Hourly Action In Gold From Trader Dan
Dear CIGAs,
News that China’s exports rose 48.5% in May and their imports increased 48.3% gave investors cause for lessening concerns over the fallout from Europe’s woes (a tip of the hat here to our own Monty Guild who has been consistently correct about China) and that sent money back into stocks during the session as “risk concerns” abated.
That same minor shift in investor psychology for the day took the pressure off of the Euro and encouraged selling in the US Dollar.
It also took some of the safe haven shine off of gold which saw some follow through selling from yesterday’s technically induced move lower. As mentioned in previous chart comments, momentum traders seeing gold unable to close above its recent all time high booked profits on longs while some opportunistic short term oriented shorts decided to get a bit more aggressive seeing the same thing.
Gold should remain well supported however on dips in price as fundamentals behind sovereign debt woes remain basically unchanged. Even on a day like today, it came well off its worst levels of the session.
In a conversation with a friend yesterday we came to the conclusion that in today’s modern world of hedge fund algorithms, the entire business cycle now runs its course in the matter of a 24 hour period. One day all is well with the world and the worst is behind us; the next day the business cycle suddenly reverses and the world is coming to an abrupt end. What once took 6 months to a year to sort out now occurs overnight. Navigating this madness from an investment standpoint or even a trading vantage can produce serious cases of whiplash as this near bipolar change from moment to moment is here to stay.
I cannot tell you how many traders are getting chopped and shredded to pieces in these markets. That is the reason I want to reiterate that unless you are a dedicated trader and willing to sleep only a few hours a day, buy your physical metal needs on dips in price and forget about trying to compete against the hedge funds and their black boxes. You will probably end up making money in the long term while many of them end up as zeroes. Contrary to common opinion, most of the hedge funds out there cannot successfully navigate these markets either.
Remember when gold was considered a “risk” asset when the credit markets first imploded in July 2008 and hedge funds were throwing it away when risk aversion was the name of the game. It would descend along with the entirety of the commodity complex. Now it is doing the exact opposite, and I might add, more in keeping with its historical role, moving higher during periods in which investors are worried and “risk” is out and moving lower when investors are more upbeat and “risk” is back in.
I want to add one more thing – there was some chatter out of China regarding gold’s suitability in diversifying some of its huge reserve holdings. That led some to believe that there would be no imminent purchases of the metal by the Chinese. The only thing that needs to be said regarding that type of thinking is that those who hold to that view have never traded corn or soybeans. The Chinese will NEVER tip their hand and announce any buys before the fact; only after the fact does the news come out. Price action will always tell us when the big buyers are active and they DO NOT CHASE STRENGTH preferring to shoot down ideas that they might be buyers when they want to buy at a better level than the market is currently giving them.
A comment on the HUI action today vis-à-vis gold – because risk is back in and paper is in favor (for today), the ratio trades are being lifted. This explains the strength in the shares against the weakness in bullion. It is as simple as that. As soon as risk aversion is the play of the day once again, the hedgies will put those trades back on. As I have said repeatedly, they will work that trade until one day it suddenly just stops working. When it does, you will see a massive unwind of share shorts as they all play “Follow the Lemmings” off the cliff at the same moment in time.
Click chart to enlarge today’s hourly action in Gold in PDF format with commentary from Trader Dan Norcini
News that China’s exports rose 48.5% in May and their imports increased 48.3% gave investors cause for lessening concerns over the fallout from Europe’s woes (a tip of the hat here to our own Monty Guild who has been consistently correct about China) and that sent money back into stocks during the session as “risk concerns” abated.
That same minor shift in investor psychology for the day took the pressure off of the Euro and encouraged selling in the US Dollar.
It also took some of the safe haven shine off of gold which saw some follow through selling from yesterday’s technically induced move lower. As mentioned in previous chart comments, momentum traders seeing gold unable to close above its recent all time high booked profits on longs while some opportunistic short term oriented shorts decided to get a bit more aggressive seeing the same thing.
Gold should remain well supported however on dips in price as fundamentals behind sovereign debt woes remain basically unchanged. Even on a day like today, it came well off its worst levels of the session.
In a conversation with a friend yesterday we came to the conclusion that in today’s modern world of hedge fund algorithms, the entire business cycle now runs its course in the matter of a 24 hour period. One day all is well with the world and the worst is behind us; the next day the business cycle suddenly reverses and the world is coming to an abrupt end. What once took 6 months to a year to sort out now occurs overnight. Navigating this madness from an investment standpoint or even a trading vantage can produce serious cases of whiplash as this near bipolar change from moment to moment is here to stay.
I cannot tell you how many traders are getting chopped and shredded to pieces in these markets. That is the reason I want to reiterate that unless you are a dedicated trader and willing to sleep only a few hours a day, buy your physical metal needs on dips in price and forget about trying to compete against the hedge funds and their black boxes. You will probably end up making money in the long term while many of them end up as zeroes. Contrary to common opinion, most of the hedge funds out there cannot successfully navigate these markets either.
Remember when gold was considered a “risk” asset when the credit markets first imploded in July 2008 and hedge funds were throwing it away when risk aversion was the name of the game. It would descend along with the entirety of the commodity complex. Now it is doing the exact opposite, and I might add, more in keeping with its historical role, moving higher during periods in which investors are worried and “risk” is out and moving lower when investors are more upbeat and “risk” is back in.
I want to add one more thing – there was some chatter out of China regarding gold’s suitability in diversifying some of its huge reserve holdings. That led some to believe that there would be no imminent purchases of the metal by the Chinese. The only thing that needs to be said regarding that type of thinking is that those who hold to that view have never traded corn or soybeans. The Chinese will NEVER tip their hand and announce any buys before the fact; only after the fact does the news come out. Price action will always tell us when the big buyers are active and they DO NOT CHASE STRENGTH preferring to shoot down ideas that they might be buyers when they want to buy at a better level than the market is currently giving them.
A comment on the HUI action today vis-à-vis gold – because risk is back in and paper is in favor (for today), the ratio trades are being lifted. This explains the strength in the shares against the weakness in bullion. It is as simple as that. As soon as risk aversion is the play of the day once again, the hedgies will put those trades back on. As I have said repeatedly, they will work that trade until one day it suddenly just stops working. When it does, you will see a massive unwind of share shorts as they all play “Follow the Lemmings” off the cliff at the same moment in time.
Click chart to enlarge today’s hourly action in Gold in PDF format with commentary from Trader Dan Norcini
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