Dear CIGAs,

Japanese Yen down hard; Euro up strongly; US Dollar sharply lower and Bonds absolutely obliterated – translation – risk is back in for today even with the broad equity markets down once again.. Under the current market psyche, risk being in means gold is not needed and so the usual chatter about profit taking becomes the explanation for today’s weakness at the Comex.

From a technical perspective, gold ran just shy of very strong resistance at $960 yesterday before encountering heavy selling pressure which took it down late yesterday and into today’s session. You will note on the chart that it bounced right off of the top of the uptrending channel but it did find buying coming back in near the top of the former resistance zone between $930-$920 which is now serving as initial support.

Gold gained about $26 for the week in the process of its $62 range from low to high. The price gain pulled the 10 week moving average above the 40 and 50 week moving averages and was the highest weekly close since early August of last year. The climb higher and the strong close also put it above the weekly swing high from October 10 which puts the market firmly in a technically bullish posture to begin the following holiday-shortened week.

As far as I am concerned, the big market news today is not so much gold, but is the bond market. Its price action is horrendously bearish and is signaling a collapse could very occur if the 125^00 level gives way next week. The bonds had experienced a bit of a bounce to relieve the very oversold condition of the market. In the process they ran exactly to the 20 day moving average and abruptly puked. They are now sitting right on the 100 day moving average again just as they were last Friday. You might recall that Monday of this week, they violated that 100 day average intraday but managed to close back above it which was taken as a short term buy signal by some traders. Now all of those short covering related gains have evaporated and they are perilously poised right on top of that same moving average once again. It is evident that bond bears are deadly serious about attempting to take this market sharply lower. And why shouldn’t they? Who in their right mind would want to lock up their money for 3.5% for 30 years given what we know is coming down the pike? Bonds are signaling that rates must move higher to compensate buyers. Whether or not the safe haven buyers who mindlessly rush into the things at the release of every single bit of bad economic news will be sufficiently large enough buyers to offset the supply-minded sellers who are seeing a tsunami of paper flooding the market in the days, weeks and months ahead remains to be seen but judging from the bearish chart action, it does not appear to be so. If the Fed is going to actually follow through on their talk of buying out along the long end of the curve to keep long term rates artificially low, they are going to be put to the test quite soon it would appear.

I am not sure what percentage of the gargantuan sized, humungous, indeed obscene amount of indebtedness that the reckless spenders in Washington DC are going to foist upon the next two to three generations is going to be financed from issuing long term debt but the rising rate of interest that they are going to have to fork over to potential buyers is just going to make paying down this debt all the more impossible. I guarantee you that we will see a massive attempt to inflate away this debt by a devaluation of the dollar and that devaluation is going to occur with gold being officially revalued at upwards of $1,650 quite easily. There is simply no other way except outright default and that is not going to happen. Devaluation is the only way out short of scrapping the Dollar altogether. Heaven help us for we have been ruined by these short-sighted fools parading as statesmen in Washington D.C. Indeed one of the New York Senators at the middle of this had the audacity to state that Americans do not care about “pork” and welcome the spending orgy. And people wonder why the bond market is collapsing! I am sure the Chinese are reassured that all will be well with their dollar-denominated reserves with this kind of statesmanship.

Crude oil moved down to within 30 cents of its major low and then sharply rebounded gaining more than $3.00 barrel as I write this. So far it is continuing to work within that broad trading range between $33 on the downside and $50 on the topside. It really does look like a low in crude is in but that does not mean it will begin a trending move higher. It just looks like it has found a region where buyers see value in the low $30’s. It could meander around sideways in that range for some time until something happens to change the current supply/demand balance. If crude has indeed found a bottom, that is going to put a floor under the entire commodity complex which will encourage money flows to begin coming back into the entire sector, something which I noted yesterday has already slowly begun. It will ramp up this trickle and increase its speed.

I might note here that a fair amount of gold/crude spreading has been going on – some of that is being unwound today as the ratio has really moved on up. That is putting some pressure on gold and propping up crude. That has been a good trade and some guys are booking profits on those spreads.

The HUI and the XAU are weaker today but are still poised to put in their best weekly close since October of last year.

Those of our readers in the States, enjoy your holiday Monday.

Click chart to enlarge today’s hourly action in Gold in PDF format with commentary from Trader Dan Norcini