I mentioned yesterday in my commentary that it would not be unexpected to see a bit of a respite in the savage Dollar mauling that has been taking place over the last week. Markets rarely tend to continue in moves of such extent without a bit of a pause for players to pocket profits unless they are in a parabolic blow off phase such as what we are seeing in the bond market. It should come as no surprise then to learn that last evening the monetary authorities of Japan began to surface after having been in hibernation for some time now only to make their usual noises about “excessive movements in the Forex markets”. That is code speak for “we do not like the strong yen”. Of course, that was enough to send yen buyers to the sidelines in a big hurry. I personally love the Japanese monetary authorities because they are so predictable. When you do not hear from them you begin to wonder if something is wrong with the universe.
Either way, their “verbal intervention” served to temporarily derail the yen which also seemed to take the steam out of most of the major currencies as well taking some off their best overnight levels and actually bringing some into negative territory. That was the signal for short-term oriented gold day traders to use the $880 level hit to go ahead and exit and book some paper profits. The selling there confirms $880 as the resistance level which will need to be bettered in order for gold to run to $900 or above. For now it is serving to cap upward momentum. My guess is that the bullion banks have surfaced at that level and some guys decided not to press them without a much weaker dollar especially with crude oil crashing down through the $40 level. OPEC had better attempt something fast or crude will be at $30 in a heartbeat. The good thing for the rest of us is that we can go out and buy some gas guzzlers again ( you know – those vehicles which actually can seat a normal family without shaping them into something resembling a can of packed sardines). Maybe this cheap gasoline can be the new bailout package for the auto industry.
The bond bubble continues expanding with no end in sight as traders are convinced that the Fed is going to be buying along the outer end of the curve. With support like that below the market, the path of least resistance is higher. Whether or not the Fed actually does such a thing is immaterial at this point – the very suggestion that they are going to do so is enough to actually accomplish their intentions. Doesn’t it amuse you how easily grown, “sophisticated” investors can be herded around by these pestilential central bankers? That crowd prides themselves on being able to decipher obtuse financial and economic signals unlike the rest of the ignorant peasants and dolts who constitute the mere working class. Yet it is this same smug and oftentimes arrogant crowd that are rounded up like witless sheep and sent off in the direction that their shepherd masters intend them to go. Oh well, it really doesn’t matter much as long as they can make money off of it so I suppose the image of being driven around like mindless idiots doesn’t particularly prove troublesome to them.
December gold deliveries continue with another 127 being issued and stopped this morning. That brings the total for the month to 13,170 or 1.317 million ounces. Warehouse supplies showed a sizeable drop yesterday which is nice to finally observe. Registered was down to 2.8 million ounces. Keep in mind that playing the paper gold game and expecting to beat the bullion banks at it is a fool’s dream. Unless the gold is removed and taken out of the warehouses, the Comex will never be a freely traded market. We know full well that the CFTC has been asleep at the wheel for a long time now so do not expect any help from that quarter. The only thing that the paper shorts fear and respect is a lack of physical metal –everything else is blithely and I might add, safely ignored. Hedge funds looking for a way to beat these parasites have the strategy laid out in front of them do so – the question is will they actually leave their black box algorithms long enough to think about this and implement it. Another Fifteen to Twenty thousand contracts taken and stopped would put an end to the bullion bank reign over the sand box. That is chump change in today’s markets especially when you consider that at one time the hedgies had well over 240,000 long positions early this year. The margin necessary to carry positions of such size is proof that the financial resources necessary to take delivery of the physical gold exists – the only question is whether or not the will do so does. The down side of things is that the hedgies have never proved to be resourceful or clever – how can they be when they have long ago delegated their thinking to their computers?
Many of you have no doubt seen the article about unprecedented gold demand in Europe – demand so great that the refiners in Switzerland cannot keep up with it. Reports like this, of which we have seen so many in recent weeks, just serve to underscore how completely disconnected from reality the Comex paper gold market has become. Gold bulls – are you listening….
Technically paper gold has confirmed resistance at the $880 level with support near $850 and below that at $838 – $835 basis February. A breach of $880 that can be maintained for more than a couple of hours targets $900 and above.
Open interest saw a sharp increase yesterday which reveals the presence of plenty of new buyers. However, most of those are sitting on a paper loss after this morning’s move lower. If enough dip buyers surface, they will be okay.
The mining shares followed through on their late day weakness in yesterday’s session as selling was evident from the opening bell this morning. The HUI and XAU have closed higher for the last 7 out of 8 days so a setback is not that big of a deal. I do want to see where the buying support on this dip emerges however as most of the major moving averages are trending solidly higher. There is some support in the HUI at 257 and again near the 247 level. The HUI remains above the 100 day even with today’s down session.
Next week volume and liquidity will probably begin to dry up meaning that the ingredients for lots of volatility will be in place. Get used to it between now and the beginning of the New Year.
Click chart to enlarge today’s action in Gold as of 12:30pm CDT with commentary from Trader Dan Norcini