Gasoline nearing an important Inflection Point

The following chart is a weekly graph of the price of unleaded gasoline showing some lines that detail areas where both resistance and support can be identified.

As you can clearly see, the price has rallied some 70 cents snce the end of last year without hardly a pause. It is currently closing in on a very important chart inflection point which is just shy of the $3.20 level. Based strictly on technical analysis and nothing fundamental, if this market pushes past that point (notice it is knocking right on the door of the lower line of the pitchfork - which is where it can be expected to encounter selling pressure), then not only will it have bested upsloping resistance but it will also have taken out horizontal resistance coming in near that level as well.

That would give us a technical signal that this market is going to make a run towards the all time high. I wish to emphasize again, that we are no where near the peak driving demand season for gasoline which generally coincides with the advent of the Memorial Day holiday.

Gasoline is obviously pricing in a risk premium in an attempt to pre-emptively ration supply fearing a drop in oil shipments out of the middle East should tensions with Iran further ramp up. However, this rally began prior to such fears initially moving higher in anticipation of a near zero interest rate policy of the Federal Reserve and additional liquidity being supplied by the Central Banks of the West. Even China was not left out of the equation with many traders suspecting that the Chinese would lower interest rates or reduce bank reserve ratio requirements as they indeed did.

What to bring away from all this? Simple - get ready for the very real prospect of all time high prices at the gasoline pump this summer.

By the way, Newt Gingrich has an outstanding presentation at his website for bringing down gasoline prices, permanently, and for sharply reducing American dependence on imported oil. Check it out.

http://www.newt.org/news/newt-2012-announces-first-air-dates-of-30-minute-address-on-american-energy/



Also, if you did not get a chance to see the current President's logic-challenged speech on US energy yesterday, relax; you spared yourself a great deal of mental anquish trying to follow his convoluted thinking. The Wall Street Journal has an excellent take on that speech which is also worth reading. You can find that at the following link: It is entitled, "Stupid and Oil Prices". I especially liked the fact that the writer brought up the pernicious effect of the Fed's near zero interest rate policy on the price of energy, and commodities as a whole. It was and is a very insightful read.

http://online.wsj.com/article/SB10001424052970203918304577241623995642182.html?mod=WSJ_Opinion_LEADTop


Take a look at what has been happening to the Commodity Complex as illustrated by the CCI. The index has been in a downtrending pattern since it peaked late last spring. It is however showing some definite signs of bottoming and what is more, possibly begin a trending move higher (remember that a market can bottom without necessarily embarking on an uptrending move higher - it can merely go sideways).

The first solid chance of seeing such a thing would be an index close above the horizontal blue line noted on the chart. Upside follow through that takes out the lower upsloping red line would be then very bullish activity.

$1800 in Play for Gold

I am posting a pair of gold charts today to note the clear resistance levels on the chart and to comment accordingly.

The first is the daily chart showing the resistance zone that was broken this morning after being tested in yesterday's session. The key to that test was the ability of the gold market to SUSTAIN GAINS ABOVE the $1750 level. That was the level all momentum traders were watching to determine whether or not they were going to move in. When it appeared likely that gold was going to hold above that level yesterday, in came the hedge fund algorithms and up went the metal before it encountered a bout of bullion bank selling right at the key $1780 level.

The ability of the bulls to absorb those bids and push past that defensive barrier has set the weaker-handed shorts on their heels and is bringing in additional momentum based buying in today's session.

The result is that the market is poised for a test of a big block of resistance centering on the round number of 1800. Gold ALWAYS keys on these round numbers and has done so since it began its ascent to $300 a decade plus ago.

If $1800 gives way, then the next target is the zone near $1850.

Initial downside support comes in back near the $1750 level.

Now let's shift gears to the weekly chart where you will see two horizontal blue lines. The lower of the two comes in near $1740. This is the reason that the battle centered on that number last week and why gold bulls were stymied in their efforts to launch the metal higher. Chart focused bullion banks were aware of the significance of that level and were making every effort to hold the price from closing through that level. Once they were repulsed, they then attempted to hold the price from popping back through $1750 as the algorithms would signal their buys once price moved through that level and held.

You can see from this longer term oriented chart, the significance of the round number of $1800. That is where the next focus is shifting and it will hold as much significance as $1750 did on the way up. Gold bulls have the wind at their back right now; the big question is how much money do they want to commit to the metal in terms of position size. Certainly they are making a strong play in silver right now which will tend to benefit the gold market as well.

Silver is sitting right on MAJOR Chart resistance at $35.35 - $35.50. There is not much in the way of significant overhead chart resistance above this level until you get to $40. I might add that a bit of minor resistance appears near $39. I should also note that silver is making this move independent of the copper market which is reacting to fears of slowing demand for the red metal especially after the disappointing numbers coming out of Europe this morning. Copper stocks are building in Shanghai so some traders are reading that as a slowing of growth prospects in China, which is responsible for approximately 40% of global demand for the metal. We'll have to keep an eye on that since Silver has been more sensitive to overall global growth prospects than gold in general.

Strength in the mining shares is further aiding the move higher in both gold and silver with the HUI closing in on a key technical level on the price charts as well. Bulls have done a consistently good job in supporting these things on any dips to the bottom of the 1 1/2 year long trading range which comes in near the 500-490 level. One thing they have not been able to do is to generate enough upside price action to bring in momentum based buying which will also begin squeezing some of the shorts out, or at the very least make them rethink their continuing in that infernal ratio spread trade that has plagued this sector for nearly two years now.

If this index pushes past the line noted on this chart, there is a very good chance that the shares will begin catching a very strong bid with the potential of moving the index back to the top of that trading range closer to 590-600.

One last thing - yesterday I showed you a chart of gold priced in terms of the British Pound and how close it was to reaching its former all time high.

Today here are two more - the first is Euro gold and the second is Yen Gold. Note the strength in the charts.

Gold bears have their work cut out for them.

Sterling Gold surging Higher

Gold priced in terms of the British Pound is surging higher being reinforced in its upward trajectory by news that the Bank of England was further expanding its bond purchase program (Read this as its version of QE). This is more evidence that nearly the entirety of the Western World Major Central Banks are completely engaged in the process of adulterating their currencies.

They BOE has now set a program target near the 325 billion pound mark or $513 billion dollars. That is not exactly chump change.

This is also the reason that bears at the Comex are increasingly having difficulty in capping the price of the metal there as it is surging higher across a variety of foreign currency terms.

Gold Reaches Resistance at $1780

Gold is surging higher later in the session today having caught a gust of wind that took it all the way to major overhead resistance at $1780. The ability of the market to REMAIN ABOVE $1750 caught the attention of momentum based traders and that was all she wrote. Up it went taking the weak-handed shorts out of their positions until the bullion banks could regroup and start their selling again at $1780.

Bulls have their sights set on putting a handle of "18" in front of the gold price. The Central Bank pals - the bullion banks - are going to try to prevent that. If the bulls can keep gold above $1780, they should be able to take out the bullion banks.

Downside support now becomes the $1750 region.

Platinum regaining Ground against Gold

There seems to be a type of stealth bull market in the platinum group as the metal begins moving up and regaining lost ground against the price of gold. The metal has been grinding higher since the beginning of the year and is currently up nearly $400 since then but has mostly gone unnoticed by the financial press.

It is unusual to see the metal trading at a discount to the gold price. Apparently some of the hedge funds have taken notice and are moving into platinum especially as news filters out of a strike in a large South African mine owned by Impala.

Platinum, while often viewed as a precious metal, is greatly affected by economic news due to the fact that it is also an industrial metal used largely in the automotive exhaust systems. Obviously any news that is considered bearish for overall global growth tends to depress its price. Conversely, a growing global economy in which consumers worldwide opt to buy new cars, is bullish for the metal.

As such, platinum has been greatly impacted by the risk off or risk on trades. Notice how it responded to the QE I and QEII programs with the former beginning in late 2008 and the latter kicking back in during 2010. Then look at what happened to it in late 2011 when investors were watching European woes proliferating with what seemed like not much of a Central Bank response at the time.

That all changed at the beginning of 2012. Near zero interest rates and the expectation that the Central Banks would be keeping this environment intact for the foreseeable future have now combined with supply related issues and are driving the metal higher with strong showings the last two sessions in particular and the first two months of this year.

Greece is Fixed so Let's Buy Everything

Greece managed to secure itself a bailout which takes the problem off the radar screen of hedge fund managers for the time being so it was back to "RISK ON" in a big way in today's trading session. Between China's 50 basis point lowering of its Reserve Ratio Requirements for its banks yesterday and today's money printing to throw at the Greek debt problem, it was "Happy Days are Here Again" as the equity market perma bulls wasted no time in bidding the price of stocks higher while the inflation camp decided to buy nearly anything that moved on the commodity exchanges with the grains being the notable exception to the party.

This buying resulted in copper and silver both EXPLODING higher while gold managed to finally take out both the $1740 level and the $1750 level in one fell swoop. Resistance - forgettaboutit! It evaporated with this rush of hot money into the markets again. This is money that has been sitting on the sideline waiting to see how the European sovereign debt situation was going to unfold. Once that particular stumbling block was removed out of the way, the path of least resistance in this pitifully low yield interest rate environment was higher for risk assets.

Notice on the chart that gold has finally managed that CLOSE over $1750 which it needed to set up a run towards $1780. The trick for the yellow metal will be to see if it can HOLD TWO CONSECUTIVE CLOSES over this important technical resistance level. If we see additional follow through buying in tomorrow's session, gold will go on to test the upper boundary of the zone noted on the chart as "Heavy Resistance Zone". That upper boundary is $1780 where the price capping bullion banks will be ready to attempt to stem the advance. If they fail there, we are going to see a handle of "18" in front of the gold price relatively quickly.

Downside chart support is initially near $1740 followed by $1720.

Let's also look at silver which finally managed to CLOSE ABOVE $34. This is the first signal that the consolidation pattern of the last few weeks is close to resolving itself. If silver can take out the initial resistance level noted on the chart, it will very  likely embark on a visit of significant resistance centered between $35.00 - $35.35. I would like to see a close above this level, preferably above $35.50 to indicate that silver is headed to $40.

Downside chart support is at the bottom of the recent consolidation pattern near $33 which is where buyers have been busy accumulating the metal for the last three weeks.

Here is a picture of the fallout coming from this nearly unlimited money printing that seems to be the order of the day (issuing new debt to pay off old debt) - look at what is happening to longer term interest rates. While still low by historical standards, the yield on the 10 year note is now above 2% and moving towards 2.10, the upper boundary of the recent trading range. If interest rates were to break out strongly to the upside, the multiplier effect on the gargantuan amount of US debt would begin having a keen impact on the US fiscal condition. The US monetary authorities want to have their cake and eat it too - by that I mean that they want to be able to artificially keep short term interest rates at ridiculously low levels to encourage consumer borrowing as well as keeping the cost of servicing the US debt load low.

However, if the Central Banks, particularly of the West, are going to keep this insane game of kicking the can down the road by basically adulterating their currencies, then those who lend their respective governments the money are going to demand higher rates of interest to compensate them for the fallout of all this, namely increasing risks of inflation originating from the debauchment of their currencies.

Crude oil has firmly broken out to the upside and is trading well above the key $105 level. Gasoline is going beserk to the upside. It looks like we are going to see $4.50 gasoline in most cities across the nation by Memorial Day and possibly $5.00 at the rate which it is soaring.

Gasoline is at a key crossroads on the long term montly chart. If it pushes through this level near $3.08 - $3.10, odds will then favor it running to $3.40 which will the last level of chart resistance before it revisits its all time high. The American consumer is now reaping the combination of Obama's stupidly inept energy policies along with the fallout from the Federal Reserve's near zero interest rate policy with a wild card kicker of Iranian tensions. What has me extremely concerned is that we are NO WHERE NEAR the PEAK DEMAND period here in the US which kicks in as we near summer and the driving season.

At some point, even the Johnnie one-note equity bulls are going to have to consider the fact that their beloved liquidity dumps are poisoning the well from which they are drinking. Energy prices that soar are a TAX on the entire economy and work to depress growth and confidence and no amount of spin from the
"BUY STOCKS ALL THE TIME" financial analysts that infect our financial media is going to be able to prevent that.

China to the Rescue Once Again

While the markets are closed for the President's Day holiday here in the US, the futures are open for trading in some markets. Those markets are reacing to overnight news that China is lowering the Reserve Ratio Requirement for its banks after having spent most of last year raising it.

Market watchers are interpreting this as a loosening of the monetary strings in China and reading it as bullish for the commodity sector as a whole while the equity guys (who never need a reason to be wildly bullish) are using the news to goose the S&P futures higher.

Risk aversion is getting tossed out on the news with the Dollar getting whacked lower, gold and silver moving higher and the long bond getting sold off and moving closer to the bottom of that multi-week trading range.

At the rate these guys are chasing stocks higher, we are going to see the S&P 500 over 1400 before Spring arrives. Ah yes, nothing like more liquidity to take care of everything. I really think we need to throw out all the old economics textbooks and rewrite them. Matter of fact, it would be a very short book containing only 4 words that one would need to know to become a world class economist: "LIQUIDITY CAN FIX ANYTHING".

Debt good; Savings bad.

Next question.

Gold has resistance that can be seen on the price chart near the $1740 level. That has held the metal in check for last few days. It ran to this level overnight but could not penetrate it so let's see if it can push through Monday evening here in the US or Tuesday morning. If so, it will set up a run towards $1750 which is where the next test will be. Bulls MUST clear that level and HOLD it above there to set up the critical challenge of the next resistance zone.

Trader Dan on King World News Weekly Metals Wrap

Please click on the following link to listen to my regular weekly radio interview with Eric King on the KWN Weekly Metals Wrap.

http://tinyurl.com/7rc862u