Dear CIGAs,

Dismal Retail sales numbers derailed the equity bull’s party on Wall Street sending the markets reeling and bonds soaring as suddenly all the happy talk about an improving economy went out the window. That put a safe haven bid into the US Dollar which allowed it to bounce off its overnight lows. It also sent the Yen higher as risk aversion came back into vogue – at least for today. After all, if the much storied “American consumer” is not spending, then just exactly where is the economic recovery supposed to come from?

Crude oil which had come a dime shy of hitting $60, retreated as did a large number of other commodity markets, with copper doing an about-face and sinking well off its session high.

I think it is a given at this point in time that a rising equity market is going to lift commodities in general and pressure bonds. While some commodity markets will trade their own supply/demand factors, and can shrug off selling tied to a rising Dollar, the majority have been lifted due to index fund positioning in anticipation of a collapsing dollar and its inflationary implications. Therefore, whenever the Dollar shows any sign of strength, albeit how fleeting, these funds, along with their hedge fund counterparts, start selling commodities across the board.

Gold was holding very well early in the session as it made a charge all the way to near $930, the last level of resistance standing in its path, before the mining shares proceeded to fall out of bed and took the wind out of its sails. It looked as if Gold was getting ready to begin a bona fide trending move higher but once the HUI and the XAU began dropping alongside of the broader equity markets, in came the selling crowd at the Comex. It certainly did not help gold any to have silver next door dropping near 40 cents off its best print for the session.

It is not much of an analysis but the simple fact is that the Dollar is still the key mover and shaker when it comes to the entire commodity complex and that as risk aversion increases or decreases, its movements are going to influence fund buying and selling. If I knew exactly what the investment crowd was going to be thinking on any given day, I would know what to expect for the Dollar, but alas, we are all just mere mortals.

Gold is trading above all of its major moving averages so it is continuing to slowly grind higher but the sharp move lower in the mining shares is a concern.  What gold does not need is another blast of deflationary winds. Let’s see how things settle at the close of equity trading today and where the Dollar settles.

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