Trader Dan's Market Views

Trader Dan on King World News Weekly Metals Wrap

2012-03-10T07:58:00.002-08:00

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

http://tinyurl.com/84fdpwh

Gold Charts and some comments

2012-03-09T15:46:00.003-08:00

Extreme volatility was the name of the game (ONCE AGAIN) in the gold market in today's session as it was reacting to all manner of crosscurrents.

First there was the payrolls or "jobs" report which took the market lower only to be met with news of the rating agency Fitch's downgrade of Greece to "restricted default" which seem to send the shorts into quite a frenzy in their efforts to cover and get out. Their buying took the market up off the lows bringing it back to unchanged on the session at which point fresh money came into the market keeping the price in the plus column for the remainder of trading. The result was that gold ended the day higher by nearly $13.

What is more significant is that the bulls were able to close out the week on a positive note after what amounted to a horrendous start to the week. Not only that, but price managed to recapture the psychologically significant "17" handle once again. All in all, a very good performance for the metal.

Take a look at the following chart and you can see that gold bounced precisely from the level it needed to on the technical chart, namely the $1680 level. Price spiked down through this level earlier in the week but the selling seemed to dry up, or at the very least was met with strong buying which appears to have been more of the case.

I would not be the least bit suprised to learn in next week's Commitment of Traders report that a rather sizeable block of bullion bank short positions were lifted this week. Now those traders will no doubt be selling back into this latest rally once again so we will need to see what we get early next week in Monday and Tuesday's price action to surmise the extent of their activity in the gold market Wednesday through Friday of this week.

The level near $1720 is the next resistance region on the chart. That is what stands between gold and another test of $1740. The latter zone is what held the price in check on the way higher earlier this month so before this market can hope to get another shot at $1750 or higher, the bulls will have to dispatch with that.

So far the downside support in gold seems to be very solid. Very active buying was seen at this week's lows. Should gold return to near this region next week for any reason, we will have to watch to see whether the same buyers become active once again. As long as they do, the market will hold. The longer it does so, the more the odds favor another period of sideways trade rather than any steeper selloffs or a more extended period of price weakness.

I should point out here the massive rally in the Dollar that took place today sent it on a close through the 80 level basis the USDX. It is pretty difficult to argue with the price chart which looks very strong right now. If the Dollar can continue to push through the resistance level shown, it stands a very good chance of making another run back towards 82 where it should encounter a decent test of its strength. A push past 82 that can be sustained for more than one session, will be very noteworthy.

Technicians will note that it managed to stay above the 50 day moving average; a bullish sign.

By the way, something that should not go unnoticed in today's session is the fact that with the Dollar up over 1%, gold was higher. What that means is that it moved higher in terms of the most if not all of the major world currencies. Euro gold pushed back above the 1300 level notching solid gains on the day as did Yen gold as well. This kind of strength in the gold market is indicative of a lack of confidence in paper currencies nearly worldwide. And why shouldn't there be any confidence when Central Bankers are all beating each other to death in terms of seeing who can keep interest rates lower than the next guy.

Even Brazil has had to join in this "debauch thy currency" movement with many of the opinion that the Chinese are preparing for the same with theirs.

The HUI managed to once again close out the week ABOVE the 500 level after trading down below it earlier in the week. Apparently the same buyers in the gold shares who have been doing so for the last year and a half, are still accumulating various gold shares on these bouts of weakness. The gold shares, while attracting good buying down here, have not been able however to extend their recent rallies. They are acting as if they are still looking for a catalyst but one thing is becoming more clear - those who are buying them are very strong hands.

It would take a weekly close below that support line shown to indicate that this band of powerful buyers has had a change of sentiment.

Trader Dan on King World News

2012-03-06T14:49:00.001-08:00

This afternoon, Eric King of King World News interviewed me to get my thoughts on the day's market action. You can read that interview in its entirety by clicking on the link below.

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/3/6_Norcini_-_Gold_%26_Silver_Smashed_as_Bullion_Banks_Cover_Shorts.html

HUI down but bounces from support

2012-03-06T14:47:00.000-08:00

Once again the HUI has managed to attract significant buying down at the lows signifying that the same buyers who have been busy accumulating gold shares for the better part of the last year are still apparently willing to add to their holdings on these dips lower in price. As long as this index closes the week ABOVE that lower red line, we remain within a range trade.

Has the S&P 500 topped out for now?

2012-03-06T14:29:00.000-08:00

The S&P 500 wiped out three week' worth of gains in today's session plunging through several support levels on the price chart. On the way higher, the level near 1350 had been serving as selling resistance and held the rally in check until it finally managed to break through that level three weeks ago. Today, the former resistance level, now turned support, failed to hold the decline in check.

I have set the chart in a KAGI Format as it is a better style in which to locate various chart resistance and support levels in my opinion. You can see the significance of 1350 rather easily as well as 1362 - 1365.

When using this chart format to analyze a market in an uptrend, the RED LINES, which indicate sellers are dominating, should hold WITHIN THE LENGTH OF THE BLACK LINES. The latter refer to periods when the bulls are in command. Notice since December of last year, this has been the case. One can clearly see the impact that EXPECTED LIQUIDITY supplies from the Central Banks has had on this market since that time period.

This looks like the first REAL CHINK in the armor of the bulls in some time. If they are able to immediatey halt the decline and take price back through 1350, they will have dodged a bullet and will be able to talk up today's selloff as just another reaction in an ongoing bullish trend. If not, the odds will favor a deeper decline with a drop down towards the 50 day moving average near 1320 should the next layer of support near 1342 - 1340 fail to stop the bleeding. Were this last level to give way on a closing basis, the red line would drop below the last BLACK LINE and signal additional selling should be expected.

Let's see whether or not the market has factored in a worse case scenario regarding Greece and a China slowdown or whether there is yet another shoe to drop. The verdict is therefore still out but one thing is certain - the onus is on the bulls to perform right away.

Huge Exodus out of RISK TRADES in Today's session

2012-03-06T11:15:00.001-08:00

Hedge funds algorithm's are going beserk on the sell side today with the result that most of the commodity futures markets are getting slammed lower. There are very few exceptions to the selling with Soybeans, Cocoa and Natural Gas are the few commodities holding up.

The metals are getting hit particularly hard with both silver and gold violating downside support levels on the charts. As can be expected, gold is holding much better than silver in a risk aversion environment.

Once again the catalyst for all of this is the situation involving the Greek debt bailout plan. Markets are worried that things are not going as the central planners were hoping.

Silver clinging to Support at $34

2012-03-05T14:10:00.000-08:00

Risk off trades were in vogue today after news came out that China reported that expected growth in their economy would be slowing a bit. That was all that was needed to bring out the sellers in both the equity and commodity markets.

Silver fell below pyschological round number support at $34 but then recovered, only barely, by the end of the trading day. It is clinging to support above this level as I write this.

There is a band of stronger support as one drops down towards $33 which will be tested unless the market can keep its footing above $34.

It is still trying to repair the technical damage inflicted from last Wednesday's bear raid which forced an outside reversal pattern on the daily chart. Thus far this selling that we are seeing seems to be drying up as it does move below $34 but any further negative global economic news will see that selling reappear once again.

Gold dropped below $1700 at one point but value buying took it back above this level. Just as with silver, it is going to have some work to do in order to repair the technical damage it suffered last Wednesday. Chart painting is more effective in these modern markets because very few fundamentally based traders are still around anymore. Alan Jackson had a terrific hit song entitled, "GONE COUNTRY" which contains a line that says: " the whole world's gone country". Well, the whole world has gone technical analysis when it comes to trading. Therefore chart painting has to be respected for the technical signals its gives off. Value based traders can still take advantage of this but they need to be careful.

There seems to be a bit of a tug of war between those who are reading the recent US ECONOMIC DATA as encouraging and those who are looking at a recession in the Euro Zone coupled with slowing Chinese growth prospects eventually spilling over into the US. We will see which side wins out in this battle - the bonds were even conflicted today - first rising on the slowing growth news and then sinking lower to close the day as the equity market recovered from its worst levels of the session.

Not too much definitive to say therefore until we get a clearer picture.

US Dollar compared to Comex Gold Chart

2012-03-04T09:37:00.001-08:00

The chart I am presenting is due to a special request from a reader that I put one together. It is an interesting method of seeing in visual form the steady decline in the value of the US Dollar against Gold.

A careful inspection of the chart will reveal that there are certain periods during which the price of gold has moved higher while at the same time the US Dollar index was moving higher. It is during those intervals when the gold price has risen strongly when priced in terms of the various major world currencies that comprise the USDX.

The following chart is a picture of America's decline. As much as it deeply saddens me to say it, the US Dollar chart looks absymal.

Trader Dan on King World News Weekly Metals Wrap

2012-03-03T09:29:00.000-08:00

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

http://tinyurl.com/7u3mq82

Bonds and other assorted topics

2012-03-02T20:17:00.001-08:00

Please see the following charts for some comments on the US long bond market - in my opinion this is the SINGLE MOST IMPORTANT MARKET ON THE PLANET.

The weekly chart is very interesting as it shows a market that has the POTENTIAL (not there yet) to be developing a ROUNDED TOP FORMATION. That pattern is an especially reliable one because it indicates a SLOW but STEADY SHIFTING OF SENTIMENT occurring over a generally longer period of time as the realization slowly dawns on traders that the fundamentals are shifting in the other direction. This formation will not be validated unless we get a strong breach of downside support.

I have noted two of the nearest Fibonacci Retracement Levels where support for the bonds might arise. These areas will bear watching if for some reason the Federal Reserve cannot sustain its "PROP UP THE BONDS" operation.

DO NOT FORGET - the one thing most dreaded by the Fed in addition to the US Treasury Department is rising long term interest rates because of the mathematics involved in servicing the gargantuan and disgustingly pathetic level of US debt. Interest payments on the US debt are going to be consuming a larger and larger share of future government revenues in the months and years ahead. At some point, it will break the back of our nation. Thus the necessity of the Fed playing around in that market artificially suppressing the rate of interest at the long end of the curve.

I am strongly of the opinion that this reason was the SINGLE LARGEST DETERMING FACTOR behind Wednesday's orchestrated hit of the commodity sector and particularly the precious metals. Bernanke and company have categorically and continually dismissed all critics of their near-zero interest rate policy as engendering inflation by dismissing those concerns with statements to the effect that inflation is "modest, contained, temporary, etc."

They must continue this charade if they are to keep the bond market from collapsing to the downside with the subsequent onset of a rising interest rate environment. Bond traders have thus far been prevented from aggressively pushing on the short side of this market due to direct Federal Reserve involvement in that market. Should there be any shift towards an inflation bias that takes hold among those who trade or hedge in this market, those forces would overwhelm Fed efforts to artificially push it higher (yields lower).

A rising gold price strikes at the very heart of their supposition that inflation is subdued and there are little if any consequences arising from a policy that by its very nature is one which debases a currency. That is why this messenger (gold) must be discredited if the FED itself is to RETAIN ANY CREDIBILITY.

To witness a $100 drop in the price of gold within a few hours time and to have it explained by analysts who should know enough about market action to explain it as "disappointment in the lack of an imminent QE3" is laughable were it not so utterly wrongheaded. As stated in Wednesday's column, the Fed must not have commodity prices surging higher while they pursue a policy that has never failed to weaken or undercut the "value" of any currency whenever or wherever it has been plied.

When the Fed gives the hedge funds the green light to shove Equity prices higher after promising no hikes in interest rates until the latter half of the year 2014, they "expect" the hedge funds to be "well behaved" and not to jam a goodly portion of that hot money as well into commodities but rather direct their fire power into the equity world at which point the politicians and monetary authorities can bask in the accolades of the vast majority of what has become a dumbed-down citizenry who think that a rising stock market signifies a healthy economy.

Most distressingly to the Fed, the hedgies are not being compliant servants but had the audacity to chase the commodity complex higher and begin pushing not only energy but food prices higher once again, not to mention the bellwether metals complex. Were that to continue unabated, the bond market, which was crushed on that Wednesday and then on Thursday, would see buying support beneath it evaporate. Hence a pause or a time out was necessitated in the commodity complex rise which the Fed managed to secure by week's end based on the CCI.

Stay tuned as we are witnessing what I am coming ever more strongly to believe is the end game for this horrible experiment gone awry.

Gold Chart comments

2012-03-02T16:28:00.000-08:00

The Daily Chart is pretty clear as to the larger resistance and support levels. Those remain the same as they had been previous to the strong upside moves on Monday and Tuesday of this week. The sell off was contained on the downside by the same level support that has held for over a month now. Value buyers continue to surface near and just below the $1700 level. Reports of very strong increases in physical offtake are surfacing out of Asia on such dips in price.

This buying is not of the nature that it chases prices higher; that requires the momentum crowd (hedge funds in particular) many of which were run out of their long positions on Wednesday's rout. For that crowd to come back in, gold will need a return TO AND THROUGH the $1750 level.

Last week I posted a weekly chart detailing the BULLISH FLAG OR PENNANT FORMATION which had developed. I also gave a price projection based on that pattern noting that this pennant would remain in force unless we got a move in the price that TOOK US BELOW THE BOTTOM OF THE FLAG. That did occur with this week's outside reversal pattern so the price projection from that flag is no longer immediately in effect.

What we have now on the weekly chart is a powerful upside formation clashing with a powerful downside formation. The fact that gold did spike through the bottom of that flag only to recover above $1700 is encouraging. It looks to me like we have a setup that is more conducive to a consolidation type trade (sideways movement) rather than the setup for a sustained downdraft. The longer gold holds above $1680-$1690, the better the odds become of this becoming a new base from which the next leg higher will commence.

Note that the moving averages I like to use to get a sense of the prevailing trend (10, 20, 40 and 50 week) are all moving higher indicating that the weekly trend still remains up.

Price did come down and touch both the 10 week and the 20 week moving averages and bounced from there. The 50 week moving average has seen only one close below it in the time frame shown but immediately recovered the following week. The 40 week moving average (dotted line) has also served as a support level on several occasions. It was not reached in this week's sell off. The only reason I would become the least bit concerned about a longer correction being in store for gold were it to get TWO CONSECUTIVE WEEKLY CLOSES BELOW THE 50 WEEK MOVING AVERAGE.

In short, the longer term trend is up.

HAPPY TEXAS INDEPENDENCE DAY

2012-03-02T14:23:00.001-08:00

Silver retreats from Resistance but holding Support

2012-03-02T10:49:00.000-08:00

Silver bulls could not take the metal through the resistance zone near $35.50 so the market has now retreated lower as longs take profits and some new shorts sell against that level. Support remains down near the $34 level and the spike low from Wednesday's wild takedown.

Unleaded Gasoline continues to charge higher

2012-03-01T13:43:00.002-08:00

S&P 500 keeps marching higher - shrugs off downside reversal

2012-03-01T11:38:00.002-08:00

Yesterday the S&P 500 give a hint that it might be forming a sort of interim top as it shot to a brand new 52 week high only to move steadily lower throughout the rest of the session closing below the preivous day's low. That constitutes a downside reversal day on the price chart, normally a powerful bearish signal.

Once again, as has often been the case in this market, once the liquidity spigots are wide open, no downside followthrough was seen. Early in the overnight session there was some light selling but nothing heavy. Today, this market is once again working on testing yet another new 52 week high. The session is not over yet so we might still see some late selling efforts but no matter if that does show up, the perma bulls once again have prevailed in this one way market.

(I wish to interject here that no matter how high the US stock market might run and how long the rally lasts - you will be fortunate if you ever hear the word, "OVERBOUGHT" pronounced by the talking heads, whom I might add are always SWIFT TO PRONOUNCE GOLD AND SILVER OVERBOUGHT. It seems that the stock market can never become overbought since that is equivalent to some sort of financial blasphemy). Nope, overbought is a one way term reserved for the gold and silver markets by these yahoos.

I am noting however that the bond market is showing some heavy selling pressure in today's session. Whether that too will last is anyone's guess, particularly with the Fed through its primary dealers fooling around in that market and working to artificially distort interest rates.

Note on the bond chart the market dropped to the bottom of the 4 month old trading range and is trying to bounce. My guess is that the crony pals of the Federal Reserve, the primary dealers, are buying furiously to try to prevent long term interest rates from getting away from their control.

What the dishonest Fed is trying to do is convince the investment/trading community that the economy is in decent shape and is moving in the right direction ( here is their subliminal message - GO AND BUY STOCKS; GO AND BUY STOCKS; GO AND BUY STOCKS), so that they can get their rising stock market and pull up consumer confidence, but is not in good enough shape to have long term interest rates begin a steady climb. That would be a gigantic NO-NO. "OH, it is good but not that good". Subliminal message repeats - GO AND BUY STOCKS BUT DO NOT SHORT THOSE BONDS.

If this bond market breaks down, it would signify a change in psychology among the interest rate community and illustrate the need for a new subliminal message crew from the Federal Reserve.

Gold holds at support near $1700

2012-03-01T11:22:00.000-08:00

Gold thus far is holding quite well on the technical price charts as the $100 break in price has apparently revived the huge physical market buyers who are seeing value in the metal near the $1700 level.

A closing push through $1725 would be constructive and would set the market up for another test of the resistance barrier near the $1750 level, which held the market in check prior to last week's breakout.

Considering the spanking that this market received yesterday, it is showing very good resilience.

Silver back to knocking on the door of chart resistance again

2012-03-01T11:16:00.001-08:00

This is a rather remarkable price chart and what can only be called remarkable price action on display. As you all know by now, silver was absolutely obliterated yesterday resulting in the total erasure of the huge breakout rally from Tuesday. Such occurrences are very uncommon from a purely technical analysis perspective. More often than not, such a breakout will see some initial profit taking followed by another burst of buying as momentum based buying kicks into high gear.

To witness a market completely undo such a breakout on massive volume and then to experience only minor additional downside pressure is also something that one rarely sees. We are getting a bird's eye view of something akin to a Supernova in the sense of its rarity.

Silver bounced right off the former resistance zone near $34 noted on the chart and has now returned directly to the same exact resistance barrier that held it in check prior to this Tuesday's breakout ($35.50).

I have to say that if the bulls in this market can blast through this $35.50 - $35.70 level once again and prevent an intraday dip back below this level, those same shorts that rammed it down yesterday once they capped it at the highs, are going to be shell-shocked and that is putting it mildly. Once again you can see how critical this former resistance barrier is on the charts.

Silver Chart Analysis

2012-02-29T11:47:00.000-08:00

Following is an 8 hour chart of the front month silver contract (that will be changing to May from March) detailing the technical action.

All of the readers know by now that the commodity complex was being targetted by the Fed in today's comments coming from Chairman Bernanke. Prior to his testimony in front of the House Committee, silver was trading higher recovering from some mild profit taking late in yesterday's session and into early Asian trading in the evening. This is normal in a market especially after having put in a strong upside breakout on heavy volume from a recent consolidation pattern. Dip buyers came back in taking the metal towards the $38 level before Bernanke levelled the boom on the complex.

Note the first down bar in black coming after the peak in price which showed the metal BOUNCED RIGHT OFF OF THE BREAKOUT AREA after touching it. That is excellent technical price action and confirmed the former resistance level was functioning as support.

However, once Bernanke's comments began circulating a wave of selling engulfed the metals with gold, copper, platinum, silver and palladium all getting hit extremely hard by algorithm selling. That took the silver price through the resistance level now turned support as large groups of downside stops were hit in a cascading fashion.

I do wish to point out however that the market bounced exactly at the zone where it should have, which is near the $34 level. Look carefully at this chart and you can see how significant this zone is from a technical analysis perspective for it is the region that had been serving as strong overhead resistance going back well over a month and had prevented silver from moving higher. Once price had pushed through $34, it began accelerating to the upside.

Now it has come back down to this level and seems to be attracting the same buyers who were busy accumulating it prior to the march higher.

I suspect that the reason the buyers are showing up here is because NOTHING HAS CHANGED IN REGARDS TO THE FED's EASY MONEY POLICY. Sure, based on what Easy Money Ben said today, we are not going to get a forthcoming QE3 program anytime soon but back when the Fed signalled an ultra low interest rate policy continuing until late 2014, did they tell the market that it was going to get a QE then? NO, it did not. In spite of that the entire commodity complex, but especially the metals, began marching higher based on that expected low interest rate environment being sustained for some time.

The facts are that the Fed is still on hold for an ultra low near-zero interest rate policy for the foreseeable future unless they see something in the economic data that leads them to conclude that this sort of low interest rate environment is no longer necessary. In my view that would necessitate some really astonishing payrolls numbers coming our way for starters. You would also have to see a successful resolution to the woes afflicting those nations in the Euro zone whose sovereign debt issues still linger unresolved in the background.

For now we will watch and see how this market acts over the next couple of sessions. I would not be concerned about it at all unless it were to punch solidly through the bottom of the former trading range down near the $33 level and fail to quickly recover.

Bernanke tries talking down Commodities

2012-02-29T09:16:00.001-08:00

Today was Fed Chairman Bernanke's chance to testisfy before the Congress' Financial Services Committee. Here is a quick synopsis of his comments as I see them.

"The economy is getting better based on what we can see of the employment numbers but it is not growing at a fast enough clip to justify any immediate change in our accomodative monetary policy. The uptick in hiring has been helped by this policy and any change to it at the present time is not warranted. Real Estate is still a concern. Us fiscal condition is dire and faces a serious challenge at the end of this year. Inflation is not a concern although temporary rises in energy prices bear monitoring".

There you basically have it.

Based on this testimony, gold and silver were murdered. The supposed reason? - We are told that traders were expecting QE3 to be imminent and were disappointed because the usually dovish Bernanke did not sound quite as dovish as before. Thus the metals were hammered mercilessly lower.

Excuse me - but as a trader who watches these markets each and every day for more hours than I would prefer anymore, I have not seen any analyst explain the reason for the heretofore rally in the metals as traders EXPECTING AN IMMINENT QE3 program to launch.

The reason for the rally has been expectations by the market that Central Banks would keep the liquidity spighots open for the foreseeable future (near zero interest rate policy coupled with QE out of Europe and the UK) and thus create an environment in which there was little opportunity cost for buying the metals. This has been generating RISK TRADES in which traders/investors buy both stocks and commodities and generally sell off the Dollar, which was particularly pronounced after a rush back into the Euro once traders were convinced that the immediate fallout from the Greece debacle was past.

Comments this morning trying to explain the sell off in gold mentioned the failure of the metal to make it through the $1800 level and downside stops as the culprit but ironically they are deathly quiet in regards to silver, which only yesterday had staged a MASSIVE UPSIDE BREAKOUT on strong volume out of a congestion zone. Yet today we saw a nearly 8% wipe out in silver which completey erased yesterday's breakout and then some.

My thinking AT THE MOMENT is that Bernanke and company were watching the commodity complex begin to accelerate higher once again as a result of their free money policy and began getting extremely nervous particularly as energy prices were rocketing higher. This is an election year and one thing that the boss cannot stand for is having to deal with that pesky issue of unhappy drivers bitching and complaining about the outrageous cost of filling their gas tanks especially since he and his crew are doing as much as they can to shut down drilling on public lands and offshore.

If one basically states that the economy is doing better - not out of the woods yet but better - and all the hedgies are leveraged to the gills because the FED GAVE THEM THE GREEN LIGHT TO DO EXACTLY THAT when it first announced that it would keep this near zero interest rate policy out to the end of 2014, then it is a simple matter of throwing a bit of uncertainty in that regards to generate a bout of selling. Toss in the same permabears as always capping at the highs of the day and the algorithms did the rest of the work as the stops were picked off.

In the meantime today's wild move in silver was a daytrader's/scalper's heaven. As said before, there are no worse traders on the planet than the hedge funds. Those guys could not trade their way out of a wet paper bag if their lives depended upon it.

In watching both of these metals, it does seem that we are now getting a bit of stabilizing in here around midday.

Gold and silver shares as usual are going nowhere. They made it just to the bottom of the critical resistance zone that I noted on the chart yesterday at the gap region 555-560 before going Kerplunk.

Interestingly enough, the long bond is down a full point right now as I write this. I am keeping an extremely close eye on this market. As stated yesterday, I refuse to believe ANY talk about an improving economy as long as the bond market does not start a solid downtrending move.

Gold-Silver Ratio strongly favoring Silver

2012-02-28T12:12:00.001-08:00

See the following chart and the comments therein.

HUI still stuck below resistance

2012-02-28T11:35:00.000-08:00

Gold and silver mining shares are moving higher today, especially silver shares, but the HUI is still lagging from a technical analysis perspective. It just cannot seem to clear this stubborn level near the 555-560 region.

If you note on the chart, this band of horizontal resistance also corresponds exactly with the downside gap that opened up in early December of last year. This gap is currently serving as a barrier for further upside progress.

We will have to watch to see whether bulls in mining shares are feeling confident enough to try to mark these things up agains the hedge fund ratio spread traders. One would have expected a better performance in these seriously undervalued shares especially with silver's sharp rally through resistance at $35.50 and gold's ability to remain above $1780. So far, nothing doing.

All Boats Rising?

2012-02-28T08:20:00.001-08:00

Take a look at the following set of charts and see if it leaves you as confused as I am.

First the broader stock market as indicated by the S&P 500:

Now comes the commodity complex as illustrated by the Continuous Commodity Index:

Lastly comes a chart of the US long bond:

The rising stock market is supposedly the outcome of an improving economy, or so we are assured by all the experts. The economic recovery is evidently proceeding "so well" that the S&P 500 just made a brand new 52 week high in today's session and is now amazingly back at the exact same level it was prior to falling off a cliff in the summer that the 2008 credit crisis erupted. I guess we can all relax now since obviously the entire fallout from that fiasco is now behind us... or is it?

I am being sarcastic here since what we are seeing is the effects of liquidity splashing all over the entire US economy. It is that factor that is sending hot money into not only the equity markets but also the commodity markets and is pushing up the cost of tangibles once again. Rest assured that once these hedge fund money flows begin intensifying even further into the commodity sector (wholesale prices), we are going to all see this passed through on the retail side of the equation.

This is perhaps the reason that the bond market is not going in the opposite direction of the stock market. If the economic recovery were in fact actually as strong as the price action in the S&P 500 is signifying, the bond market would have already dropped below the bottom of its trading range and would have begun a strong downtrend portending a rising interest rate environment. It is not doing that.

This tells us that the bond market does not buy into all the hoopla surrounding the rising price of equities and is not anticipating anything remotely resembling a period of strong economic growth ahead of us in the immediate future. While one would think that rising commodity prices would be viewed as evidence that inflationary pressures are slowly building from the Fed's near-ZERO interest rate policy, bonds seem to have made up their mind that these rising prices, particularly energy prices, are going to act as a DRAG on the economy moving forward.

Until we see a breakout to the downside in the bond market, all the talk of an improving economy is just that - TALK. When I see long term interest rates beginning to rise steadily, then I will believe it. Until then, it is just the inevitable result of issuing enormous amounts of liquidity in an environment conducive to nothing more than WILD-EYED hedge fund speculation.

Gold encountering resistance near $1780

2012-02-27T14:21:00.000-08:00

Based on what we have seen in the price action the last few trading sessions, gold is having some difficulty convincingly clearing the level near $1780. That has now formed as a technical chart level that will need to be taken out to set up the potential for a thrust to the $1800 mark. If the bulls can do that, the level near $1820-$1825 comes into play.

Downside support still remains untested near the $1750 level. You will recall that it was this level that kept the price from moving higher on the way up after gold stalled out there on several tests.

I will feel extremely confident that this market is going to move higher as long as we hold above $1725-$1720 on any possible move back towards those levels.

This market has had a sharp move off the lows near $1535 that was nearly unimpeded all the way to $1750. It then consolidated for nearly two weeks working in a range of some $60 or so over that time period. The sharp spike higher through chart resistance $1780 signalled the end of that particular range trade. It could be that the metal wants to base here a bit and gather another load of stem before moving higher. We'll see what we get in the next couple of trading sessions.

Silver looks to me like it was capped below major chart resistance at the $35.50 level on the continuous chart. Obviously the perma-bears know well the significance of that level. Shorts are digging in there and it will be up to the hedgies to dislodge them if they are to make this thing run to $39.

Strong weekly close in Gold

2012-02-25T13:37:00.000-08:00

Gold was able to close the week out on a very strong note, although some traders did decide to cash in some profits ahead of the weekend, after getting a nice run of some $65 off of last week's close as of Thursday's peak price. Even in spite of the light round of profit taking, gold still managed to put in a very solid WEEKLY close surrendering only about $15 off its best level of the week and closing within striking range of $1800, the top of the heavy resistance zone noted on the price chart.

Take a look at the weekly chart shown below for an intermediate term view of the market. Note how the chart resistance near the $1800 level can clearly be seen. Gold did not challenge this level this week but from a technical standpoint, it does stand a very good chance of so doing next week.

If you notice the pattern I have marked as a "bullish pennant" or a "bullish flag" you will see the flagpole and the pennant or actual flag. These patterns occur often enough that they should be noted as they generally portend a strong move in the direction of the flagpole which can be used as a gauge of where price might be expected to run in the near future. The length of this flagpole which extends from the bottom near $1535 to the top of the pole coming in near 1765 is $230.

Once you get a brief period of consolidation, which is exactly what we have had the last three weeks prior to this one just completed, a fresh upside move which takes out the HIGH OF THE FLAGPOLE then gives us the potential for a move of some $230 higher. Some technicians will add this to the top of the flagpole giving a projection of $1995. Others whom are a bit more conservative (put me in that category) will add the length of the flagpole to the BREAKOUT POINT of the downtrending line forming the top of the flag. That price point came in near $1725 which yields a projection of $1955. Either way it gives us gold at a brand new all time high.

An ideal technical price action will be, in the event of any subsequent price reaction lower, to see gold find buying coming in along the line that marks the top of the flag which then causes the price to rebound and begin moving higher. It is just another way of demonstrating that buyers are eager to buy dips and see value at this new, higher level. They are not willing to risk sitting on the sidelines in the hope of purchasing the metal even lower. If you do break below the bottom of the flag itself, the formation will generally be void although that does not mean that price has peaked. It merely means that the bullish flag formation projection is not going to be reliable.

For a bit of a longer-term perspective, I am including a monthly chart of the metal. Note carefully the clearly defined uptrending channel that can be seen going back into the bottom in gold in late 2008, when the Quantitative Easing programs were first announced. Gold has tracked within this channel very closely with the brief one month exception when it got a bit overheated and frothy later last year. That sharp parabolic rise was met with selling that corrected the overbought reading and took price back within the channel.

Here is the significant point to make -this month's price action has thus far taken the price to the top of this channel once again. I think it is no coincidence that we did see some selling therefore arise late Thursday and into Friday's session particularly as gold approached the $1800 level which just so happens to be very close to the top of this channel. It is both a logical and a technical chart selling point.

If, and this is a big "IF", the metal pushes through the top of this channel and closes the month above it, odds would then favor an acceleration of the trend higher and perhaps a new and steeper uptrending price channel being formed. I would especially want to see a second consecutive monthly close ABOVE this old channel coming at the end of March to confirm this however to avoid another one month wonder.
If we were to get that, I do not think it would be very long before we revisit the all time highs above $1900.

What this would be telling us fundamentally is that gold is now convinced beyond all shadow of a doubt that the near world-wide currency debauchment by the Central Banks is not going unnoticed.
That environment, which is simply another way of stating NEAR-ZERO interest rate policy, is generating genuine fears of currency debasement and the subsequent strong inflationary impact that inevitably arises from such a policy.

We would also get a confirmation by a strongly rising Continuous Commodity Index.

Trader Dan on King World News Weekly Metals Wrap

2012-02-25T10:32:00.000-08:00

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

http://tinyurl.com/6ov65yp

Gasoline nearing an important Inflection Point

2012-02-24T09:44:00.004-08:00

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

2012-02-23T10:25:00.000-08:00

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

2012-02-22T12:47:00.000-08:00

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

2012-02-22T11:48:00.000-08:00

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

2012-02-22T11:38:00.000-08:00

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

2012-02-21T11:18:00.002-08:00

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

2012-02-20T10:21:00.000-08:00

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

2012-02-18T08:38:00.002-08:00

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

S&P 500 once again bumping up against 1350

2012-02-16T09:26:00.000-08:00

The 1350 level in the S&P 500 is becoming a rather significant resistance level on the technical price chart as the market has rallied to this point several times over the last two weeks and stalled out. Bulls are counting on further liquidity blasts from the Central Banks to provide them with enough ammunition to dislodge the selling originating at this zone.

I find it rather odd to see how the broader market is apparently ignoring the surge in gasoline prices as if soaring energy costs are not going to have the least impact on consumer spending in terms of disposable income or transporation costs across the entire economy.

Central Banks are attempting to ward off deflationary pressures from issues arising from massive amounts of debt in the system so what we have here is a battle between the forces of liquidity and those of debt. From what I can see of the price chart, the liquidity forces are apparently able to trump everything. It also goes to show you how utterly disconnected the stock market is from the reality of most citizens.

This rally in the equities is what is pulling silver and gold off of their lows in today's session. It is also pulling copper off its worst levels as well. If the Fed wants inflation, they are going to get it. A strong upside performance in the S&P will guarantee that the metals all begin moving higher, whether or not any fundamentals justify the move or not as hedge funds will bid up everything tangible and send those prices soaring.

The Fed had better be careful however that their gambit does not allow the long bond to drop below the bottom of its nearly 4 month old trading range. That would be a No-No for Uncle Sam for if long term borrowing costs were to begin rising, the cost of servicing this idiotic mountain of debt that has been heaped upon our nation will becoming unbearable. No doubt orders will go out to Goldman and Morgan to buy bonds if it looks like the bond technical price chart might be breaking down.

General Comments

2012-02-15T08:52:00.000-08:00

Gold is holding firm in today's session but has retreated from its best overnight levels. You will notice that within the larger time frame on the chart, gold has made a nice run to stiff resistance beginning near $1760 and then retreated. Buying on the downside coming in near the support level marked (close to $1720) has been extremely consistent over the last two weeks however. The result has been a constricting triangle forming which is a consolidation pattern.

Bulls cannot take it through resistance at this point but neither can the bears break it down. I happen to believe that the reason the latter cannot accomplish their intent is the reality of gold strength across a variety of other world currencies. Bluntly - the price of gold is holding in terms of all of the major currencies as savvy investors/traders are well aware of what the monetary authorities are doing to their respective currencies in order to keep the game of musical chairs, aka - the global economy - going.

Central Bankers and monetary authorities are doing what they were born to do, namely, destroy the value of their nation's currencies to benefit the big international banks within their midst. Gold is all too well aware of that and is doing what it always has done and always will do - function as a currency of last resort and a refuge from their depradations.

What we want to watch for in gold is a breach of this triangular pattern with a close preferably above the $1750 level to kick this thing up into that heavy resistance zone noted. Obviously gold bulls would want to see dips below $1720 meet with strong buying and an almost immediate return back above that heavy red line shown.

As another quick note of reference, check out the price of Gold compared to the price of the US long bond in the following chart. Note that going back to early 2009, when QEI was still in force, gold was the asset that investors favored in relation to the US bond market. After a brief dip lower in this ratio during the middle of 2010, when investors were fearful that another round of QE was not going to be forthcoming, the ratio returned in favor of gold until it peaked just after QEII expired and the Fed had nothing really significant to replace it. From that point on, bonds have been a better investment than gold.

That might possibly be changing at this point as interest rates crawl along at abnormally low levels and investors become more fearful of currency debauchment. The downtrend line in this ratio has been broken but has a bit more work to do in order to look more convincing. A move through the heavy blue line shown would do the trick.

At some point in this now multi-year game of constant liquidity doses and other quick fixes which solve nothing, investors will begin to dump bonds and move much more strongly towards gold. That will signal the beginning of the end game as the ratio will be flashing the loss of confidence in the political and monetary authorities to deal with this massive papering-over of the problem.

Here we go Again...

2012-02-14T21:34:00.000-08:00

We had strong downgrades all across Europe and a total jettisoning of risk trades in Tuesday's session with the result that we had a sinking Euro and a surging Dollar. Overnight we learn that now China promises to join the money rain parade and pour its wealth into bailing out Europe to protect its export markets.

What do we get as a result of this? A complete reversal of the risk aversion trades with all the money that came pouring out of the markets Tuesday now turning around and flooding right back in again.

Up goes gold and silver after both sold off on Tuesday and up goes the Euro and down goes the US Dollar. Presto chango; wave that magic wand and all the woes of the financial world have just disappeared.

The promise of more bond purchases by China of European debt has sent the S&P 500 futures through very significant chart resistance at the 1350 in the Asian trading session. It looks like the drunken binge continues with no fears, no worries in sight now that China has become the lender of last resort. Apparently what the Central Banks could not do, China has.

I wonder how history is going to record all of this madness. I just hope we all live long enough to be able to tell what it was like living through it and watching it unfold day by day and week by week. No one from the future will likely otherwise believe that a generation of humanity was this ignorant. On the other hand, maybe it is those of us who actually believe DEBT is generally something to be avoided unless it is carefully managed and respected who are the fools here and those who just shrug it off as nothing to be concerned about are the truly wise among us.

Up is now down; down is now up; light is now darkness and darkness is now light; bitter is now sweet and sweet is now bitter. Welcome to the brave new world in which prosperity can be created by piling up massive loads of debt without the slightest bit of concern for how that debt will ever be repaid.

Gold Shares continue to lose ground against gold itself

2012-02-14T10:49:00.000-08:00

The gold mining shares, as evidenced by the HUI, continue to lose ground against the price of gold bullion itself. They are approaching the three year low in this ratio that was made 3 weeks ago. One would think that they would find some buying support soon for valuation reasons.

The hedge funds continue to ply that ratio spread trade which they will do until they can no longer make any profits off of it. Maybe we are seeing a bit of a delayed reaction to news that the Obama budget contains a hefty 5% royalty tax on their revenues. That budget has zero chance of passing in its current form but it could be that the mere mention of such a thing has gotten some owners of these shares nervous especially if those risk aversion trades come back in vogue.

Once again it comes back to the desire on the part of investors to gain LEVERAGED exposure to the gold price. If they can do this by using the ETF and not have to concern themselves with risks of a political nature such as what is being attempted by the current Administration, they why bother buying these things at all is the thinking that is currently in vogue among the larger part of the speculative community at this point.

The mining shares are also now seriously underperforming the broader stock market continuing a pattern that has emerged since last summer.

Some of the readers wrote to expres their desire to see a tax of this sort hit the mining sector. My only response to that is very simple - a royalty tax comes right off the bottom line of any company involved in mining here in the US. The lower the net profits of a company, the more it impacts their share price. Be careful what you wish for if you hold these shares in your portfolio and take the side of the Administration that this is a good and necessary tax. That is your portfolio and your wealth that is going to take the hit. If you are willing to lose your money over it - fine and dandy - but then do not complain and bitch when you see your portfolio going nowhere or actually moving in the wrong direction.

Hedge funds are not going to acquire mining company shares out of the supposed "goodness" of their hearts. They will only buy them if they think that they can make a profit on them and that necessitates continued strong and rising profits from these companies. Anything that might impact that will be part of the equation in calculating whether or not they meet these criteria.

In Related matters...

2012-02-14T09:15:00.000-08:00

This story illustrates something so eggregious that I felt compelled to post it so as to let the readers know what the fallout from this meddling Administration's policies is across this country.

We apparently now have Kathleen Sebelius's Department of Health and Human Services feeling that they have the right to POLICE your childrens' lunch boxes.

Take a look at the following story and tell me that we are not losing our freedoms in this nation. This is what Obamacare has wrought and what we can expect to see more of should Americans be foolish enough to empower this group of control freaks for another 4 years come this November.

The next thing you know these people will be telling us when we can wipe our rear ends and with what kind of paper.

Make no mistake whatsoever about it - Obamacare has nothing to do with Health Care - it is all about government control over your life. From its trampling on the First Admendment rights of Catholics here in the US to this "policing of lunch boxes", we are witnessing only a small foretaste of what is going to happen in this country if they are not defeated at the ballot box.

Carolina Journal News Reports

Preschooler’s Homemade Lunch Replaced with Cafeteria “Nuggets”

State agent inspects sack lunches, forces preschoolers to purchase cafeteria food instead

By Sara Burrows

Feb. 14th, 2012

RAEFORD — A preschooler at West Hoke Elementary School ate three chicken nuggets for lunch Jan. 30 because a state employee told her the lunch her mother packed was not nutritious.

The girl’s turkey and cheese sandwich, banana, potato chips, and apple juice did not meet U.S. Department of Agriculture guidelines, according to the interpretation of the agent who was inspecting all lunch boxes in her More at Four classroom that day.

http://www.carolinajournal.com/exclusives/display_exclusive.html?id=8762

Gold moving higher in Yen terms; strong in Euro terms

2012-02-14T08:42:00.000-08:00

Some of the friends of gold are no doubt frustrated by its inability to breach stubborn chart resistance near the $1750 level in US Dollar terms. Bullion bank opposition near this line is absorbing bids and has thus far resulted in some light long liquidation among the more short-term oriented bulls.

However, as stated many, many times on this site, gold is not ONLY A DOLLAR PRICED STORY - as much as its detractors would love to make it fade from the minds of men, it is ultimately a currency - a currency which is immune from Central Bank and monetary officials' debauchery efforts.

Overnight we learned that the Bank of Japan announced additional liquidity measures in another attempt to derail the money flows that have been coming the way of the Yen during periods of safe haven trades. The stronger yen is becoming a serious political issue there in Japan and exporters continue to put pressure on the monetary authorities to do something about it. That is exactly what they did as they attempt to meet the Federal Reserve's dovishness with that of their own.

Look at what has been happening to gold when priced in terms of the Yen as a result of all this. As the yen sinks in value on the foreign exchange market the gold price in terms of that currency is steadily moving higher. While certainly not as impressive as the Euro gold chart shown beneath it, one can see that the price action today is thus far signaling that BOJ efforts to debauch their currency might just be working. It is certainly losing value against gold.

Keep in mind that gold strength, in terms of these other major currencies, is going to prevent any deep sell offs in the US Dollar priced gold. As long as this continues, dip buyers will keep showing up on any bouts of price weakness here in the US. It is this occurence that is the Achilles' heel of the bullion banks - they can absorb paper bids here in the US but attempting to prevent gold from rising in terms of the other major currencies is simply out of their ability. World wide liquidity efforts by the Central Banks of the West have consequences that cannot be avoided, no matter how many games are played on the Comex Exchange.

Crude Oil back above $100 - Again

2012-02-13T13:51:00.000-08:00

Crude oil simply refuses to break down and is once again trading back above the $100 mark. What is perhaps even more concerning is that gasoline prices are now trading above the $3.00 point at the wholesale futures markets, and this is during the time of year in which gasoline demand is generally quite tame compared to the onset of the busy driving season later this spring and summer.

Should gasoline bulls be able to push price through the chart levels shown, it will portend a move back to the late summer highs of last year. As said in a previous post from last week - PAIN at the gasoline pump is now unavoidable.

Gold holding at initial support thus far

2012-02-13T13:38:00.000-08:00

Gold has dropped into the first zone of support noted on the price chart near the $1720 level and has thus far held as dip buyers surfaced. That buying was fostered by a weaker Dollar which was lower in today's session but has not broken down decisively yet below the critical 79 level.

Surging crude oil and gasoline prices did help gold today as some traders are concerned that the rise in energy costs will eventually feed through and impact the price of other goods and services in the broader economy. Transportation costs can only be absorbed for so long.

Mining company stock owners - note well

2012-02-13T13:28:00.000-08:00

Most of you who read this site are well aware of my political leanings - I happen to believe that the current administration is perhaps the most inept, reckless and endangering to liberty in the history of this nation and needs to be replaced at the ballot box this coming November.

Those of you who own mining company stocks should take note that as part of the budget submitted by the Obama administration, all hardrock mining companies would be required to pay annual rents and royalty fees of no less than 5% of gross proceeds.

Currently a law that is 140 years old, exempts them from paying royalties to the US government.

Environmentalists have been after this law for years and have found their champion in the current occupant of the White House.

The rental portion of this budget would impose a fee on for both public and private lands with the funds supposedly being used to clean up abandoned mines. Coal companies are currently under a similiar plan.

Don't worry however - I am completely assured that every bit of the monies raised from this targetted plundering will be put to good use for the American citizenry with absolutely none of it going to cronies of Obama such as Solyndra.

Were it not for the fact that most political analysts expect the Obama budget to be DOA in the Congress, the mining shares would have been sharply lower today. Those of you who own these things are well advised to pay close attention to this. Senator Harry Reid, who has long ago sold his soul to the left's agenda and who hails from a swing state, will probably be getting an earful from mining company executives with any connection to the state of Nevada. I will be surprised to see him actually coming out in support of this proposal if he wishes to run for re-election next time around. Then again, he might be ready to retire by 2016.

Trader Dan on King World News Weekly Metals Wrap

2012-02-11T09:11:00.001-08:00

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

http://tinyurl.com/87ukomd

Gold Continuing to Fail at $1750

2012-02-09T14:32:00.000-08:00

Gold has now spiked through the $1750 level several times since the end of last month but has not been able to CLOSE THROUGH this level. Until it does, the market will not be able to start a new leg higher in the uptrend.

Generally speaking, markets tend to pause at resistance levels until they can gather enough of a spark to take them strongly through those or they retreat and consolidate leading to some basing action. During the latter, some of the shorter term oriented bulls will liquidate longs out of frustration or out of a desire to cash in some profits and bank them. That selling then paves the way for some opportunistic short selling to emerge.

We had a combination of both today leading to a pull back in price. Support on the downside remains near $1725 - $1720 with stronger support down closer to $1710 - $1705.

Silver needs to get above $34 and stay there to allow it a chance to test major resistance near $35.00 - $35.25.

CME Group LOWERING margin requirements for Gold and Silver Contracts

2012-02-09T14:23:00.000-08:00

                        Current Initial           New Initial             Current Maintenance           New Maintenance

GOLD                       $11,475              $8,500                        $10,125                            $7,500

SILVER                    $24,975               $18,500                      $21,600                           $16,000

FOMC impact on the Yen

2012-02-09T08:29:00.000-08:00

Note the following chart of the Japanese Yen and you can see the points at which the Bank of Japan intervened into the Foreign Exchange markets to knock it down and lower its value for the sake of their export market. One would be hard pressed to find a reason for the Yen to rally when the Japanese economy is so weak and its official interest rate environment is about as low as that of the US.

Still, the Yen has rallied on "Safe Haven" trades. Whenever traders were feeling risk averse, they would buy the Yen on the crosses along with the Dollar and sell everything else. To put a stop to that the Bank of Japan has twice intervened with rather dramatic results. Unfortunately for them, traders have simply used the intervention to come right back in and bid the Yen back higher basically negating the gargantuan effort required to derail it.

Now comes along the FOMC with its ZERO INTEREST RATE POLICY and it has basically the same impact on the Yen as did the BOJ intervention - it moves LOWER. The reason for this is that the liquidity party is a green light for the risk trades (why else would copper be at a nonsensical $4.00 pound?). In that environment, no one wants to buy the Yen so down it goes.

One has to suspect that the FED and the BOJ are closely communicating these days as the impact of monetary policy is working nicely for both of them as neither one particularly wants to see a strong rally in their respective currency.

Coming Soon - More PAIN at the Gasoline Pump

2012-02-09T07:27:00.000-08:00

Unleaded Gasoline prices rallied off their lows with the inception of tensions in the Straits of Hormuz but that has now taken a back seat to the LIQUIDITY PARTY being thrown by the Federal Reserve.

Can we say, "DEJA VU!".

Get used to further pain at the gasoline pump once again thanks to our illustrious money masters who continue to throw both senior citizens and the average citizen under the bus in the name of jamming the stock market higher to supposedly bolster consumer confidence. Yeah, I feel extremely confident - confident that food and energy prices are going to resume their upward march once again thanks to these bozos.

Wait until you see beef and pork prices later this spring and summer. You ain't seen nuthin' yet!

Gold - Choppy trading pattern continuing

2012-02-08T08:45:00.000-08:00

Gold currently seems unable to better the level near $1750 which is proving to be rather stubborn. There appears to be a bit of a headwind arising from lingering fears about Greece and a potential slowdown impact on the global economy as debt issues remain in the back of traders' minds. That was trumped the other day by Chairman Bernanke's promise of another 18 months or more of free money but in today's session, apparently the effect has been somewhat muted. I am noticing that equities are lower today and the Dollar has managed a bit of a bounce with bonds moving up slightly off of their worst levels of the session and are now unchanged. One can spot the "risk aversion" trades in the session.

Trying to get a decent read on many of these markets is very challenging in this environment because there is an enormous tug of war from both the forces of deflation and the forces of liquidity. That has many traders sitting with their finger on the keyboard ready to run in either direction very quickly as what remains of conviction is generally easily swayed based on the latest headline or data release. The end result is that day traders are more at home rather than trend following systems which can easily be whipsawed and caught flatfooted.

On days like this I actually feel a bit sorry for the many newsletter writers who have to come up with some sort of baloney to explain price action in order to justify their subscription fees. Truth be told, sometimes there are just "a lot of fuss about nothing" days in the market when neither side (bulls or bears) really seems to have a clear edge and the markets end up marking time. This is the sort of environment which produces choppy trading patterns where floor locals make the majority of their income scalping or otherwise generally separating novice traders from their wealth.

Maybe we will ge something going later in the session. For now, the bulls are getting frustrated over their inability to beat back the selling at $1750. Support remains the same general region down near $1725 - $1720 where valued-based buying has been seen.

Silver Chart notes

2012-02-07T12:52:00.000-08:00

Silver is responding to the "Free Money" environment being maintained by the Fed to keep the US economy limping along as it shot higher when the Dollar dropped lower and fell below the 79 level on the USDX chart.

It is once again knocking on the door of a heretofore very stubborn level of chart resistance that begins at today's high and extends into the region just north of $35. If silver is going to mount a breakout move and start a trend higher, the bulls must beat back the selling that is going to come in at this level. If they do, they have a very good shot at a rather quick move to $40.

Downside support is coming in from dip buyers who are currently attracted to the metal near $33.

Turning to the Dollar chart, note that the price has now decisively broken down below chart support at the 79 level.

Chairman Bernanke off the Administration Reservation

2012-02-07T10:13:00.000-08:00

Someone needs to inform Ben Bernanke that he is not reading from the proper script. After all, he is employed there as head of the Federal Reserve courtesy of his boss, the President. One would think that he would get the memo to "help re-elect Obama" by spinning last week's fabrication, aka, the payrolls report, and spelling out in glowing detail how the President's policies are taking us all in the right direction and "not to muck things up".

Whoops - Bernanke went and did the exact opposite by basically confirming 100% what many of us have been saying about last week's government propaganda publication on the jobs situation here in the US. I am paraphrasing what his comments were this morning in front of the Senate Budget Committee but they were blunt and direct when he said that the 8.3% unemployment rate in January understated the real weakness present in the US labor market.

And what exactly did he say to prove this - Voila! the same thing many have been noting - it is a simple matter to manipulate this official number downwards if you stop counting people who have been dropped off out of the labor force. He spoke to the "unusually high level of long term unemployment" and noted that "we still have a long way to go before the labor market can be said to be operating normally". KERPLUNK! That was the sound of the Obama spinners' lies hitting the floor.

As I have stated before and will do so again - IGNORE all the political spin coming from the re-elect Obama friendly media and watch what the Fed does and what its members say in public. So what did they say this morning that should be noted? Interest Rates will stay near ZERO until late in 2014. That is all one needs to know about the TRUE state of the US economy. If things were improving at the pace that the Obamaites were assuring they were, we would not be getting any ZERO interest rate talk for another 2 years!

This is what got gold moving so strongly to the upside once again. Once those remarks began circulating, traders wasted no time responding in the exact same fashion they did when the FOMC first informed the hedge fund community that the speculative party was back on. Up went gold, down went the Dollar, into the toilet went the long bond and up went the commodity sector in general. What was this all about? Simple - the market took back all the losses that it incurred when fears arose that the payrolls number was so strong that it would signal an abrupt end to the FREE MONEY environment and would usher in the first interest rate hikes. That is a big no-no to these leveraged funds who want a green light to keep piling on the leveraged bets.

This news was once again large enough to overshadow any worries about Greece or any other sovereign debt problems out of Europe in the mind of traders. FREE MONEY trumps debt defaults any day.

Once the Dollar started getting thumped, gold and silver both moving higher with gold in particular loving the news. After all, there is little to no opportunity cost to hold and own gold in a zero interest rate environment.

On the technical price chart, gold had dropped into the support level I had noted on the chart and then violently spiked higher. That move has taken it right back up into the resistance zone near the $1750 level. Bulls need to clear this level and keep the price ABOVE $1750 to send it towards $1780. With the bears still reeling, thanks to Bernanke, it is going to take the deep pocketed bullion banks to stem the advance as the weaker shorts have run once again just as they did when the FOMC scared the hell out of them when it first announced the easy money policy would last for nearly another 2 years.

Trader Dan on King World News Weekly Metals Wrap

2012-02-04T07:31:00.001-08:00

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

http://tinyurl.com/6s78s2t

Gold Bulls unable to break through resistance

2012-02-03T10:51:00.000-08:00

Today's payrolls number, something which I might add is more akin to an Alice in Wonderland creation, was the factor responsible for the selling in both gold and in silver. The thinking was that if the economy is gathering steam at such a fast clip as the numbers suggest, then any notion of additional QE3 is a pipe dream. That means no Dollar debasement and little to fear on the inflation front so out came the sellers in the gold market. It also did not help the bullish cause that the market failed at a critical technical resistance level.

Between the two developments, longs who have had a nice run lately, decided to go ahead and take the profits while they were still there and wait for a better buy back in point. Short sellers looking for a top were also emboldened and made their presence felt as they have been on their heels lately due to the strong buying present in that pit.

The Euro gold chart also retreated from levels near its all time high so it looks like we have some confirmation from two different charts that a retracement is occuring. We will now wait to see where dip buying emerges and how much lower the shorts can press it.

Remember that copper chart that I posted yesterday noting the stall in upward momentum just short of the $4.00 level. Goodness - it looks like a veritable orgy of buying occurred in that pit today as copper put on a ridiculous 3%+. I am not sure who in their right mind wants to chase copper higher at these levels but with the hedge funds loading up on the red metal, that sort of thing does not matter much. I find it difficult to envision a rally in copper based off a payrolls number that is highly suspect when one digs below the headline number but who cares when the hedge funds algos start eating up all the offers.

Euro Gold comments

2012-02-02T13:43:00.000-08:00

Once again, as has been the recent pattern in the gold market, gold priced in terms of the Euro, or "EuroGold", is putting in a very strong showing in today's trading session. If you note on the weekly chart, it has moved to within about 32 euros of its former all time high in price. Many traders/investors may be dismissing European Sovereign debt issues, but the gold market certainly has one eye on it.

I want to see how this market acts now that we are moving into these regions as this will be a decent barometer of sentiment towards the woes surrounding Europe. Any further escalation of issues associated with those problems will carry this market to the all time high. The flip side becomes if traders feel that the worst is over and is behind them.

I should point out that as gold nears this all time high in euro terms, it is also moving into a region where I expect it to encounter significant selling resistance in US Dollar terms, namely the zone near $1775 - $1780. That makes two separate charts showing two distinct resistance levels. If the bulls can power it through both levels, we will see a sharper move higher in gold. If it fails here, expect some longs to begin booking profits and liquidating longs while awaiting a lower buy back in point.

I find it noteworthy in today's session that two key markets that are heavily tied to liquidity conditions (risk on trades) both moved lower - Copper and Crude oil. Those markets bear close monitoring as they are closely attuned to sentiment towards the overall global economy and by inference, the risk trades and hedge fund money flows into the commodity sector in general.

Copper Chart:

As you can see copper has been moving higher in anticipation that the worst in the global economy is behind us and the Central Bank actions to provide liquidity would be forthcoming. Hedge fund managers have had a lot of money sitting on the sidelines since the end of last year and need to do something with it if they are going to show any profits for their clients. They have taken the price of copper $0.50/pound higher in a month's time but that has been on the expectation of improvements in demand. It appears that this might be as high as they can take it without some sort of actual evidence that demand for the red metal is really out there from anyone besides speculators. This market is notorious for big players taking the actual metal out of warehouses in one city and moving it to another in an attempt to paint a picture of strong demand so getting a read on it can sometimes be quite tricky. Still, the charts are showing a stalling of upside momentum just shy of $4.00. The fact that it has not been able to best this level yet in a convincing fashion is reason for pause in the commodity sector party that has been going on thus far this year. While copper has not broken down technically on this price chart just yet, any failure to stay firm could signal that risk traders are having some second thoughts.

Crude Oil:

This chart looks heavy as it continues to reinforce the ceiling for crude just above the $100 mark. It is evident that without some sort of conflict in the Persian Gulf that the market will not tolerate $100 crude oil for long as the global economy is simply too sluggish. Crude has backed off from $100 once again and is now moving down towards the botom of its recent range near the $94 - $93 level. One would expect it to hold this level and move higher again if traders are convinced that liquidity measures will be sufficient to keep the global economy moving forward and prevent any slowdown or contagion effects from European debt woes. It might however take an actual burst of QE3 to take this market through $100 and hold it there. Watching this chart should help us get a feel for where hedge fund money is going in the immediate future.

I get the distinct impression from examining this chart that crude oil traders, after taking it above $100 on liquidity expectations and tensions with Iran, turned to each other in the trading pit and remarked, "Now what?".

Gold Chart

2012-02-01T11:23:00.000-08:00

Gold bulls breached resistance at $1750 but have been unable to keep the market ABOVE that price. That will be necessary for them to set up a run towards $1775- $1780 where a major upside resistance level is located.

There is a bit of weakness in Euro Gold today which is coming off of the rather large rally in the Euro in today's session. That rally sent the Dollar down below critical support at the 79 level on the USDX but that market has rebounded back above 79 thus far. A close below 78.80 should set the Dollar up for a drop towards 78.

It is indeed fascinating to watch this shifting back and forth between risk trades and risk aversion trades as one headline after another takes precedence in the minds of traders. Today, European debt fears have temporarilty taken a back seat and that has allowed Dollar bears to pressure the market. It has also sent the long bond careening lower off the top of that three month trading range that I mentioned in yesterday's comments.

Crude oil weakness is limiting the CCI and preventing it from pushing up to 600 in spite of the sharp fall in the Dollar. Natural gas, after giving us all a big head fake higher last week, has resumed moving lower and is once again threatening to close in on that major low made on the day that Chesapeake announced some production cuts. If the market fails there, we could see nat gas moving all the way to 2.00. This warm winter combined with huge storage overhang, it giving consumers one helluva deal on their heating needs this year and will likely do so for cooling needs this summer at this point unless we see some serious cuts on the supply side.

Copper continues floating higher on this sea of liquidity but will need to something on the demand side due to economic activity to push through $4.00. Right now it is all speculative interest playing it from the long side due to the zero interest rate environment. In other words, the Fed's gambit will result in higher costs for electrical wiring for homebuilders and other manufacturing interests down the road. In this sort of free money environment, it is very difficult to gauge how much of the "demand" coming into these markets is genuinely due to demand for the physical product versus demand coming from hot money chasing risk assets. The danger comes when or if the latter demand source dries up due to some extraneous event setting up the real possibility of extremely sharp drops in price as this hot money goes washing out of the market en masse.

Monthly Gold Charts - January 2012

2012-01-31T13:54:00.000-08:00

Gold knocking on the door of resistance at $1750

2012-01-31T13:44:00.000-08:00

One thing in particular that really stands out to me in today's trading session is the resilience of the gold market even as the safe haven trades were being put back on by a decent sized contingent of traders. The Euro got knocked down about 50 points and the US Dollar saw a pop higher as traders were expressing signs of nervousness over both Greece and now Portugal. Additionally, the long bond rallied up nearly a full point and is once again at the top end of a trading range that is now three months in duration.

This combined with the fact that Euro Gold is extremely strong tells us that gold is attracting a fairly large amount of safe haven flows itself and is not being impacted all that much by the risk aversion trades which hit silver, copper and platinum today. If this sort of thing keeps up, it will make it much more difficult for the bears to prevent $1750 from being breached.

A strong upside breach of $1750 should clear the way for a run at $1775 - $1780 which will also be heavily contested by our pals at the bullion banks. Downside support should emerge first near $1720 and then lower at $1705 should buyers decide to sit on their heels a bit.

The yield on the Ten Year note CLOSED at an all time LOW. The yield has moved lower but has never CLOSED for the month below 1.80% before. It is evident that the FOMC news from last week continues to have a profound impact on these markets. Inflation is not the primary concern of bond traders at this point.

Silver has run into a bit of difficulty clearing the $34 level as it has hit this level or near there for the last three trading sessions but has been unable to decisively push through. It will take a lessening of concerns associated with European sovereign debt for silver to run through this barricade and try for $35.

What is Euro Gold telling us?

2012-01-31T08:15:00.000-08:00

Gold priced in terms of the Euro continues to be most impressive on the chart as it creeps ever closer to its all time high. This move upwards is a visual telegraph that there remains deep-seated concerns over the European sovereign debt situation, especially on the Continent itself, in spite of the recent euphoria over "free money" for the next two years.

While the Fed has given the markets, and in particular, the wild-eyed hedge fund community, the green light to buy "risk assets", there is an underlying current of palpable worry which remains in our global markets. Short-term oriented players are betting that they are faster than the next guy and can exit any risk trades if something goes wrong. Longer term players are more cautious but also do not want to be sitting on the sidelines missing potential profits. Expect some wild swings in price even on an intraday basis as we move forward. "Conviction" is not something that we will see much of.

Question to the Bank of Japan - How's that intervention been workin' out for ya?

2012-01-30T09:20:00.000-08:00

Talk about a collosal waste of money...

Some of the more industrious among us might want to tally up the total sum of money used to shove the Yen lower on the foreign exchange markets by the Bank of Japan as well as the ECB and the Fed. As stated many times, intervention can NEVER reverse a market trend; it can only postpone it.

As a point of reference, the continued strength in the Yen is tending to keep Yen-gold on the defensive, in contrast to gold priced in terms of most of the other world major currencies.

Gold firm in spite of Stronger Dollar

2012-01-30T08:33:00.000-08:00

Gold is coming under a bit of selling pressure in New York after opening higher in Asia alongside of silver last evening. Both markets then saw selling originating in the form of both profit taking and new short positions (from top pickers) after traders' attentions turned back to the sovereign debt woes in Euroland, particularly Greece.

Also there was a bit of news that China was not going to be in a hurry to loosen the monetary strings as quickly as some were anticipating.

Either way, it led to a reversal of the recent risk trades in favor of the safe havens once again with the bonds getting a strong bid (they are now over a full point higher) so much so that the yield on the Ten Year Note is currently 1.84%. You have to understand that a great deal of these FOMC shenanigans have but one true purpose beyond the obvious ploy to keep the stock market propped up during an election year and that is to ATTEMPT TO PUSH BORROWING COSTS FOR THE US GOVERNMENT LOWER.

The fiscal condition of the US is so abysmal that rising longer term interest rates will send the deficit soaring even higher due to the escalation of servicing its gargantuan debt load. While this government-sanctioned mugging of savers and retirees continues, the US gets to borrow its trillions at extremely low rates, rates which otherwise would force a much larger chunk of its revenue to go towards paying higher borrowing costs.

It seems to me that the Gold market is seeing through all of this mess as it saw good buying below $1720 this morning. Bulls are reluctant to push it higher in today's trading session and are not chasing it but they do seem willing to step in down at these slightly lower levels. With some of the momentum indicators in overbought territory, some have decided to book a few profits out of the nice rally and see what their next move will be.

Any reversal higher in equities later in the session or a continuation of the recent Euro rally will see a rather swift bout of short covering occur in gold. We'll have to see whether or not we get that. In the meanwhile, the bears have the advantage for today's session as selling is being seen across nearly the entirety of the commodity complex with energy, grains and metals all lower.

This is too cute to pass up

2012-01-28T14:10:00.001-08:00

With a hat tip to my pal JB Slear for a good laugh - This one is for Dog Lovers in particular....

Three dogs go into a bar and....

http://www.youtube.com/watch?v=f309fSTWYo4

Trader Dan on King World News Weekly Metals Wrap

2012-01-28T11:20:00.000-08:00

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

http://tinyurl.com/7szen7b

Money Flowing back into Commodities

2012-01-27T14:00:00.000-08:00

Note the CCI chart and the nearly vertical lift over the last week. Money is pouring back into RISK ASSETS as the Dollar heads lower and the Fed keeps interest rates so low that money is free. This is the perfect environment for the wild-eyed speculator, especially the hedge fund types, who ADORE LEVERAGE and will shove as much money as they can wrap their fingers around into the commodity sector in anticipation of inflationary price rises.

By the way, just take one look at the following chart of unleaded gasoline if you have the stomach for it. Every time you head to the gasoline pump and fill up, you can bow down and pay homage to the Fed for their "gift" of higher fuel prices. After all, who gives a damn about the average consumer and retiree when Wall Street profits are on the line. That, and the current occupant of the White House's re-election chances....

Gold regains half of its losses from the record peak price

2012-01-27T12:59:00.000-08:00

Technicians make a big deal out of the 50% Fibonacci retracement level due to the psychological implications of that level in the minds of traders, both bulls and bears. Generally speaking, those who have been on the wrong side of a trade and who have very deep pockets, will oftentimes allow the market to continuing moving against them while they wait for the inevitable price retracement, either higher or lower depending on which side of the market that they are on.

Once they regain half of their losses, they will oftentimes then finally get out of the losing trade and move to the sidelines to access their next move. That means that a market that has been moving lower after making a peak in price, can very often expect to see some strong selling at this 50% retracement level. Note on the chart that I have indicated in red "Should be a tough fight here" at this particular level which came in near $1725.

Today gold went through this level and as of the time of this writing has not as of yet shown any indication of wavering on the part of the bulls or any eagerness to cut losses if they have been riding the wave down from $1900. This fact bodes well heading into next week as it sets the gold market up for a potential test of first, $1750, and then $1770.

The fact that the mining shares as evidenced by the HUI are acting so strongly today, is suggestive that those equity guys are reassessing their views of where the gold price is headed and are pricing in a higher level than they originally were thinking.

Downside support lies first near $1710-$1705 followed $1680.

US Dollar fails at 82

2012-01-27T12:47:00.000-08:00

Since the late spring of last year, the US Dollar has been the recipient of a fair amount of "safe haven" flows, mainly in response to the woes afflicting Europe and by consequence, the Euro. We have said repeatedly that the US Dollar rally was not based on any desire to own the Dollar out of bullish economic fundamentals but rather out of fears concerning the viability of the Euro.

What this translates to is that any news or developments that seem to lessen the severity of the European sovereign debt situation, whether through concerted Central Bank action or from any other front, will send money flowing right back out of the Dollar and back into the Euro. Note that the last two weeks, particularly this week after the FOMC just cut the legs out from under the Dollar for as far out as the eye can see ( 2 years), the Dollar has seen very heavy selling which has confirmed the level near 82 as significant chart resistance. The Dollar failed here last week and has not as of yet been able to regain its footing.

When you couple the FOMC statement this week with today's release of the abysmal 1.7% US GDP reading for 2011, is it any wonder that the Dollar is sinking like a lead brick.

If it fails to bounce here near 79, it looks like it has a clear shot back down towards 77.

HUI notes

2012-01-27T11:14:00.000-08:00

We are seeing a definite reversal in the price action of the gold miners in comparison to the action in the broader equity markets in today's session. I am not sure of the reason but whatever it is, the result is that the mining shares are finally seeing a strong bid in comparison to the broader equity markets.

As most gold mining shareholders have been all too painfully aware of by now, the mining shares have been lagging the broader market for the last 6 months or so now. Notice the peak last summer and the progression lower, particularly at the end of last year.

Trying to decipher at what level the analysts have pencilled in the gold price when valuing these things is an exercise in futility seeing that the Fed threw everyone an enormous curve ball this week when they gave the green light to another two years of zero interest rates. Obviously, that is strongly bullish for both gold and silver which are poised to go out on a very strong note this week.

The problem has been the mining shares in general which kept underperforming. After yesterday's lackluster showing, I was cautious about the HUI failing to gain any ground after making its high on the open. Today however, those bulls which seemed so hesitant to push them any higher, are obviously having second thoughts and have stepped in much heavier with the result that they took out the previous day's high and are keeping these miners well bid through the session. Apparently we are seeing a revaluation of the shares now that the FOMC has changed the playground rules.

If this sort of buying continues heading into the close ( and I am closely watching to see whether it does or not - so far it is very strong), the HUI will close at its best level in 6 weeks. It has even managed to turn the short term moving averages (10 day and 20 day) higher while it remains well above the 50 day. That is a nice turnaround from yesterday. The buying has taken the index exactly to the 100 day moving average. That will keep the index on a strongly bullish footing if it succumbs to the bulls.

Broad US Dollar Index chart

2012-01-27T09:49:00.000-08:00

By request -

US GDP remains mired in mediocrity

2012-01-27T09:44:00.000-08:00

Reports out this morning show that US GDP for 2011 was a pathetic 1.7% compared to 3.0% for 2010. Imagine what it would have been without all that QE! No wonder the FOMC is giving the green light to hedge funds to jam the stock market higher with their stupid zero interest rate policy now extended out for another two years.

Euro Gold right at Resistance level

2012-01-27T08:35:00.000-08:00

Take a look at the following chart of gold priced in Euros, or "Euro-Gold" as I prefer to term it. I have mentioned here and on some of my KWN Weekly Metals Wrap that this chart is one that all gold traders must continue to reference if they are to get a proper handle on the technical aspects of this market. The reason for this is that the issue most shaking the gold market during the "risk off" trades was the mess in the sovereign debt situation of many countries in the Euro-Zone.

Fears over that factor were seeing European-based buying of gold as doubts over the integrity of the Euro surfaced and still are haunting the minds of many traders and investors from that region. After all, put yourself in their place - when you see nations such as Greece, Italy, Spain and Portugal (that is today's concern) having to pay record or near record yields on their government issued debt to attract sufficient buying to absorb it; when you see France along with some other nations there downgraded, would you not want to follow prudence and at least move a portion of your Euro-denominated assets into gold for protection? I know I sure would.

Either way, that process has kept Euro gold very well bid, even when we were seeing some decent selling showing up on the Dollar priced gold chart.

As long as this chart stays strong, and it is currently very strong with price threatening to take out the resistance level noted and make a run at the former all time high, any dips in Dollar priced gold are not going to last long.

HUI higher but showing signs of selling pressure coming back in

2012-01-26T14:32:00.000-08:00

Take a look at the following chart and you will see what I am referring to. The mining shares gapped up today on the opening trying to catch up a bit with the overnight surge in gold and in silver but after that, most of them went nowhere. That is not a bullish sign for continuing their move higher. They did attract some dip buying later in the session but the shares are reflecting a lack of confidence that the rally in the metals is going to continue tomorrow. We will see whether or not they are prescient.

The Party Continues

2012-01-26T08:49:00.000-08:00

The binge continues unabated in today's session as both gold and silver bulls are giddy with delight over the FOMC statement from yesterday while bears are still trying to locate what is left of their trading accounts. Both metals are pressing higher as the US Dollar continues to plummet now that the Fed has basically given it the kiss of death once again.

Lost in this stupid euphoria over zero interest rates for the next TWO YEARS is the pathetic fact that the Fed has just consigned the savings accounts of all of our retired citizens and the elderly to the wastelands. How in the hell are they supposed to live off the fruit of their labors and enjoy their retirement SAFELY and without concerns when the monetary masters have just laid them on the altar and sacrificed them to the hedge fund gods?

This is the price we supposedly have to pay in order to watch the stock market rally - namely turning our entire generation of senior citizens into a band of wild-eyed speculators if they are to hope to obtain more than a pitiful 1% on their one year Certificate of Deposits in their local banks.

I wish that some one of these Republican presidential candidates besides Ron Paul would actually begin to deal with this madness head on. After all, we are talking about a primary in Florida, a state loaded with senior citizens and other retirees who were hoping to live off the interest yields on their savings and other CONSERVATVE investments. My view is that what the Fed is doing is downright criminal in the sense that it is plundering the wealth of those who have saved in order to prop up the rotten house of Dagon.

As a trader I have to deal with what the market gives me and what that is at the moment is a veritable orgy of risk asset buying by hedge fund managers. As a private citizen however I have to shake my head in dismay that this is now what passes for sound monetary policy and is conducive to lasting prosperity. Have we lost our collective minds?

As I stated yesterday, the end result of this FOMC green light to the speculative community is to borrow all the "free money" you can get your hands on, leverage that up at least 10:1, and plow it into commodities and other risk assets and have at it. Bring back that carry trade and let's get this party going as we are in an election year and we cannot have a sagging stock market or actually deal with the real problems associated with $16 trillion in debt.

Quo vadis America?

Gold Chart - Updated

2012-01-25T10:55:00.000-08:00

Gold shattered overhead resistance near $1680 and has continued higher as momentum based buying is coming in driving out panicked shorts who were hoping for a halt in the advance to occur as the market encountered bullion bank selling originating at $1680. The FOMC made that a mirage as a zero interest rate environment for the next two years means an environment in which it pays to own gold. The yellow metal pays no interest but at this point, neither do short term Treasuries and those offer no protection from currency induced price increases. Just look at what is occuring across the commodity sector today as hedge funds now push the price of food, energy and metals in a northerly direction. Forget about tame inflation - that just vanished.

The sheer size and scope of this fund buying has driven out everything in front of it except for the strongest of shorts.

Gold has light resistance starting at $1705 (it is right on this level now) or so and extending towards $1720-$1725. The latter is the important 50% Fibonacci retracement level from the all time high to the recent double bottom down near $1535. The bears are going to make a stand near this level. If the fund buying remains as robust as it was today - the bears are going to be routed. Pushing through this cap will set it up to make a run at $1750. If the shorts can defend $1720 - $1725 then we should see a retracement back towards the $1700 level initially followed by $1680 where support should emerge.

By the way, the HUI and some of the gold stocks dodged a very big bullet today courtesy of the FOMC. They were in severe danger of breaking down technically.

FOMC to MARKETS - "WELCOME TO THE PARTY"

2012-01-25T10:29:00.000-08:00

Or in the words of Captain Jack Sparrow. "Drink up me hearties".

The FOMC just gave the green light to every hedge fund manager between here and the planet Mars to cram every bit of leveraged funds they can borrow or beg into the commodity sector and the equity markets.

Gold soared through overhead resistance at $1680 as if it was non-existent. Silver shattered $32.50 rebounding over $1.50. Crude oil is now back over $100 and gasoline just soared another $.05/gallon. Gasoline prices alone have now rallied 40 cednts a gallon since November. Get ready for more pain at the pump. Here we go again!

The CCI shot up; bonds rallied over 2 full points and the US Dollar just got clocked. RISK ON - who gives a crap about European sovereign debt woes or Greece or anything. Free money - more free money - and even more free money.

"God Bless the Fed" is now being heard around the lunch tables at the restuarants as hedge fund managers raise their glasses of Chablis to toast their new found prosperity.

Barrick Downgraded - down goes the HUI - again.

2012-01-24T11:53:00.000-08:00

Barrick Gold was downgraded this morning to sector perform by some of the "analysts" citing concerns over delays and cost escalations at new mines under construction. Tie that in with weakness in both gold and silver, which ran into long liquidation and some fresh selling after failing to better the chart resistance levels noted yesterday, and that has resulted in the HUI sinking down to the bottom of a critical support level on the price chart once again.

The gold shares in general are becoming dogs that cannot hunt or in the case of some, not even bark.

The same hedge funds that have been buying them down at this level late last year and early this year had better not have a change of heart. Still, it is only Tuesday so they do have time to recover before the end of the week. They will certainly need to or we are going to see a technical chart breakdown.

Pressure in gold and silver today is coming from a slightly stronger Dollar and some increased chatter over Greece and woes associated with that running sore. Traders are a bit hesistant to get too aggressive on the risk trades as a result and are exercising a bit of caution. That is allowing for some long liquidation and fresh short sellers from top pickers.

Silver stills need to get a solid close ABOVE $32.50 to avoid sagging here while gold needs to close over $1680 to avoid a setback towards $1650.

Bonds, a good measurement of the willingness of traders to take on risk, are basically flat today reflecting the lack of conviction either way for today's session. We'll see what we get in tomorrow's session which should be more telling as to where we might head next.

Note on the following HUI chart that all of the major moving averages are trending lower. We need the shorter term ones to at least stop heading lower and flatten out if the HUI is going to attract any sort of momentum based chart buying in the gold sector.

Gold Chart and comments

2012-01-23T14:24:00.000-08:00

Gold has made it into a formidable resistance level near $1680 which has served to bring out some heavy selling, just as expected seeing that a breach of this defensive line by the bulls will set the market for a run to $1700 and higher. Gold bears can read the charts just as we can and understand what will bring in the momentum buyers if they fail to hold it here.

If the recent price advance falters here at this critical zone, then we will see a setback towards $1650 - $1645 initially followed by a bit deeper drop to $1620 or so if the dip buyers are a bit sluggish in making their appearance.

On the topside, a push through $1700 sets this market on a course to challenge $1720 - $1725, above which lies much stronger resistance just above $1750, a level which I might add, needs to be taken out to accelerate the recent move higher.

Risk trades continued today with the Dollar seeing some selling pressure as the Euro moved further away from its recent 52 week low. The Dollar is sitting on top of some important chart support which coincides with both the 50 day moving average and a horizontal support level. I would not be surprised to see it bounce higher from here. If it does not, then we could see it drop down to 79 very swiftly. Bonds would probably drop off rather sharply also as it would indicate another wave of money flows into the risk trades and away from the safe haven "risk aversion" dollar.

That generated commodity-wide buying as the CCI (Continuous Commodity Index was up nearly 1.4% today. It is closing in on some important overhead chart resistance so we will see if the bulls can continue to take it higher or if the urge to snatch some money off the table strikes first.

Even natural gas put in a very strong rally off its 52 week low made early in the session on the news of cutbacks in production by Chesapeake.

The natural gas market may have bottomed today based on the very bullish chart pattern. This market however has had a habit of putting in some strong moves higher only to then resume a downtrend when the field resumes focusing on the enormous supply picture once the short covering rally is over. With the huge amounts of shale gas being produced, it is going to take other suppliers to follow the lead of Chesapeake if this is going to be a definitive bottom. That being said, natural gas is incredibly cheap. Consumers are most definitely enjoying this even if the industry as a whole is not!

Silver runs right into a Resistance Zone and then halts

2012-01-23T13:58:00.000-08:00

Just as if on clue, Silver bulls came out of the gate bucking high and hard but were unable to throw the bears who have dug in at the exact spot on the chart which says they should.

Take a look at this chart which I posted last week and which is still applicable after today's trading session. Notice how silver shot up throw that "formidable resistance zone" near $32.50 but then faded to close almost right on the line instead of solidly above it.

Still, the bears dodged that bullet only by the slimmest of margins as the market put in a strong close to end the session, although it has retreated a bit this afternoon.

Tomorrow's session is now set up to be an important near term juncture for this market. If the bulls can take out today's high and hold the market above $32.50, this thing has a real shot at making a quick run at $35. If they hesistate here, we could see it set back about $1.00 or so to see if it can uncover some good quality dip buying.

Support should also emerge down near $30.95.

Silver tracking the CCI - risk trade measurement

2012-01-21T09:55:00.000-08:00

One look at this tells you all you need to know about whether or not silver is going to perform. If risk is in and hedge fund money flows are coming into the commodity complex in general, it will move higher. When it does, silver goes right along with it.

When risk is out and money flows OUT of the commodity complex, silver sinks like a lead brick.

Notice that chart pattern is almost identical between the two.

Long term View of the Gold/Silver ratio

2012-01-21T09:48:00.000-08:00

You will note on this chart that since Silver peaked near $50 back in April of last year, gold had generally been outperforming it for the remainder of the year. I am of the opinion that this was due to the anticipation of the end of QE2 in June of last year. Traders began preparing for the loss of the liquidity being supplied from that front. When you couple this with the fact that European sovereign debt woes began to gain ascendancy in the minds of traders worldwide, it is easy to see why gold held up better than silver. DEFLATION was back in; INFLATION was out.

If, and this is a big "IF", traders become convinced that deflationary forces have been left behind, then the environment in which the grey metal will outperform the yellow metal is created. In such a case, this ratio will begin trending LOWER as silver outperforms.

Every single bit of this is dependent on the attitude of traders towards risk, which is simply another way of saying whether they are leaning more towards improving global growth prospects and inflation rather than slowing global growth and deflation.

Stay tuned as the environment is still very volatile. For this week at least, the inflationary (risk trade) forces have won the battle.

Trader Dan on King World News Weekly Metals Wrap

2012-01-21T09:04:00.000-08:00

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/74dmqmm

Ten Year Note Interest Rate Rising

2012-01-20T14:31:00.000-08:00

The Ten Year Note Interest Rate has been trading in a range between 1.80 and 2.10 or so for the better part of the last three months. Rates would move higher on improving economic data coming out of the US or China but then retreat on any sour news particularly coming out of Europe.

This week saw rates drop on Monday and stay stagnant on Tuesday but for the remainder of the week, they were on a tear higher. This is attributable to changing sentiment in regards to the global economy, especially in relation to fears surrounding the European debt situation. When traders saw French and Spanish debt finding buyers, they dismissed contagion fears and rapidly shifted from risk aversion trades to risk trades. In other words, they dismissed Deflation concerns and began leaning towards Inflation concerns in association with the tremendous amounts of Central Bank liquidity being supplied to deal with these issues.

Note this chart carefully for it is, in my opinion, a roadmap as to where Silver is headed in particular and to a lesser extent, gold. There is the POTENTIAL, (please note the emphasis) for rates to have bottomed. If that is indeed the case, then we are going to see strong rallies in Silver and in gold as the inflation trade (RISK ON) will be back in vogue. I would want to see this chart get a WEEKLY CLOSE above 2.25% to feel that we are now leaving the period of low interest rates behind us. Keep in mind that we could still see eruptions out of Europe at any time and that is going to keep traders on edge a bit but if the investing/trading community becomes convinced that we are now past the debt meltdown stage and will be dealing with INFLATION next, then this chart is going to show it.

Certainly, if we get that weekly close above 2.25%, then precious metals should begin to react accordingly as risk capital, that has been on the sidelines begins coming back into both the gold and silver markets.

As always, time will tell. We do not need to be soothsayers or attempt to divine patterns in those silly wave charts to realize that a changing interest rate environment will signal the onset of a new period of investment factors that will have to be adjusted to.

Silver on Track to Challenge $32.50

2012-01-20T10:28:00.000-08:00

ON Wednesday of this week, silver finally managed to get a CLOSE above strong chart resistance at the $30 level. The next day, while it was unable to advance much, it refused to back down below that resistance level and eked out another close above $30. Two consecutive closes above a strong chart resistance level and the bears had no choice but to begin running. Fresh money is now chasing them out as it appears that the hedge funds are beginning to move back into the grey metal after having fallen out of love with it in December of last year.

The technical chart picture is much improved with all momentum indicators now in a bullish mode on the daily chart as price is trading ABOVE the 50 day moving average in today's session. The 20 day moving average is now turning higher indicating the short term trend has flipped up. The 50 day should prove to be some support if we get some retracements lower.

A strong finish to the session today will set this market firmly on track for a test next week of another band of formidable chart resistance centered near the $32.50 region.

Note that the short term downtrend line drawn off the August 2011 peak was broken last week but that horizontal resistance at $30 had not as of yet fallen until it was bettered this week.

If the bulls can take out $32.50 next week, they should have relatively clear sailing all the way to $35 which is where one helluva battle royale is going to be waged by the perma bears. If that group fails to stem the advance, this market has a real shot at launching an upside trending move.

It should be noted that the move higher in silver is being accompanied by a sharp move LOWER in the bonds. Bonds are breaking down on their price chart indicating the LACK OF RISK AVERSION trades at the current moment. Keep in mind what I have repeatedly said - Silver will outperform gold in an environment in which RISK is IN. That is what the movement in the bond market is suggesting.

Only a sharp reversal to the upside in the bond market would derail the move higher in silver as it would be accompanied by a downside move in equities and a move higher in the US Dollar once again. Such an event would signal that investment funds would be back to shunning risk with money flowing back out into cash and cash equivalents and away from "risk assets".

Gold attempting to fight off pressure from sagging gold stocks

2012-01-19T11:09:00.000-08:00

Once again the weakness in the gold mining shares is leading to weakness in gold as the yellow metal fights to retain its footing above the $1650 level. This is occuring even as the US Dollar is weakening and a general bid is coming into the commodity sector overall.

The HUI is down nearly 2% at the time of this writing even as the S&P 500 is up 2/3 of a percent. Note that the HUI to Gold ratio it is currently pressing into levels which saw a low made last year, a level which I might note was commensurate with where it was trading way back nearly three years ago.

No matter how you analyze it, the gold miners are so cheap compared to the price of bullion that it is difficult for me to envision how we are NOT going to see takeovers, mergers or acquisitions. If someone wanted a fire sale, they are surely getting one on some of these firms.

One other side note, the long bond is getting whacked today (down almost a full two points) as traders apparently took the news that Spain and France were able to peddle their debt to some fool somewhere as proof that the situation in Europe is not all that dismal. In other words, even though Greece continues to lurk in the background, investors/traders are basically ignoring the problems there now as they rush back into the Euro which some now feel is undervalued. Yep, another episode of "How the Hedge Fund World Turns" is on television for us all to witness.

Note the following chart of the long bond and the weakening chart pattern. A technical breakdown (while not here YET) would signify that the market is anticipating a RISE in longer term interest rates. The bonds seem to have reached a level that they are unable to rise above ( if they do, it will herald the onset of a massive deflationary event) and are thus retreating. Still, the bears are unable to break this market down signficantly due to lingering concerns in the background of traders' minds about the potential for more bad news out of Europe.

Gold clears $1650; looks firm

2012-01-18T18:55:00.000-08:00

Gold has now managed two consecutive closes above chart resistance near $1650 and is looking firm at this hour. It has a very good shot at testing resistance at $1675- $1680 where it should experience some fairly heavy selling. If the bulls can break through that line, we should see a handle of "17" in front of the metal.

Weakness in the Dollar is aiding the progress of the metal higher.

Downside support comes in near $1640 - $1635 initially followed by $1620.

Silver is benefitting from risk trades being put back on as it and copper are both seeing decent inflows of investment money from hedgies. This is the first close ABOVE $30 for silver in over a month. Follow through in tomorrow's session should see it make a run towards the $32.50 level, which is what stands between it and a push to $35.

The Ultimate Inflation Casualty

2012-01-18T13:51:00.000-08:00

We've all seen the tricks being played by food manufacturers in shrinking the size of their products but charging the same price as the former size. The old 5 pound bags of sugar some to my mind. Whether it is cereal or bar-b-sauce, or whatever, the consumer ends up paying the same amount as they once did but they come home with a smaller quantity for their money spent.

All of this is to hide or disguise the impact of inflation. One goes to the store, buys a bag of sugar for the price they paid for it a few years ago and thinks little if anything about it until they realize that they ended up with one pound less sugar than they might have assumed.

Now, I give you the ULTIMATE INFLATION CASUALTY - yes indeed - the lowly but glorious roll of toilet paper.

Look at the following picture and weep for our old familiar friend... the roll of toilet paper on the right is the old sized roll. The new, inflation adjusted roll is on the left - I actually took out a ruler and measured the thing - it is 5/16" of an inch narrower. Think about how much wood pulp that saves the paper manufacturer. The result - VOILA! the package of the new paper costs as much as the old sized rolls cost but you get that much less.

Alas, let us pause for a moment of respect at the passing of the dear friend of our derriere.

Gold stocks continue being plagued by the hedge fund ratio trade

2012-01-17T21:02:00.000-08:00

The HUI continues to lose value against the price of gold bullion as evidenced by a continued deterioration in the ratio of the price of the HUI to the price of an ounce of gold.

We are reminded continually of two things that have led to this abysmal performance of the gold shares which are rapidly losing speculative interest in favor of the ETF.

The first is the risk of investing in companies that are subject to surprises which happened to Hecla and recently to Kinross. Hedge funds and other large investment groups or players seeing this say to themselves, "Why risk this sort of thing when we can get LEVERAGED EXPOSURE" to the gold price by buying the gold ETF on margin".

There is no such risk inherent in the ETF. No one worries about nationalization of the ETF or environmental lawsuits or some bureaucratic agency shutting it down to clean up debris in a mine.

Secondly -this then leads us to the ratio spread trade. Buy the actual metal either through the ETF or the physical stuff (or even the Comex) and take a corresponding short position in some of the mining companies to further minimize the risk of investing in gold.

This shows up in the rotten performance of the gold shares in general as they continue to decline against the price of bullion . Note that the line goes nearly straight down since the beginning of 2011 with a brief exception of a lousy two months last year.

If one wanted to devise a mechanism to deliberately depress the price of the mining shares they could not have come up with a better mechanism to do so than the gold ETF. The lesson in this is that investors must be extremely selective in choosing gold mining companies to invest in and not just blindly throw money into the sector and thereby hope to be successful. As long as the Gold ETF is in existence, the hedge funds are going to use it as the long leg of these spread trades and actively seek out the weaker gold mining companies to short. At this point I am not sure what it is going to take to reverse this trade as traders will stick with a strategy as long as it works and not a day longer. Long suffering gold mining share owners should continue to press management to take the steps necessary to make it more difficult to short their shares successfully. Failing that they can always pray for a takeover or acquisition!

GFMS reports substantial offtake of Gold by Central Banks

2012-01-17T07:39:00.000-08:00

Dow Jones news is carrying a report this morning from GFMS (formerly Gold Fields Mineral Services)detailing the amount of gold purchased last year by the world's Central Banks. It was indeed a formidable number.

The net purchases of the yellow metal came in near 430 tons, a more than 5-fold increase on the previous year. It was also the highest level recorded since 1964.

To give you a sense of the significance of these purchases - the amount of NET purchases by Central Banks in 2010 was a mere 77 tons!

Surprising to me was the fact that Mexico was the largest buyer as far as the official monetary sector goes. GFMS reports that they added almost 100 tons of gold to their reserves. I would have thought it would have been China to lead the pack.

The other surprising fact was that signatories to the Central Bank Gold Agreement ( this was set up to limit the amount of gold sold by European Central Banks ) sold less than 10 tons for 2011.

The summary - Central Banks are now absorbing a significant amount of world gold production. This should continue to provide very good downside support for the metal on price retracements lower as these banks do NOT CHASE PRICES HIGHER but are there to buy at levels they consider gold to have "value".

Trader Dan on King World News Weekly Metals Wrap

2012-01-14T01:23:00.000-08:00

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

http://tinyurl.com/7hqzg97

Gold retreating from chart resistance near $1650

2012-01-13T07:27:00.000-08:00

The inability of the metal to secure a CLOSE above $1,650 in spite of yesterday's surge towards $1,660 has engendered profit taking by shorter-term oriented longs this morning. As noted the other day, the metal has had a strong rally off of a major double bottom on the chart near $1,535 since the last couple of trading days of 2011 to the present coming over $130 higher since then. Longs are wisely pulling some chips off of the table after watching the push higher in yesterday's session fail to attract enough momentum to keep it trading above that $1650 level.

The US Dollar surge to yet another 52 week high is proving to be a source of some rather stiff headwinds for the longs today as the equity markets are selling off and risk aversion trades are showing their usual signature once again.

Dip buying has been the order of the day since this rally began. We will now watch to see where this buying will resurface. There is some light support that should appear near $1625- $1620. If it does not hold there, $1,600 is the next stop.

Bulls will need to push this thing past $1650 again and KEEP IT ABOVE THAT LEVEL to have a legitimate shot at $1675 - $1680, where bullion bank selling can be expected to appear.

The trend on gold since August has been down on this shorter term chart. However, the inability of the bears to take the metal down below $1535 and start another leg lower resulted in a bout of short covering among the weaker hands in that category. Bulls have pressed hard using the strong physical offtake at the lower price levels as their ally and have managed to take the price over $1600 which is constructive. But they have a lot more work to do to turn this chart pattern decidedly bullish.

Gold, Silver and Copper responding to low interest rate environment

2012-01-12T07:48:00.000-08:00

All three of the above commodities are responding to news today that inflation in China is supposedly slowing somewhat (one always has to read these numbers with a healthy dose of skepticism as the Chinese are becoming almost as adept as US official-sector statisticians). Also adding to the mix is news that the ECB will keep interest rates low and would not rule out additional rate cuts if necessary in their view.

This is music to the ears of gold as it thrives in environments when there is plenty of room for more liquidity. The thinking in regards to China is that they have room to back away from any rate hikes and actually ease credit restrictions which had been put in place over the last year as the authorities there grappled with inflation problems.

Copper liked the news very much as traders there are viewing the news as positive for future demand if credit stays easy.

Note that in this environment silver is outperforming gold. That will continue as long as traders adopt a psychology focusing on future inflation as a result of easy credit instead of the opinion that deflation is the evil genie to be focused upon.

We are basically back to the risk trade today as most commodities are higher (crude oil continues its Yo-Yo-like trade as it is now higher) as the US Dollar sinks back down while the Euro rallies a full point. Grains are dragging on the commodity indices however as a USDA report has sent corn limit down this morning with spillover being seen in the Soybean market. Wheat bulls were also kicked in the groin by the same report showing larger-than-expected supplies of wheat. That news is good for consumers but disappointing for many farmers who are probably looking at corn with a handle of "5" in front of it unless some sort of crop scare down in Argentina surfaces.

Gold has pushed through $1650 and run as high as $1663 but has fallen back from its best levels. The bulls are performing but need to keep it above $1650 to see it run to $1675- $1680.

If Silver, and this is a big "IF", can hold ABOVE $30, it has a very good shot at seeing $32 relatively quickly. It has been unable to hold gains above $30 for some time now so such an event would signal a shift towards the metal by large speculators and hedge funds. We will see how it fares the remainder of the session.

Gold encountering resistance near $1650

2012-01-11T19:57:00.000-08:00

Gold bulls have performed admirably since the last few trading days of 2011 having taken the gold price up over $100 since that time period. The rally has been very impressive, especially given the strength in the US Dollar and the move to a brand new 52 week low in the Euro. However, bulls are now at an inflection point technically and will need to drive it up through today's session high just shy of $1650 if they are going to be able to force a larger number of shorts out and take this thing to the next layer of heavy chart resistance near the $1,680 level.

The market has been encountering selling coming from both profit taking after that $100+ run in addition to fresh short selling by our favorite group (the bullion banks - who else?) That selling is showing up in the market's inability to extend and get a CLOSE above Monday's high. The market has probed that level twice since then and is thus far unable to push higher. If the bulls can perform tomorrow, then this thing should run rapidly towards $1,675 - $1,680 where the bears will make another stand. If not, and the longs get impatient instead, then expect prices to set back towards $1620 first followed by a test of $1600 if that does not uncover dip buying.

A break below $1535, the double bottom region noted on the chart, that does not quickly recover, would signify deeper losses are ahead.

Mining Shares lagging the broader equity markets since August of last year

2012-01-10T12:01:00.000-08:00

The HUI has been lagging the broader US equity markets since August of last year but has found some good buying down near levels commensurate with valued based buying for nearly two years now.

What this tells us is that further rallies in the US equity markets should see corresponding support continuing in the mining sector.

Now if only the ratio trade employed by the hedge funds against the miners in relation to bullion would ever come to an end. For most of 2011, with brief exceptions, the miners lagged poorly against the price of gold. Note the trend has been down but the ratio is now at levels that have attracted a reversal in the spreads last year. The shares remained undervalued when compared to bullion but something will need to change in order to put the nail in the coffin of this spread trade which has gutted the value of so many quality mining companies.

Gold clears initial resistance hurdle

2012-01-10T11:50:00.000-08:00

There has been a band of overhead chart resistance centered between $1630 - $1620 that has been keeping gold in check for the last few weeks. Gold has been probing this level for the last couple of days and has been unable to convincingly push past it. Today that all changed as gold charged higher in the very early hours of European trading. While it has been stymied in New York from furthering its overnight gains (no surprise there), it has also been attracting additional buying above $1630. As long as this buying continues, gold will have sufficient momentum to launch an attack on the $1650 level.

A large number of traders are watching the 200 day moving average to see how the metal handles itself here. The longer it holds ABOVE this level, the more nervous the shorts are going to become. From a technical perspective, a market in a bearish mode should not be able to push through this level but should fail near or at that level and then begin retreating in price. This average comes in near the $1629 level which reinforces the horizontal resistance levels noted on the chart. You will note that gold is trading above both these levels as of this hour.

If this market can continue higher tomorrow and take out $1650, we will see $1680 in very short order as shorts begin exiting more earnestly while buyers sitting on the sideline observing its performance will grow emboldened. That will bring the open interest up as hedge fund money returns more strongly.

Downside probes should meet up with valued-based buying above and just slightly below the $1600 level. Only a failure there will see the metal retreat deeper back towards $1575.

The Dollar is setting back a bit from its recent 52 week high but remains above both its 10 day and 20 day moving averages. The weekly chart is positive but does show a level of chart resistance just shy of the 82 level which is exactly where it is currently stalling a bit. Dollar bulls need to clear this level before the week is out if they hope to take the Dollar up towards 83.50 - 84.00.

The HUI is rising alongside of both gold and silver today as there is a general bid into equities across the board. The equity guys are anticipating better economic numbers coming out of the US and seem to be dismissing any concerns related to European sovereign debt issues for the time being. That will help keep the miners moving higher but I am noting the fact that they not been able to extend their gains from the opening hour of trading today. Sellers are emerging but the buyers have still been continuing so both sides are currently stalemated heading into the last hour of trading. We will see which side blinks first.

Note that the index still remains below the 50 day moving average although it is well above the bottom of the 15 month long trading range down near 500 - 490.

Trader Dan on King World News Weekly Metals Wrap

2012-01-07T10:31:00.000-08:00

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

http://tinyurl.com/7pnw65m

Gold proving to be very resilient

2012-01-05T12:11:00.000-08:00

Considering the very strong rally in the US Dollar today, a generally weak or lackluster showing in the equities, a sinking Euro and a rather comatose bond market, one would expect the selling malaise that has gripped many of the commodity markets in today's session to be making an impact on the gold market. Instead, the yellow metal is showing signs that investors/traders are looking at it as a safe haven that got undervalued and is now a good place into which to store some wealth while trying to get a handle on the mess called the Global economic situation.

The incompetent bunglers (aka hedge funds), which came out buying everything in sight to start off the New Year have been mostly in the process of throwing all of that stuff away over the last two days proving that the advent of the New Year has not seen an improvement in the intelligence of that pack of pathetic traders. Seriously, this current crop of hedge funds contains some of the most ignorant and unskilled traders that I have ever personally witnessed over my entire two decades+ trading career. They seem to know little if anything about nibbling on markets or being cautious and scaling back in size. It is either, "All in" or "All out". Massive amounts of money are slingshotted into everything and then promptly jettisoned out. It seems to me that the only people making money in that environment are the brokers, who must love the commissions and the exchanges which are revelling in the huge fees that this constant churning is creating.

That brings us to gold, which has been able to hold very firmly above the $1,600 level. The longer it does, the more confident traders are becoming that the bottom is in and that the next trending move will be to the upside.

You will notice on the chart that the market has run right back up into the initial resistance level detailed near and just above the $1,620 level. Forays in price the last two trading days have seen any dips below $1,600 immediately attract buying which has taken price promptly back avove that level. The result is that some shorts are getting nervous and are beginning to cover. If the bulls can now mount a close above today's session high, it seems we are going to get a move towards psychological resistance at $1,650 with the potential to charge towards the second resistance line drawn in near $1670. That is where the real battle will shape up to see whether or not the stronger-handed bulls can contain it there or watch it run to $1,700.

RISK ON!

2012-01-03T11:43:00.000-08:00

It certainly appears that hedge fund managers are hungry for gain this year as they used data coming out of China and India as a reason to plow idled money into commodities and jettison the Dollar. "SAFE HAVEN" was anathema to begin the New Year's trading as bonds are being pummelled in today's session.

The surge in money flows pushed gold and silver sharply higher with Silver leading the gains (as we have said repeatedly - Silver will outperform gold anytime the RISK trade is back on) as it is currently trading near $29.60, up some 6% to start out the New Year. It still remains below $30 however and until it does, stronger hands are going to look to sell silver rallies.

Gold is acting very impressively as it has been able to push through the $1600 level and maintain its footing over this psychological resistance. A good finish to the day (needs to stay over $1600) and it has a good shot at running to $1620 where stronger-handed shorts are going to be waiting for it. If the bulls can absorb that selling, then this thing has a real shot at pushing all the way back towards $1650, which will be the indicator whether or not we can get a trend higher to commence. A short term bottom is in however - now, we will need to see whether the metal can build enough buying momentum to kick it out of a range and into a trend.

There still remains enough of a contingent of traders who remain very leery of bad news out of Europe and until that number dwindles down further, some are not going to be convinced by one day's trading gains, even though those gains are strong.

Aiding the cause of both metals is the recovery in the HUI which has managed to get back into that year-long trading range bounded by 600 on the top and 500 on the bottom. It seems that some of the same funds that were accumulating the shares last year came back in late last week and continued buying this morning. That is a good sign that the bulls were able to thwart a huge bear raid and force some short covering by frustrated shorts as the flows into the sector did not disappear as they had been hoping. The price action is telling us that the same big buyers of the shares are still bullish and see value when these things move lower. The big question in my mind is whether or not they are going to be able to recruit sufficient allies to their cause to really enable a change in the trading range pattern which has defined this sector for more than a year now.

Part of the rally in the commodity sector is being fueled by a sharp rise in the crude oil price as Iran jawbones more nonsense about shutting down the Straits of Hormuz. Let them try as such an event, while it would disrupt world oil flows, would affect their economy far worse. What else are they going to export - pistachio nuts?

I might be a bit more nonplussed than some by all this chatter as I remain very skeptical that Iran would be able to sustain a closure of these straits for very long. My guess is that the Iranian leader needs to gin up local support to take the mind of the opressed Iranian citizens off of their pathetically lousy economy.

Trader Dan on King World News Weekly Metals Wrap

2011-12-31T06:14:00.000-08:00

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/7quae5s

Monthly Gold Charts - December 2011

2011-12-30T16:20:00.000-08:00

Silver ends DOWN on the Year

2011-12-30T10:38:00.000-08:00

First of all I would like to publicly thank one of my readers, "Silverwood", for noting that I erroneously reported in an earlier post that silver had ended the year 2010 at the $28.00 level. I mistakenly used the LOW for the month of December 2010 instead of the closing price which on the front month futures contract was $30.93.

Based on that price, Silver is ending DOWN on the year 2011.

Note on the following chart that it has retraced 50% or half of the entire rally made from the lows in 2008 which marked the bottom during the eruption of the credit crisis and the inception of the Federal Reserve's Quantitative Easing program. That rally took it all the way to $50 before it then promptly collapsed.

Bulls would have preferred to see it close the year ABOVE that 50% Fibonacci retracement level near $29.30 but alas, it could not do so after staging a decent bounce off of this week's low near $26.

A period of base-building in a sideways trend would benefit this market as many players are simply too worn out from its wild swings up and down to mess with it right now. Silver is a seductive lover which promises all manner of satisfaction only to then break your heart with its fickleness. If it can settle down some and grind sideways ABOVE $26 for some time, then we should start seeing some confidence towards it on the part of more investors outside of the dedicated silver bulls.

If you note on the chart the line marked "SUPPORT" in dark red. That line comes in near $26.30 and extends down towards $26.15. THREE times over the last year it has held price and attracted sufficient buying to take the price higher. IT MUST HOLD in order to prevent a drop all the way down towards $22 - $21. If the bulls can take price back above that 50% retracement level near $29.30 and preferably put a handle of "3" in front of the price once again, then I think silver will be okay and attract some new buying as well as minor short covering.

In order to get a sustained uptrend going however, it is going to have to convincingly clear $35.50. If risk trades come back into vogue early next year, then this should be a relatively easy matter for the bulls to accomplish. If however risk aversion is still the order of the day, then this market is going to struggle.

Thankful for Gas Shale

2011-12-30T09:28:00.000-08:00

One of these days the politicians are going to wake up and realize that America is sitting on so much natural gas that we could kiss the Mid-East and its problems goodbye if we actually took steps to convert to a larger use of this valuable "home-grown" natural resource.

Wouldn't it be nice to be able to ignore the mullahs in Iran as demand for the only thing they have to sell of any value evaporates up into smoke.

Look at this price chart of natural gas and see what American ingenuity and technology can do when once it is unfettered and allowed to thrive. I for one am thankful that it does not cost a small fortune to heat one's home or generate the electricy produced during the summer when we are running air-conditioners to cool our homes. Imagine what we could do if we had more and more cars, buses, trucks, etc, running on natural gas or LNG.

US Dollar looks to squeak out a Winning Year

2011-12-30T09:07:00.000-08:00

The Dollar is being sold down today in the year's last trading session as bulls book profits and window dress their accounts after the nice run higher over the last two months in the greenback.

This is allowing the commodity complex in general to rally and is benefitting both gold and silver.

Reading too much into one day's trading action at this time of the year is generally not wise. Volume is simply too low to validate any moves and with liquidity quite low, it does not take much in the way of order size to move these markets around. Also, some of the pit locals particularly are fond of separating traders from their money in this kind of holiday trade.

That being said, the Dollar has managed to finish the year of 2011 on a positive note, even if barely. It is hardly a ringing endorsement of the greenback however as it was more a "get the hell out of the Euro" trade than anything. Risk aversion and a flight to cash were the main culprits behind the Dollar's rise, especially over the last few months. Fundamentals cannot be said to be strong for the Dollar, not when we are running over $15 trillion in federal debt and are at 100% on the Debt to GDP ratio. If that were not bad enough, the president just asked for ANOTHER $1.2 TRILLION in additional spending limits.

Getting a read on things as we head into the New Year is a bit tricky since the same problems that have plagued Europe still remain and China, while still growing, is slowing down a bit. The US economy is working along a bottom and while recent economic news has shown some signs of stability and extremely modest growth, the idea that the economy is going to expand at a rate fast enough to do much if anything to cure the ailing jobs picture or even put a dent in the federal debt is wild and wishful fantasy. The US economy has bottomed out but that is a far cry from signaling halycon days are ahead.

It does help to put things in perspective however and that is what the long term monthly charts are good for. This chart is hardly a vote of confidence in the US Dollar which has declined 30% over the last ten years as of the end of this year. While recent Dollar bulls may be congratulating themselves for making a wee bit of money this year, try telling one's kids and grandkids that their future looks rosy based on this chart.

As we start the New Year next week, the Dollar has a chance to extend the rally of the last two months if it can better the initial resistance level near 81.40. That would set up a push to 83, which if the Dollar can take this out, would pave the way an eventual run towards 89 - 90. Much depends on the state of mind of traders regarding risk and whether they are willing to commit capital that is sitting on the sidelines or to continue keeping their powder dry and hoping for signs of improvement in the global economy as a whole.

Gold Daily Chart

2011-12-29T16:31:00.000-08:00

Gold, as with Silver, managed to bounce right where it needed to in order to prevent a deeper drop. It uncovered buying down near the $1,535 - $1,530 level, an area where we learned after the fact, that Central Banks had been buying back in September.

Bulls are digging in here so one can only hope that their conviction remains firm enough to take the price out of the danger zone and back above the $1,600 level. Such an event would trigger some sizeable shortcovering among the weaker-handed bears.

Failure to hold today's low sends the market almost immediately down towards $1505 - $1,500.

Last see what we get in trading tomorrow to end the day, week, month and year. Currently we are seeing buying coming into the Asian session. No doubt some of this is shorts ringing the cash register to go out on a winning note for the week.