Dear CIGAs,

Today was, “Let’s throw away the Dollar and Buy everything else in sight” day. The entire commodity sector had money flowing back into it in a big way today as both the Yen and the Dollar were jettisoned in favor of “risk” plays. Copper reversed its collapse building a bit on Friday’s bounce. Ditto for silver and for crude oil. Even pork bellies were higher today.

The effect of all this was a steady flow of buy orders into gold the entirety of the session. So far it has pushed to a high near $1,074. If it can get back above that critical level of $1,080 and hold there for a couple of days, it has a much better chance of entering a range trade rather than making another leg lower as technicians will point to bear-flagging action unless it recaptures the former broken support level where our big buyer of size had once been making their presence felt. While it is nice to see the gains in gold, technically it has a lot of work to do to repair the severe chart damage of the last week.

Once again the problem is the mining shares as the HUI still can barely manage even a bounce. The hedgies are continuing to sit on the shares with their ratio trades. The sheer “logic” of this trade reflects just how ignorant the majority of hedge fund managers are and how algorithms have taken over the markets at the expense of reality but it is what it is for now and with as much money at their command as they have, until these guys decide to either reverse those spreads or lift the short leg, the shares are going to underperform. Same comments as Friday – the HUI will need to get back above the 400 level to initiate more short covering and kick in some fresh buying.

You can get a pretty good feel for how the battle between the inflationists and deflationists is playing out by watching a few key markets such as copper and soybeans but a better picture still remains the Continuous Commodity Index ( I still do not like the CRB index because it is too heavily weighted in energies). The CCI needs a weekly close above 481 – 482 to give the inflationists a reprieve from the recent selling barrage in this sector and turn that weekly chart friendly again on the shorter term. Long term its uptrend still remains intact. Short term the trend encourages selling into rallies.

As usual we are back to watching the broader equity markets and the currency markets to gauge the psychology of investors/traders. The S&P 500 will have to climb above 1105 and hold there for two days to convince some of the shorts to get out. While the Dollar is moving lower today, as long as it remains above 79, the short term trend is in favor of the bulls. Money flows are what markets have become all about these days and it is those two primary markets that determine pretty much where that stuff goes.

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