Dear CIGAs,

The recent nature of these very difficult to read markets make dogmatic assertions out of the question but it appears that gold is resuming its linkage to the Dollar, only this time in the inverse, which is what we have witnessed the vast majority of times since the bull market in gold began back in 2001. Only yesterday gold and the Dollar were moving in lockstep together with both moving lower on the recovery rally in stocks which undercut the need for safe havens in the mind of many traders. It is harder to call today because the equity markets are higher which recently has been resulting in selling pressure surfacing in gold; however, equities are backing down as I write this which usually brings buying back into gold so things are a bit cloudy. Today, the Dollar is sharply lower while bonds are also lower but gold is moving higher. That has Euro gold stabilizing over the 700 level and gold priced in British Pound terms holding above the 650 level. It would be constructive for gold in US Dollar terms if Euro gold and British Pound gold can maintain those respective levels. Keep in mind that it has been gold priced in terms of assorted major currencies, particularly those two, that has been leading the charge higher in the yellow metal.

Technically, gold bounced right off of major support in the $890-$880 level with the upper boundary of that region serving to entice dip buyers. That level also corresponds with the 38.2% Fibonacci retracement level calculated off the November high and the recent low. The 50 day moving average also comes in near that region so as you can see, technically it is a logical level from which to see a bounce higher after the recent selling.

We have the shorter term 10 day and 20 day moving averages headed lower so the bears are still in command until those are taken out and turn back higher. Gold will need to achieve a closing pit session price above $942 to bring back the momentum chasers and give it a shot at trending. For now the range trade looks more likely with support holding. We have to wait to see where resistance surfaces but a look at the charts shows that yesterday’s high and then $930 are reasonable targets to watch.

Back to the Dollar – if the USDX manages to close below yesterday’s low 87.80 it would accomplish two things – it would take out the 20 day closing average and turn the 10 day moving average down. Both are short term bearish signals. The Dollar would still have to close down below the 86.00 level to seriously threaten the longer term uptrend however which still is pointed up.

Crude oil got whacked today and it looks to me like some of those recent long crude/short gold spreads are coming off in large size after the EIA’s storage numbers were released this AM. Needless to say, that data was not particularly friendly for crude which is still trying to mount a breakout to the upside. The bottom looks to be in for crude but whether it can go anywhere is another question. We need to see demand and supply to find an equilibrium point which is apparently what the market is trying to price in and then wait for those eventual supply reductions which will certainly come since so many oil projects have been scrapped due to the low prices. Canadian tar sands need much higher prices to be profitable and many wells across the country are being shut in.

Equities looked like they might actually be going somewhere today but that was until the President made his announcement that he would sign the $410 billion spending bill. Obviously investors and traders were not impressed but then again what’s a few more hundred billion here and a few more hundred billion there in the grander scheme of things, especially when you are talking about trillions.  It is comforting to know that our children and grandchildren are getting such a “bargain”. Oh America -  “Sit tibi terra levis”

The mining shares as evidenced by the HUI and the XAU are trading nicely higher having bettered the highs from yesterday which is friendly but they have some techincal work to do before a definite trending move can take place.

Bonds are very close to breaking back down technically and resuming another leg down.

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