Dear CIGAs,
What a difference a set of lackluster housing data can make! It sent the Euro soaring, the Dollar tanking towards .79 on the USDX and the precious metals soaring.
Based on the large increase in open interest in yesterday’s session ( + 10,565), the small price range and the fact that it all occurred with gold at the $1300 level, it is now apparent that the bullion banks were making a concerted effort to cap the hold the price of gold from breaching $1300 especially on a pit session close.
All in all, a large number of fresh shorts were then instituted at or near that level. Guess what – someone came into the market after the lousy housing data was released this morning and blew every one of them out of the water. Within a minute’s time, a surge of buy orders took price right through $1300 completely negating the overnight selling pressure and forcing a short covering burst on up to $1304 before prices subsided a bit. Then momentum buying came in pushing prices back up again as the market moved on up towards $1310, topping out at another record lifetime high of $1309.20. A brief lull followed which led to yet another burst of buying this time taking prices above $1310 with relative ease before once again it set back a bit.
Silver followed suit after dipping as low as $21.06 overnight as it took out its 2008 peak before setting back a bit. The close over the March 2008 high has it now looking poised to make a run towards $25. I am just projecting resistance levels at this point but that does appear to be the next likely target. There is a bit of resistance that could surface just above $22 prior to that.
The HUI is in the process of attempting to make another run towards 510. That still remains the last barrier prior to formidable resistance near 520. Nothing has changed in regards to that chart; the index needs to push through that barrier preferably on a weekly closing basis, to indicate that the mining shares are finally breaking out strongly to the upside. Were it not for the continued hedge fund ratio trades, that level would have already given way. I suppose they feel as if they can ride that trade a while longer yet. We’ll see. If makes infinitely more sense for them to take the long side of the shares and the short side of the broader equity markets since any QE2 will feed directly into Dollar weakness, gold strength and continued reflation trades.
On the currency front I was struck by the fact that the Swiss Franc has now notched a one year high. How much money did the Swiss monetary authorities expend in attempting to weaken the Franc not all that long ago and look where it got them!
The problem remains the same – the US monetary authorities are “out debauching” everyone on the planet with perhaps the exception of the Japanese monetary authorities although I am beginning to wonder if the BOJ is effectively finished as the most powerful foe of currency traders on the planet. If so, it has died a rather inglorious death certainly not in keeping with the history of the Samurai. The yen is almost right back to where it was prior to their huge intervention efforts less than 2 full weeks ago. If they cannot knock it back down any better than this, then what does that say about their true power? As I have stated repeatedly, the Yen is becoming a serious political issue in Japan for obvious reasons as their economy relies on the strength of its export markets. The strength in the Yen is choking off sales from that sector eliciting howls of disgust and disapproval from powerful, well connected business leaders. We will watch with great interest how this plays out. The Swiss were forced to throw in the towel on the intervention front; will the BOJ be next? If so, we are watching history.
Perhaps we need another sequel – “Last of the Samurai – Part 2”. Tom Cruise can reprise his role leading what is left of Katsumoto’s army against the armies of Ben Bernanke (whom we find out is a distant cousin to Omura) who mows them all down with a printing press which spits dollars out at blinding speed wrecking the entire countryside after filling it with corpses.
Seriously, as much as one might try to find a fundamental reason to buy the Dollar, there just does not seem to be any. It is evident that the Fed has made the determination to sacrifice the Dollar on the altar of expediency. There is not a country on this earth that is polluting the planet with as much paper as the current Fed. Then again, that might explain cotton prices at new 15 years high since it is my understanding that the “paper” the Dollar is printed on is not actually paper but a cotton fiber blend. How much cotton is it going to require before Ben gets “inflation back to levels consistent with its mission.”
Back to gold however – the push through $1300 is a remarkable display of strength and determination on the part of the bulls who simply keep coming in and buying dips in price. The report is the same – dips in this market are shallow and short-lived as buying sentiment remains very strong. What we are seeing is the market becoming increasingly focused on that recent FOMC statement with the expectation that Bernanke is going to pull the QE2 card out of his sleeve and play it. That’s what is feeding into the bond market, the Dollar, and the precious metals.
Speaking of bonds, the long bond pushed up through last week’s high on further anticipation of the Fed buying every debt issue in sight. The chart pattern indicates a push back towards the recent peak near 137 – 138 is in order should further economic data releases continue to confirm the sluggish pace of any so-called “recovery”. The FOMC has made it clear that they will do whatever it takes to avoid such an occurrence. Bond traders are taking them at their word. If the bonds get back up to that level, it is going to be most crucial moving forward how they act up there.
Keep an eye out for possible downgrades coming out of the Euro Zone. That might put a bid under the Dollar for a short time as the Euro could come under some pressure. So far the Forex markets appear to be discounting that scenario. Either that or they are so eager to sell the Dollar on the QE2 play that they no longer care. If that is true, heaven help our nation.
Click chart to enlarge today’s hourly action in Gold in PDF format with commentary from Trader Dan Norcini
