I wonder how much of our own tax money, also known as TARP, TALF, CRAP or whatever, has found its way into the coffers of the government’s friends at the Comex and is being used to trash the price of paper gold. I would think that if someone threw $20 billion here or $40 billion there my way that I could do some strange things to whatever markets I wished. Needless to say, the mugging that regular occurs when trading rolls into New York continues. Maybe we should set up an algorithm that computes how far down they can take gold based on a certain number of points up on the DOW… let’s see – 80 DOW points up means $20 down in gold…. 100 DOW points up translates to what, $40 down on gold, etc.?
I read an article last evening about some of the big hedge funds moving into gold. Too bad that they still have not figured out that they could break the death grip of the bullion banks by standing for delivery and removing the warehouse gold. Those guys will simply never learn. I suppose we should not expect anything different. After all, they are products of the American public education system and the inherent bias against the yellow metal among the elites in the West. “Students – repeat after me – Paper – GOOD; GOLD –BAD; now write that 1,000 times and turn it in at the end of class today”.
It is evident that the Chinese will have to do the heavy lifting for these mental lightweights. News out of China that the head of the National Administration has advised diversification of China’s massive foreign reserves into gold, oil, and other strategic commodities is further confirmation of the thinking that now prevails in the upper echelons of China’s political powers. They know full well what is going on and are intelligent enough to secure the real deal, not paper scraps like the hedge funds seem to love lining their bird cages with. Any weakness in gold will absolutely delight the Chinese who are looking at ways to reduce their glut of Dollar holdings but do so in a way that does not throw the forex markets into a tizzy.
It should be noted that the Chinese are not momentum traders – they trade the way the professionals in this industry formerly traded – they buy into weakness when the long term trend favors a market. Hedgies will end up selling into the hands of the Chinese.
Technically gold ran into selling resistance at the 20 day moving average on Friday and at the now downtrending 10 day moving average in today’s session. The bearish crossover of the 10 day below the 20 day is a sell signal for the short term oriented. Downside support now lies back at the 40 day and 50 day moving averages coming in near $910 and $900 respectively. If we can hold above those levels, the most likely outcome then becomes a range trade and a period of consolidation since it is evident that the official sector price capping is too strong right now for the bulls to push it out of the way. A downside breach of the 50 day moving average puts $890-$880 into play. Prices will have to break above $960 to resume the upward trend.
We are back to the 11:00 AM CDT bashing of gold which occurs when the physical market closes in London. That is when the paper sellers double down on their orders and go gunning for stops. I have seen this occur so many times since 2002, that it might as well be part of the official Comex rules.
Traders are now myopically focused on the reported holdings in GLD to the point of obsession. If they do not see those rise, they sell… Now that’s what I call a strategic, forward-thinking, long term oriented, macroeconomic approach to trading/investing. That’s what we get for dispensing so much Ritalin to children who could not learn to sit still and pay attention. They apparently never learn to do so even when they become adults and become traders.
There still appears to me to be a fair amount of long crude/short gold spreading taking place. The thinking behind that play is that the worst of the economic carnage is over, commodity markets look to be perhaps bottoming, stocks are showing insufficient selling pressure to break into new lows and that therefore gold and other safe havens are no longer needed (hence the weakness in the bonds). You then buy crude oil on the expected economy recovery and get rid of gold.
Readers who have not yet purchased any physical gold but who have all their “insurance” money in the paper ETF or even only in the mining shares, take advantage of these bouts of price weakness to institute scale down buying programs. There is no substitute for owning the actual metal especially with so many well-founded doubts about that ETF. Remember – this is for buyers of the real metal – traders have to deal with what the market gives them and utilize sound and disciplined money management practices.
The Dollar moved higher early in the session but then faded as the equity markets stabilized. The one currency that did not recover off of its lows to any extent was the Japanese Yen. The Euro in particular came well off its overnight levels and actually moved into positive territory at one point. Gold now seems to be moving inversely to the Euro – more evidence of the idea that when risk is back in vogue, gold goes out of vogue. Remember when gold and the Euro were trading almost in lockstep? Not any more… How long that will last is unclear. The one point in all of this yo-yo trading is that we are nowhere near seeing a long term bottom in equities. There are way, way too many people looking to try to pick a bottom in the stock market. That sort of mentality is not synonymous with bear market bottoms. Bear market bottoms occur when NO ONE wants anything to do with stocks and that means NO ONE. The way these guys plow back into equities and unload gold at the faintest whiff of a bottom in equities tells me that we have much lower to go into the DOW and the other equity indices. Short term trading bottoms – those are one thing – long term solid bottoms heralding viable economic recoveries – no way. Still too much optimism out there… just listen to the constant drum beat coming from CNBC among so many of their anchors and guests… “Well John – are we ready to bottom yet” “So tell me Jake – what you buying?” “Okay Sandy – we’re looking good today – just how high can we take this thing?” Does any of that sort of thing sound like capitulation or total despair? Are you kidding – there is too much hope for a bottom.
There really is not much more to say about today….the longs in gold simply have no conviction and are too easily pummeled. They will need to show some mettle soon or risk handing the bears the initiative. A move that can hold the lows of that former congestion zone will show that they still have a bit of meddle in them.
Click chart to enlarge today’s hourly action in Gold in PDF format with commentary from Trader Dan Norcini