Dear CIGAs,

Last evening during the Asian session gold shot higher and peaked at a new yearly high. As trading in London opened early this AM, it began fading somewhat and as it came into New York, it appeared to run into a bout of selling keying off the stability in the Dollar. Note – I did not say that the Dollar was strong; it was relatively stable. Another way of saying that is it stopped falling. Some of this is no doubt tied to its severely oversold levels on the daily charts. That kicked in the algorithms and brought in broad based selling across most of the commodity complex. The grains were taken lower as frost fears subsided (for now) and when combined with an equity market that seemed to run out of upside steam, short term oriented longs headed to the sidelines in gold deciding to pocket some profits. Sharp selling in the HUI did not help change their minds about their strategy for today’s session.

Let’s keep an eye on how the gold market behaves here and see whether longer-term oriented longs will step up and buy the dip or will side back and watch to see if they can get it any cheaper.

Today also witnessed a safe haven flow back into bonds for some reason and out of commodities. Bonds are stuck in a sideways chop with inflationary fears shoving them lower while concerns about the slowness of any economic recovery are providing support. One of the things that gold needs to really get it cooking to the upside is a technical breakdown in the long bond, which has not yet occurred. Looking over a weekly chart of the long bond, it is evident that bonds have topped out after spiking higher on the announcement last year about the Fed’s Quantitative Easing program. After plummeting back to earth once that euphoria faded, they have not however broken below long term support centered near the 112^16 level. Such an occurrence would signify that inflationary fears are not merely surfacing but have taken solid hold upon investors’ psyche.

Tomorrow brings the usual “anything can happen Friday session” so we will see how gold closes for the week. A close above last week’s close would be most encouraging to the bullish cause. Only a weekly close below $980 would signify any kind of technical reversal signal on this longer term chart.

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

^[1]