Wednesday, July 8, 2009


Hourly Action In Gold From Trader Dan Posted: Jul 08 2009 By: Dan Norcini Post Edited: July 8, 2009 at 1:35 pm
Filed under: Trader Dan Norcini

Dear CIGAs,
A tip of the hat to the US monetary authorities – they have managed to create the nearly perfect world – rising bonds equating to falling yields while at the same time the US Dollar is working higher. What a deal for the US! We get to continue issuing more and more IOU’s as we spend our nation into the drink while these IOU’s get eagerly sought after by investors looking to find a safe haven as the equity markets implode. Ramp up the supply of Treasuries while you ramp up demand at the same time. What a neat trick.
Meanwhile, the rush into the Dollar and out of all things commodity by the hedge fund community, particularly crude oil, has pretty much put the kibosh on the gold price. Down it went with not only longs liquidating as support levels were violated but new fresh short sellers have arrived on the scene. After all, if the price of commodities is collapsing across the board, who needs gold is now the predominant sentiment.
Accordingly, the ultimate in safe havens (insert derisive laughter and scorn here), US Treasuries (IOU’s backed by the full faith and credit of our illustrious, free-spending, punch-drunk, politicians), rallied sharply higher as the uptrend in bonds continues in spite of the massive supply issues forthcoming. It seems that with the wilting and withering of the “green shoots” theory, the only thing showing green on the screens these days is the bond market. Hold that for a moment - pork bellies are up today so we bacon eaters can stand tall and display our pride as we buck the trend and prove ourselves to be rebels at heart.
More seriously, gold broke down technically in today’s session once it pushed past the $920 level and downside momentum carried it even lower to violate the $915 level. With today’s move it is now solidly below all of the major moving averages with the short term trend firmly in favor of the bears. The broad consolidation pattern of the last 5 months shows support near the $890 level followed by more substantial support near $880. Those will have to hold to prevent a rout of the longs that could conceivably take it down as low as $865. It will take very strong buying from overseas to offset the speculative selling that has now arisen. It did seem to uncover some buying of a value nature just above $900 in today’s session.
The mining shares simply cannot get a break of any sort with the collapse in price today in the HUI and the XAU turning those charts decidedly bearish as well. Markets below the 100 day moving average cannot ever be considered to be friendly. They will need to recapture that level quickly and move higher or run the risk of attracting more selling from tired longs.
As usual, we are once again reduced to watching the gyrations in the Dollar and in the crude oil market for signs that demand in gold is resurfacing. If the Euro begins to recover to the upside and crude oil stabilizes above $60, then gold too will stabilize. If they do not, neither will gold.
Looking over at the crude oil chart, there is a Fibonacci retracement level coming in near the $58 level should crude close below psychological round number support at $60. If it fails to hold there, $54 looks likely. That would probably be enough to take gold down to $880 so hopefully that market will bottom out soon.
Maybe it was the last payrolls number or the latest consumer confidence reading or talk of Stimulus II, but whatever it was, it has definitely dispelled the green shoot theory that governed these markets for the first half of the year. We now seem to have much more gloom and pessimism ruling in the minds of investors with talk of deflation outnumbering inflation talk. Once again we are back to the battle of the two “flations” and until this war is resolved, the markets are going to be marked by this same idiotic volatility that has plagued them for the last couple of months.
In the meanwhile as this madness continues, enjoy your family and friends and get away from the computer screen for a while. Ultimately, those are the most important things in life anyway.