Hourly Action In Gold From Trader Dan

Posted at 3:50 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

Gold priced in terms of Euros once again set a new all-time record high at the London PM Fix at €719.199. Clearly, European-based gold buying is very, very strong right now.

The commodity currencies, the Canadian, Australian, and New Zealand Dollar, were all higher in today’s session as were many commodities notably the grains, unleaded gasoline and natural gas. Palladium kicked back above the $200 level while platinum remains a bit below the $1000 level trading near $990.

Around mid-session, news hit the wire that the feds were considering suspending or modifying the mark-to-market accounting rules which had forced banks to value the stuff on their books at market prices instead of their computer model prices. Wall Street loved it and immediately began buying up shares of the financials which firmed the entire equities markets and put a bid back into many commodities. Interestingly enough, both copper and lumber went down – not exactly an encouraging sign for those looking for signs of a bottom in housing.

Gold began moving off its highs on the news as the safe haven bid for the metal then began to dry up. The idea is that if the banks can fudge the numbers on their books then they can present much improved balance sheets to observers and thus restore confidence to the market which in turn will supposedly lead to a loosening of credit and improved lending activity. I am not saying I agree with this but just remarking about how it is being viewed. All I know is that I sure wish it was that easy for me to improve my financial picture by arbitrarily assigning a value to my assets. “What are you worth Trader Dan?” “I don’t know – what do you want me to be worth and I will make it so”.

I am not sure where this is going to go but for today at least, it is the talk of the town.

The technical result of all this as concerns gold was that after it had charged all the way back to strong resistance at that stubborn $920 line, the potential accounting change news emboldened the shorts and spooked the longs and down and back away from that level it receded once again. Ditto for the shares as indicated by the HUI and the XAU which fell back from the top of their trading range once again. The move further away from support down near $890 is constructive but gold has still been unable to get a strong move through $930, which is what it will take to set up the next leg higher. For now it remains in a consolidating pattern with an upward bias.

Gold is trading firmly above all of the major moving averages with the 10 day proving to be good support. All of those moving averages are trending solidly higher. The RSI is still not yet in the overbought zone so there is potential for further upwards action should bulls have the wherewithal to push it higher.

The accounting news also pushed the Dollar back down and moved the Euro back into positive territory as risk was back in once again with the Japanese Yen getting the snot beat out of it. The Yen could collapse quite rapidly if this risk mentality sets back in again. Maybe the jobs number tomorrow which is expected to be quite poor will firm it back up again but since that number is already widely expected to be a stinker, it will probably take an extremely poor reading to undo the mild euphoria surrounding the change in accounting rules. All I know is that there are a helluva lot of spec longs piled into the Yen and it could be quite a bloodbath in there if the sentiment towards it shifts. Those of you who want to trade that thing, should be prepared for extreme volatility. You could get hurt very badly if you are not very, very quick.

Gold deliveries for February were worse than terrible – they were non-existent. In other words, there were ZERO deliveries assigned for today in the February contract. That should make the thieving gold shorts at the Comex quite pleased. Nothing like signaling defeat to your enemy and boosting their morale.

Open interest levels are still remarkably low considering the levels at which gold is trading. We are at 346,000 compared to a peak above 593,000 and gold is $85 away from the $1,000 level.

As a side note, dairy farmers are experiencing a horrendous time right now and many are not expected to see their businesses survive the winter. Milk prices  have plunged below the cost of the production for many of them with reports that some are losing as much as $200/head. That is terrible news and my heart goes out to these hard-working folks who rise early each morning and endure the ins and out of this very difficult industry in which to survive. They have no choice but to begin culling their herds if they hope to weather this horrific storm. A pox on the damn bankers and monetary authorities along with the politicians who created this disaster for the rest of us. Where’s the bailout money for these family owned businesses who are the backbone of this nation? Oh yeah, I forgot – that is reserved for the pond scum who got us into this mess in the first place.

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