Short term profit taking did not last very long last evening and early this morning as dip buyers wasted little time in making their presence felt. Technically, this is quite positive as it indicates growing confidence on the part of the bulls and growing apprehension on the part of the bears. Last evening it had appeared that the bears were going to beat gold back down towards $780 but the upward surge in the Euro and the rally in the equities over the CITI bailout news was too much for the gold shorts. Amazing what a few billion dollars sprinkled hither and yon can do for a reflation trade.
I should note here that gold priced in terms of British Pounds shot to a new all time high today. The PM fix came in at 546.875 – that was not only the highest PM fix ever, but it was also higher than the previous high AM fix. Is it any wonder that at 3:00 AM, CST, when London traders were fully awake, that Comex gold exploded higher shaking off the early profit taking that occurred in Asian trading. I will try to get some charts up this evening of gold priced in various currencies as a point of reference as it has been a while since I have done that.
Open interest in gold did see an increase in Friday’s strong upside day; however, given the size of the move higher and the huge volume, the change in open interest of an increase of a bit more than 3,000 contracts suggests that my thoughts on Friday were correct – namely – a huge amount of shorts from the spec side were squeezed out. The move above the $780 level took out their buy stops and also brought in some of that money which has been sitting on the sidelines. Long side specs need to make sure they do not forget that a winning strategy to beat the commercial shorts in this market is to stand for delivery and not just play the paper game. Take the gold away from the warehouses if you want the real metal in possession as well as depriving the bears of their ammunition. They came back to play about 30 minutes prior to the close of pit session trading and bopped it down $6.00 just to make a statement. Don’t forget where their Achilles’ heel lies. Without the physical metal in the warehouse to back them, they are huffing and puffing and can only bluster.
Technically, gold has smashed through the 50% retracement level from the October peak in very convincing fashion. There looks to be some light resistance in place near the $830-$835 level. Above that is even numbered resistance near $850 and then $880. Downside support is light near $810, stronger support following that near the $790 level and much more significant support now moving up to $770.
The HUI and the XAU are showing much improved looking price charts at this point in the trading session. The HUI’s 50 day moving average has been hit in today’s trading and is serving as upside resistance. The 50 dma must be taken out to turn the technical pictures firmly in favor of the bulls. If the HUI can then go on to break downsloping trendline resistance near the 250 level that should seal the deal and put the bulls back in charge. First it needs to close above horizontal resistance near 225.
The delivery picture for November gold continues to show Bank of Nova Scotia as the main stopper of size. There were a total of 75 deliveries issued early this AM with BNS taking 46 of them. Morgan issued another 20 with Prudential being the largest seller today and issuing 51. The December contract will soon be entering the delivery period, so if you want gold in December and do not have a long position, you will be able to enter Monday of next week.
Regarding the Dollar – the USDX had been showing signs of negative divergence for some time now as all of the technical oscillators were showing definite signs of waning momentum with the move higher in the USDX not being confirmed by the indicators. Selling resistance has proven to be quite fierce near the 89 level with the Dollar unable to take out that level and maintain its footing above there for long. The breakdown in the Dollar in today’s session confirms that divergence has been valid; however, I would want to see two consecutive closes below the 85 level to confirm that a top is in the USDX. The broad Dollar Index that I track has not been as weak as the USDX. That might change however with today’s general failure. I prefer to see both indices confirming the other.
With the kind of wicked volatility we have seen in these markets, confirming much of anything in these markets is at best a bit tricky and at worst, a fool’s game. Simply put, news of another failure elsewhere could prompt a whole new round of liquidation all over again with the Dollar getting another temporary lift as a result. Still, with everything going in its favor from a deleveraging standpoint and redemption-related repatriation from abroad, coupled with massive Chinese purchases of US Treasuries, the fact that the Dollar could not plow through the 89 level and on to 90 is most telling.
The weakness in the Dollar is providing the lift across a broad spectrum of the commodity markets this morning. All of the grains are getting a very strong boost as shorts cover and new longs move in on the idea that the weaker dollar will provide a desperately needed boost to our ag markets. While some have been cheering the surging dollar, US exporters have been cursing the rally coming at a time when they really needed the business from abroad. A stronger dollar combined with credit tightness has been killing US grain and farm exports of late.
Crude oil has put in a nearly $6.00 swing from its session low to its current session high with the liquid energies of course seeing corresponding moves higher in price. Nat gas is higher as well with the cold weather helping to further buying from specs already in the mood to buy tangibles. Copper, platinum and palladium all putting in decent sized gains today with silver in particular having a banner day. If silver can clear 10.80 and maintain a price above that level, it has a chance at making a trending move higher.
Bonds are getting dumped today with weakness associated with the surge in the equities. Interestingly enough, gold has been outperforming bonds as the safe haven play for the last couple of trading sessions. In my opinion, this is because the yields on treasuries are simply too low for those looking to protect their wealth given the fact that the US is cranking out immeasurable sums of paper to throw at all the problems breaking out like a good case of Poison Ivy.
The Euro-Yen cross is as expected, strongly higher today, with “risk” back in vogue as the Japanese Yen gets dumped. How fickle are thy lovers Oh coin of the rising sun! the first sign of trouble they will come running back to you however.
The rally in the US equity markets has brought the emini S&P into the 10 day moving average. While the rally from the recent low has been quite impressive, in the larger scheme of things, a rally in a bear market back to the 10 dma is not really saying much. The 20 day stands near the 895 level with the 40 day at the 939-940 level. To have even a prayer at turning the longer term chart pattern more friendly, the S&P would need to take out the 50 day near 992.
Click chart to enlarge today’s 12 hour action in gold in PDF format as of 12:30 pm CDT with commentary from Trader Dan Norcini.