Posted By Dan Norcini On April 23, 2010 @ 1:41 pm In Trader Dan Norcini | Comments Disabled
Dear CIGAs,
What an impressive performance gold put in today! Having been knocked down overnight on continuing myopic fears concerning Greece and subsequent weakness in the Euro, it staged a powerful rally beginning near mid morning. The climb higher was steady signifying that not only a sizeable bout of short covering was occurring but also an influx of new buying was occurring.
During the run up from session lows, it was once again the 10 day moving average that initially served to cap the upward progress. Once buyers were able to eat through the offers appearing at that level, some of the shorts decided to get out. Their exit provided enough impetus to allow price to then push further past this tough resistance level with the result that the market is now on a firm enough footing to have a legitimate shot at testing the $1162 – $1165 level. The chart has clearly turned friendly with today’s push higher.
If gold can muster sufficient strength to clear $1165, the bears are in trouble as only $1175 stands between them and a swift run to $1200.
A point of interest – gold priced in Euro terms is less than 2 euros off its all time record high at today’s PM Fix. Clearly the yellow metal is performing incredibly well when priced in terms of the various European currencies. That is one of the reasons that the Comex bears cannot break it down technically and why it continues to attract buying on dips in price.
I want to repeat for what seems like the umpteenth time – those Elliot Wavers who keep calling for gold’s demise are misguided because their view of the metal is too “Dollar-priced” centered. This is the fatal flaw in their “analysis” and their incessant bearish gold calls. They treat the metal as if it was a common commodity not understanding its role as a CURRENCY. Any analysis that does not grasp this simple fact is doomed to failure for we are not talking about soybeans here or cocoa but a metal that has had an historic role as a currency and a store of value for thousands of years. The failure to see the price of gold in various other currency terms leads to erroneous conclusions. Any market that is going on to make all new lifetime highs is not bearish. It really is that simple and arguments to the contrary are based more on hope and wishing than solid, objective analysis.
The HUI finally cleared the 10 day moving average today as well which has been a roadblock in its path higher. It has some resistance centered near 445 on its chart before it encounters much stronger resistance near 450 – 452. Some of the shorter term oriented technical indicators are generating buy signals as a result of today’s price action. We’ll need to see how they close.
Interestingly enough, crude oil has a chart that for the last month has been rather closely resembling that of gold. If that linkage continues, further strength in the energy markets will translate to further buying in the metal. Logically that continues to make sense as higher energy costs will feed through the entire commodity working to push up prices on just about everything. A closing push through $86 will set crude on a path to challenge $90. If that occurs, get ready for the cacophony of complaints about rising gasoline prices. Seasonally, Memorial Day marks the kick off of the summer driving season so it is difficult to see sustained weakness in energy prices as we move into this period. It would take some sort of bearish supply news or horrific news on the economic front for any sharp sells to fail to meet with buying.
I am still watching to see if the CCI (Continuous Commodity Index) can mount a charge to 500. Weakness in the grain complex today is not helping it much but even at that, its price chart shows that it has been able to keep its footing ABOVE the 50% Fibonacci retracement level drawn off the 2008 high and the 2008 low on its monthly chart. The longer it can do so, the more likely the stage is being set for a push through that 500 level. Some analysts are fretting about the commodity complex based on the continued strength in the Dollar, but for the most part, the sector has been able to shrug off concerns about that and seems to be trading more on the individual supply and demand merits of its components. Managed money is flowing to this sector and as long as it does, the trend is higher. We will be monitoring this index for future clues to commodity prices in general as a higher trend works to the benefit of gold.
Click chart to enlarge today’s hourly action in Gold in PDF format with commentary from Trader Dan Norcini
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