Dear CIGAs,

There has once again been another “flip” in the psychology of the gold pit. Over the years we have seen gold trading inversely to the US Dollar, get jettisoned along with a host of other commodities during the Yen carry trade unwind of late 2008, be considered a “risky” asset and get sold off when investors were nervous about the global economy, swing back to being a “risk averse”, safe haven asset during the sovereign debt crisis that began with Greece, and today we are now back to gold trading as the “anti-Dollar” instead of the “anti-Euro”. In other words, we have come full circle with gold now moving higher as the Dollar moves lower.

Throughout the entire gamut of swings in investor psychology, gold has moved from $250 to over $1,250 in spite of the Priesthood of Prechterite’s Prognostications Pronouncing its demise. The reason is really not complicated – it has entered into the minds of many that it is something tangible, that has value, that cannot be corrupted by monetary authorities or their willing accomplices in the political realm and that has stood the test of time weathering every economic storm in history. In other words, it is now clearly seen as the prime currency. Try as they will, Western monetary elites and their accomplices in economic circles, cannot scrub this out of the minds of the citizenry or nervous investors who watch in dismay at the ridiculous, mindless, irrational and inexplicable wild price swings in the equity markets. Although they may not be able to explain it, they instinctively understand that something is terribly wrong with a stock market that adds and then erases billions of dollars in market capitalization in a 24 hour period and a foreign exchange market that sees movements in currencies that at times past would have taken months to occur.

This is the single biggest reason that gold continues to shine – it gives its buyers and owners peace of mind and an anchor of some sort in the midst of the roaring waves of turmoil, instability and unpredictability that surround them.

To the price charts – gold is attracting buying on dips in price but still attracting sellers on moves toward the $1,240 region. Until that changes, gold will remain range-bound. It will take a closing push through $1,245 to run out the new shorts who have come in. See the chart for the levels of resistance and support. I might add here that this is not unusual for gold. It runs higher, then tracks sideways for a period of time consolidating its gains giving end users and buyers time to become acclimated to the new and higher price level building a base of support before it then breaks into a new leg higher as conditions deteriorate and another rush to its safety kicks in. We have seen this pattern again and again and again since 2001 and therefore see no reason for anything to be different.

Contrary to some of the insipid comments I have seen, gold is nowhere near a “bubble” or craze. When we see anything with the word “gold” in it moving higher in price, whether it is a bakery, a headhunter service or a computer service, then we can safely say that gold has entered a parabolic phase. Even at that, who can really say how high a market can go when fear is driving it? Personally I feel it will continue moving higher until it is brought back into the monetary system in some form or fashion as the current monetary system is now in its death throes, having been abused to death by its keepers.

The HUI chart looks a bit better as it has moved back up into a zone of congestion between 465 and 445. It too is trading sideways and will need a closing push through the 470 region to change the current dynamic.

Crude oil has broken out of its recent malaise and is threatening to push up into the 50 day moving average near $78. If speculative money can take that out, many of the shorts in the market are going to cover. I would look for resistance there but first it needs to close above $76.50.

The S&P is at a crucial juncture. Technicians are watching the 1106 – 1108 price level to see how it fares there. Bulls will be giddy if it can close through that region. Failure there will embolden the shorts who have been waiting for a higher level from which to enter after having given up on expecting downside momentum to continue on days of sharp weakness.

Bonds failed at 125^00 and are now attempting to find buyers as they work lower. They are in a consolidation pattern much like gold is and need an upside push through that level to kick off another move higher or a close below 121^17 to spark a round of long liquidation.

The Dollar needs to hold 86 to keep the speculative long side happy and worry-free. While the net speculative long position is not as large as it has been at times past, there are enough of them that a technical wash out could take it down to 84.50 – 84.00 rather quickly. We’ll see how things shake out in the next couple of sessions.

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