Gold shot through another level of overhead resistance in convincingly fashion before it was capped near the $830 level. The selling at that level was quite incongruous with the massive upside move in the Euro and the nearly $6.00 move higher in crude oil. With the Dollar falling completely out of bed as wave after wave of speculative sell stops were touched off, it made the obvious defense of $830 in gold by the bullion banks all the more laughable. Gee fellas, nothing like being discrete is there? Then again, they do not even bother to trying covering their footprints any more. Anyone with a lick of chart reading knowledge can see their handiwork Seriously, no amount of paper gold market shenanigans by these people can change the fact that the market seems to be coming to grips with the near infinite amounts of dollars which the feds insist on throwing at any business entity that can afford to hire enough lobbyists to endlessly recite why it is too big to fail. The rush into Treasuries, creating one of the biggest bubbles I have seen in that market and probably will not see again, has dropped yields to zero and in some cases below zero. With that kind of backdrop, it makes perfect sense for investors looking for a safe haven to move into gold considering that dollars are going to be dropping out of the sky.
It should be noted that the move higher in gold is not confined specifically to gold priced in Dollar terms alone. Gold priced in euros, or Euro-Gold as I prefer to call is, came in solidly above the 600 level today at the PM Fix with the price set at €624.011. Gold priced in pound sterling set another new all time high being fixed at 554.495. I will try to get some gold charts priced in various currencies up later today if time permits.
When you have gold moving higher in terms of all the major currencies plus the mining shares moving higher, it is always a positive. Keep in mind that tomorrow is Friday and after a move of the magnitude that gold has shown us this week, it is not to be unexpected that some profit taking by short term oriented longs will occur as they see the bullion bank selling appear.
Open interest saw a very good increase in yesterday’s big upmove; something which is technically friendly. We just might have finally bottomed out in the open interest after dropping from nearly 594,000 contracts to a low point of 261,000. That is one helluva market flush. We need to see a steady increase in this number to support any upside trending move. I have no doubt that a good number of those funds who had chased momentum lower and were selling into the weakness are now effectively out of the market after yesterday and today. Their buying helped propel prices higher as it was the sell stops that they had in place that were touched off. Fresh buying now must carry the load against what we all know will be the endless paper selling by the banks. Don’t forget – the best way to deal with these people is to continue taking delivery of physical gold and taking the gold OUT of the warehouses.
I think it important to note that the selling of the Dollar was broad based today in a fashion that we have not seen for some time now. What I mean by this is that we have been accustomed to seeing the Dollar and the Japanese Yen basically moving in sync. They go up as risk aversion rises and they go down as the appetite for risk returns. Today, they went in totally different directions. The Yen was higher along with all the rest of the major currencies while the Dollar was beaten with the proverbial ugly stick. Whether today’s balance of trade numbers sparked the whipping that the Dollar took is unclear but it sure did not help matters any to see the deficit shoot sharply higher, much higher than just about anyone was expecting. It should not have come as a surprise however given the weakness in crude oil and the strength in the dollar. The last thing that US export related businesses want to see, especially in the ag sector, is a higher dollar. It is already seriously choking off agricultural commodity export business. Expect to see more political pressure arising from the US against China on the issue of the yuan and its valuation. Then again, how does one expect to deal with the fellow who loans you all the money with which to feed your profligate spending habits?
The bonds continue in their bubble – no doubt a lot of the support in that market is guys continuing to front run expected purchases by the Fed against the longer end of the curve as they work to push down interest rates to try to jump start the real estate sector. That is why dips continue to be bought. At some point guys will realize that they are throwing their money into a rat hole but for now, the trend is their friend. The question is how long does “for now” last?
The price of spot gold climbed above the price of platinum today for the first time since 1996.
I will not be writing a commentary tomorrow or Monday as I have some other engagements that call me away but should be able to get some comments or charts on Tuesday of next week. If I can get anything together over the weekend I will.
Click chart to enlarge today’s action in Gold as of 12:30pm CDT with commentary from Trader Dan Norcini