There is a bit of weakness in Euro Gold today which is coming off of the rather large rally in the Euro in today's session. That rally sent the Dollar down below critical support at the 79 level on the USDX but that market has rebounded back above 79 thus far. A close below 78.80 should set the Dollar up for a drop towards 78.

It is indeed fascinating to watch this shifting back and forth between risk trades and risk aversion trades as one headline after another takes precedence in the minds of traders. Today, European debt fears have temporarilty taken a back seat and that has allowed Dollar bears to pressure the market. It has also sent the long bond careening lower off the top of that three month trading range that I mentioned in yesterday's comments.

Crude oil weakness is limiting the CCI and preventing it from pushing up to 600 in spite of the sharp fall in the Dollar. Natural gas, after giving us all a big head fake higher last week, has resumed moving lower and is once again threatening to close in on that major low made on the day that Chesapeake announced some production cuts. If the market fails there, we could see nat gas moving all the way to 2.00. This warm winter combined with huge storage overhang, it giving consumers one helluva deal on their heating needs this year and will likely do so for cooling needs this summer at this point unless we see some serious cuts on the supply side.

Copper continues floating higher on this sea of liquidity but will need to something on the demand side due to economic activity to push through $4.00. Right now it is all speculative interest playing it from the long side due to the zero interest rate environment. In other words, the Fed's gambit will result in higher costs for electrical wiring for homebuilders and other manufacturing interests down the road. In this sort of free money environment, it is very difficult to gauge how much of the "demand" coming into these markets is genuinely due to demand for the physical product versus demand coming from hot money chasing risk assets. The danger comes when or if the latter demand source dries up due to some extraneous event setting up the real possibility of extremely sharp drops in price as this hot money goes washing out of the market en masse.

Monthly Gold Charts - January 2012

Gold knocking on the door of resistance at $1750

One thing in particular that really stands out to me in today's trading session is the resilience of the gold market even as the safe haven trades were being put back on by a decent sized contingent of traders. The Euro got knocked down about 50 points and the US Dollar saw a pop higher as traders were expressing signs of nervousness over both Greece and now Portugal. Additionally, the long bond rallied up nearly a full point and is once again at the top end of a trading range that is now three months in duration.

This combined with the fact that Euro Gold is extremely strong tells us that gold is attracting a fairly large amount of safe haven flows itself and is not being impacted all that much by the risk aversion trades which hit silver, copper and platinum today. If this sort of thing keeps up, it will make it much more difficult for the bears to prevent $1750 from being breached.

A strong upside breach of $1750 should clear the way for a run at $1775 - $1780 which will also be heavily contested by our pals at the bullion banks. Downside support should emerge first near $1720 and then lower at $1705 should buyers decide to sit on their heels a bit.

The yield on the Ten Year note CLOSED at an all time LOW. The yield has moved lower but has never CLOSED for the month below 1.80% before. It is evident that the FOMC news from last week continues to have a profound impact on these markets. Inflation is not the primary concern of bond traders at this point.

Silver has run into a bit of difficulty clearing the $34 level as it has hit this level or near there for the last three trading sessions but has been unable to decisively push through. It will take a lessening of concerns associated with European sovereign debt for silver to run through this barricade and try for $35.