As expected, the return of a larger number of traders to New York this morning saw the return of the usual selling gang which had been missing in action on Friday of last week. Gold had risen sharply in overnight trading before they took it down $17 off its best overnight levels pretty much erasing all of those gains. Action was centered around the technically significant $880 level which is once again proving to be very formidable resistance (bullion banks). Gold did manage to hold onto all of its gains from its low volume session of Friday however which is quite impressive. As a result, the breakout from the former consolidation range of $830 – $850 must be respected as the bullish flag or pennant formation was confirmed by today’s ability to retain price strength. Still – the ability of the bullion banks to knock prices back so easily is not particularly enchanting.
To give you an idea just how low the volume was last Friday and why I was cautious about reading too much into the price action, the total number of contracts changing hands was 25,513. That is for all of the contracts combined. Prior to the onset of the holiday trade, volume for the month of November was averaging over 150,000 per day! That is why one wants to see confirmation of low volume breakouts. All too often they turn out to be traps.
Gold is however trading solidly above its 100 day moving average on the continuous daily price chart and has once again recaptured the 200 day moving average – that is no mean achievement. When a market is trading solidly above both the 100 day and the 20 day moving averages, all the bears have going for them at that point is to hope for “overbought” readings since the technical price charts are decidedly against them.
Technically support should show up near the $860 level and then again near $852 on any downside moves. Today’s failure to maintain most of the overnight gains will be viewed by sellers as a green light to move back in and by some short term bulls as a signal to book profits and exit. Resistance is first at today’s session high near $890 and then at the even number of $900. A larger battle will be fought at $920 since it is the point of focus on the downsloping trendline resistance from the weekly gold chart which just so happens to also correspond with horizontal resistance drawn on that same weekly chart.
There were 52 deliveries assigned today in the December gold contract bringing the total for the month to 1.3615 million ounces – a very respectable number considering the registered category is still showing a bit over 2.8 million ounces. That is not all that far from being half of the gold available for delivery against the Comex futures contracts. There are 84 contracts left open in the December so unless we get some last minute new buyers who want to take delivery, total gold taken will come in a bit less than 1.38 million ounces. Gold traders should not be under any illusions however – unless they are willing to take possession of Comex gold through the delivery process further pulling down the stocks, the paper gold market is still the arena of the bullion banks. The have nothing to fear from paper longs who lack the teeth to take the metal from them.
By the way, gold priced in terms of British Pounds made another brand new all time high at today’s London PM Fix coming in at 601.798. That puts it very close to Euro-priced gold which came in at 616.551. The Pound and the Euro are trading very close to the same level against the US Dollar on the Foreign Exchange markets meaning that gold priced in both currency units is going to be fairly close until we see these currencies separate themselves somewhat.
Just as the bullish pennant formation in the gold chart was confirmed to the upside today, so too the bearish pennant formation in the USDX chart was also confirmed to the downside. It is now trading below its 100 day moving average with all of the other major moving averages, the 10, 20, 40 and 50 days all moving down. The recent low in the continuous chart near the 78.80 level becomes quite critical for the prospects of the Dollar as we move into the New Year.
As we move into the end of the year, some traders with profits are going to be tempted to take them either to improve their year-end trading performance or as is the case of a larger majority, to attempt to reduce somewhat the horrific losses that they have incurred in the commodity markets this year. After all, if you are down 20% on the year and you have made some very good gains in the last few weeks, why not take the money off the table, cut your final year end losses a bit and come into the new year down only 10% or so as you make ready for a fresh start in 2009. In other words, get ready for some further volatility to close out the trading year.
Crude oil got a bit of a bounce today as it perilously clings to support just above the $35 level. Shorts are probably booking some profits in there as well.
Bonds moved higher once again as they simply refuse to break down even given the parabolic type of blow off run we have been witnessing in that pit. The bubble still lives. Bond bulls are taking profits but guys who missed out on the leg up are using any price weakness to get in which is why this market simply will not go down and stay down. Something will have to occur which changes the mind set in the bonds before the longs throw in the towel.
The HUI has run into selling near the 300 level with the XAU encountering the same near the 120 level. Both are showing signs of potential short term tops in those regions. For the uptrend in the HUI to remain in force, it will need to hold above the 260 level on any price retreat while the XAU will need to maintain its footing above the 108- 110 level. Such price action would indicate a consolidation trade is occurring with an attempt to build another base of support. Failure to hold the previously mentioned levels would allow to bears to growl that the recent upleg was nothing but a corrective rebound in a larger downtrend. The weekly chart in both the HUI and the XAU looks much improved but prices will need to quickly clear 300 in the HUI and 120 in the XAU to keep the charts friendly.
Click chart to enlarge today’s action in Gold as of 12:30pm CDT with commentary from Trader Dan Norcini