Hourly Action In Gold From Trader Dan

Posted at 4:07 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

I wish I could blithely write cogent explanations day in and day out for what is transpiring in these markets and bring light into the murkiness, but alas, even after being involved in them on a daily basis for as many years as I have been, there are times when I admit that I haven’t a clue as to what is taking place or why. Today is one of those days.

A couple of things started the ball rolling today. First was the housing numbers data which surprised by coming in stronger than expected. That put a bid into equities for a while but the main effect was that it brought back the “risk” trades. Keep in mind something I said just a short time ago – one day risk is in, the next day it is completely out. All the convulsions we are watching these markets go through, especially in the Forex arena, is the result of hedge funds blasting in or blowing out from one day to the next. For today at least, Blue Horseshoe loves risk so the Dollar was promptly whacked lower along with Treasuries and money flowed back into the majors. The Australian Dollar was particularly strong as was the Euro. The Swiss Franc was also sharply higher, something that one does not normally expect to see when “risk” is in.

My view is that some of what we saw in the Forex markets was the result of the news that the Fed had extended the deadlines for currency swaps to October 30 of this year with 13 other Central Banks. No doubt this move was intended to meet dollar liquidity needs overseas as investors angrily dumped the worthless crap that Wall Street had peddled them. It is my opinion that the US monetary authorities DO NOT WANT a stronger Dollar, protestations to the contrary. Our agricultural exports have been shriveling up as the move up in the Dollar has been an effective price hike on foreign buyers at EXACTLY the wrong time. AG exports were the ONE PART of our economy which has been a shining beacon and that has been effectively mangled by the Dollar’s rise. At a time in which every nation on the planet is going to play the competitive currency devaluation game, why would we expect to see the US do anything differently than the rest? Yes I know about the need to be able to sell US debt abroad but let’s just say that the authorities do not want a Dollar collapse but they certainly do not want a soaring Dollar either. My guess is that they are happy to see it deflate in value and trade down towards the lower edge of its trading range. Certainly, someone does not see it as having any “value” up near the 87 level on the USDX.

Under normal circumstances we would have expected to see gold moving higher as the Dollar got trampled especially with crude oil showing such resiliency. Not so – today’s reason to explain the inexplicable says that gold is not needed during times when “risk” is in so let’s sell it. Wait another day because as soon as “risk is out”, gold will then be seen as too risky to buy and that will be the reason used to tell us why it is being sold off.  Actually I think the reason gold is lower today is because Jack Bauer hit the terrorists’ hideout last night in “24” and destroyed the CIP device in the process. Way to go Jack – maybe Jack can now save us from what the feds are doing to our monetary system.

The real reason is that a huge seller/sellers showed up today as gold rallied higher in New York, especially after the London PM Fix was done, and sat on the bids and that was that. No doubt they were some of the same crowd that did the selling yesterday as open interest indicates that plenty of fresh selling occurred yesterday.

Locals saw the stone wall in front of the market and ditched their positions and went short which also tripped the 3 minute bar charts bearish and the day trading crowd began to sell. That pushed out some weak or stale longs who decided to get out and wait for another entry point a bit lower. It looked as if $900 was going to hold on the downside test but sellers came in and gave it enough of an extra push to take out some stops near that level. Gold is attempting to recapture that level but so far has not been successful. Should the bulls not be able to hold it here, the next downside level will be good old $880 once again. That number has taken on an incredible significance from a technical level.

The gold charts, especially when viewed in other foreign currency terms, look very impressive, even with today’s weakness. Even on the shorter term 12 hour chart that I employ for analysis purposes for the daily updates, there remains a definite uptrending channel that is very much intact. If the bulls cannot quickly push prices back above the $900 level and hold it there, the most likely outcome is for a move down to retest $880 which should garner strong buying interest. We also have the upper boundary of the triangular consolidation pattern that was in place going back to October of last year which comes in near the $870 area with the 20 day moving average coming in near the $865 level further reinforcing this level. Gold is sitting right on top of its 10 day moving average which has flattened out a bit but is still moving upwards.

Interestingly enough, the mining shares as indicated by the HUI and the XAU are not following Comex gold lower to a large extent. They are down but just barely and have been vacillating back and forth between positive and negative territory. Both indices look like they have set up consolidation patterns on the daily charts and are working a trading range. It will take a strong close above the 310 level on the HUI to set a spark that is large enough to blaze through the brush being thrown in front of the mining shares. For the XAU, we still need to see a CLOSE above 127, preferably 130.

Bonds are moving lower today after bouncing yesterday as who needs them since risk is in.

Natural gas might be probing for a bottom and crude oil seems reluctant to break much lower. It would be a good thing for gold should we get a solid bottom in these energy markets. There are a growing number of players who are looking for serious inflation problems to arise in the global economy at some point and who will be looking to acquire long positions in a variety of commodity markets. Deflation is still winning the day but it WILL give way to a major inflationary outbreak in the future. Prices in various commodities have moved lower to attempt to adjust for the new dynamic in supply/demand factors but once a price is found in which clearing begins it will not take much to push prices inexorably higher.

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