Hourly Action In Gold From Trader Dan
Dear CIGAs,
A warning from rating agency Fitch concerning the state of the UK’s finances rekindled investor fears towards Europe and was the catalyst for a push into a new all time gold not only in US Dollar terms but also in terms of both the Euro and the British Pound. All three notched records at the PM fix in London today.
Last evening it appeared that happy talk from Chairman Bernanke about the US’s “moderate recovery” had relieved investor worries and given the markets a bit of relief from the pounding of late. That did not last long however. Two things dented the feel-good mode – Bernanke mentioned that unemployment is going to stay high for a while and then came Fitch.
The problem for the spinmeisters is that the very nature of the chronic debt-related issues that plague so many nations of the West simply cannot be talked away any more. They are too deep-seated to gloss over and while the monetary authorities and assorted politicians would hope that they are nothing more than a mere speed bump on the road towards a permanent prosperity, the reality is that a serious, long term plan to address them does not currently exist. Witness the all out war that New Jersey’s daring new governor is having with the Teacher’s Union to get public spending under control in that state and you can easily see why the task at hand has so few takers at the federal level. It is going to take leaders who are intent on doing the right thing regardless of the consequences if this insane and immoral spending spree is to cease. Failing that the indebtedness will continue to the point where the bulk of the yearly budget will be spent on servicing the interest alone. Then what?
Gold is reacting to all of this as instability (which is the best word that I know to describe the financial system at present) and is why it continues making all time highs even as there is a general weakness in the overall commodity sector. It is not currently moving higher on inflationary fears but is trading as a currency in its own right. This general feeling of unrest, unease, fear, caution, concern (pick whatever word one deems best) is moving investors and ordinary citizens to own something that they regard as “stable” versus everything else. Should the inflation genie get out of the bottle at some point, the metal will shoot sharply higher very quickly but for now, it is distrust of paper currencies and the debt associated with those which is moving it.
To the technical price charts – gold did push past the previous all time high but needs a close into new record high territory to keep the momentum crowd on the bid. As you can see on the chart (which I left pretty much unchanged from yesterday), it ran into resistance at the upsloping median line just above the horizontal blue line marked, “resistance”. Open interest from yesterday showed an increase but not to the extent I would have thought based on the price action. That tells me that we did have some significant short covering occurring yesterday among the weaker-handed shorts with the bullion banks attempting to dig in and further increase their shorts as they take the place of their “allies” who cut and ran.
We still have the same problem with the gold shares that we have had for some time now – the hedgies are leaning on them with those infernal ratio trades where they buy the bullion and short the share market. The HUI is well off its recent high from last month near 502 and quite a bit lower than the December 2009 high above 516. That is not to say that the HUI chart is not constructive; it is, as all the major moving averages are trending higher again but until it can clear 500 on two consecutive trading sessions, it is going to leave many holders frustrated. I wish I could say when this will change – it will at some point but as to when, I do not know. That spread trade of the hedge funds has worked out very well for them so they will continue attempting to work it until it stops working. That is not much of a keen insight into the alchemy of the mining share world but at least it is an accurate description of what is going on. I will maintain until proven otherwise, that the ETF, GLD, has siphoned off a large amount of money that in time past would have otherwise flowed into the mining shares and this is what allows the spread trade to work so effectively for the hedge funds.
That spike below $65 in crude oil looks to have been a bottom but that will not be confirmed until it can push back above $75 and close there. Given the instability in the world markets, a ranging trade between $65 and $75 might be the norm until something convincingly changes on the world scene.
The Dollar looks like it is resting above 88 on the USDX. It would have to fall below 86 to spook the bulls.
Click chart to enlarge today’s hourly action in Gold in PDF format with commentary from Trader Dan Norcini
A warning from rating agency Fitch concerning the state of the UK’s finances rekindled investor fears towards Europe and was the catalyst for a push into a new all time gold not only in US Dollar terms but also in terms of both the Euro and the British Pound. All three notched records at the PM fix in London today.
Last evening it appeared that happy talk from Chairman Bernanke about the US’s “moderate recovery” had relieved investor worries and given the markets a bit of relief from the pounding of late. That did not last long however. Two things dented the feel-good mode – Bernanke mentioned that unemployment is going to stay high for a while and then came Fitch.
The problem for the spinmeisters is that the very nature of the chronic debt-related issues that plague so many nations of the West simply cannot be talked away any more. They are too deep-seated to gloss over and while the monetary authorities and assorted politicians would hope that they are nothing more than a mere speed bump on the road towards a permanent prosperity, the reality is that a serious, long term plan to address them does not currently exist. Witness the all out war that New Jersey’s daring new governor is having with the Teacher’s Union to get public spending under control in that state and you can easily see why the task at hand has so few takers at the federal level. It is going to take leaders who are intent on doing the right thing regardless of the consequences if this insane and immoral spending spree is to cease. Failing that the indebtedness will continue to the point where the bulk of the yearly budget will be spent on servicing the interest alone. Then what?
Gold is reacting to all of this as instability (which is the best word that I know to describe the financial system at present) and is why it continues making all time highs even as there is a general weakness in the overall commodity sector. It is not currently moving higher on inflationary fears but is trading as a currency in its own right. This general feeling of unrest, unease, fear, caution, concern (pick whatever word one deems best) is moving investors and ordinary citizens to own something that they regard as “stable” versus everything else. Should the inflation genie get out of the bottle at some point, the metal will shoot sharply higher very quickly but for now, it is distrust of paper currencies and the debt associated with those which is moving it.
To the technical price charts – gold did push past the previous all time high but needs a close into new record high territory to keep the momentum crowd on the bid. As you can see on the chart (which I left pretty much unchanged from yesterday), it ran into resistance at the upsloping median line just above the horizontal blue line marked, “resistance”. Open interest from yesterday showed an increase but not to the extent I would have thought based on the price action. That tells me that we did have some significant short covering occurring yesterday among the weaker-handed shorts with the bullion banks attempting to dig in and further increase their shorts as they take the place of their “allies” who cut and ran.
We still have the same problem with the gold shares that we have had for some time now – the hedgies are leaning on them with those infernal ratio trades where they buy the bullion and short the share market. The HUI is well off its recent high from last month near 502 and quite a bit lower than the December 2009 high above 516. That is not to say that the HUI chart is not constructive; it is, as all the major moving averages are trending higher again but until it can clear 500 on two consecutive trading sessions, it is going to leave many holders frustrated. I wish I could say when this will change – it will at some point but as to when, I do not know. That spread trade of the hedge funds has worked out very well for them so they will continue attempting to work it until it stops working. That is not much of a keen insight into the alchemy of the mining share world but at least it is an accurate description of what is going on. I will maintain until proven otherwise, that the ETF, GLD, has siphoned off a large amount of money that in time past would have otherwise flowed into the mining shares and this is what allows the spread trade to work so effectively for the hedge funds.
That spike below $65 in crude oil looks to have been a bottom but that will not be confirmed until it can push back above $75 and close there. Given the instability in the world markets, a ranging trade between $65 and $75 might be the norm until something convincingly changes on the world scene.
The Dollar looks like it is resting above 88 on the USDX. It would have to fall below 86 to spook the bulls.
Click chart to enlarge today’s hourly action in Gold in PDF format with commentary from Trader Dan Norcini
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