Filed under: Trader Dan Norcini
Dear CIGAs,
Selling pressure on gold began immediately after the close of pit session trading yesterday and that selling continued into the overnight hours and then into today’s New York session. In the process, support near the critical $1320 level was tested and held. However, bulls are by no means yet out of the woods as the market still looks heavy right now. It is going to have to climb back above $1345 for starters to give the bulls some relief.
If $1320 were to give way on good volume, get ready for a bit longer protraction in this latest price retracement as that would turn the daily chart quite negative and even dent the bullish aspect of the heretofore armored weekly chart. The weekly is very close to forming a rounded top pattern which would imply a move as low as $1285 before we might see some concerted buying.
We will have to see when the overall spec long side liquidation winds down before we can stabilize. The faster they get out the better. Yesterday we had a massive drop in Open Interest of nearly 82,000 contracts spread across the entirety of the futures board as far out as December 2015. That is simply phenomenal for its sheer size. One has to wonder at this point how much more downside the market is going to be able to generate if those specs who are going to run have now already done so. At first glance I thought the numbers were erroneous!
What I am interested in watching is the extent to which these specs can ditch their longs and whether gold can hold its chart support levels. Rallies are going to be sold as long as price is below the important moving average levels but apparently there is a massive amount of short covering occurring into this long side liquidation as well. Remember a lot of these shorts have been underwater since August of last year. Some who might have been able to hold on in spite of the paper losses are viewing the massive spec selling as a gift into which they can buy and get flat or at the very least reduce some of their exposure to the short side.
Also, Gold is moving from weak hands into strong hands in this leg down. None of the issues that have given rise to the economic turmoil that has led the metals higher have been substantially dealt with. Instead they have been plastered over with money printing, the problems being essentially kicked down the road to be handled later. The hope is that “growth” will take care of the larger issues at hand. That is wishful thinking but for the time being, the Central Banks appear to be winning the battle based on the all the cork popping and toasting that is no doubt going on over in Davos. As said many times in my comments, if lasting prosperity could be built upon a foundation of spiraling debt, other generations far wiser and more frugal than this would have been long ago implemented it. Need more prosperity – just print more money. A massive federal debt of over $14 trillion, the highest in percentage terms of GDP since WWII; states, counties and municipalities in danger of bankruptcy or in serious budget deficits; hundreds of thousands of underwater mortgages, etc, is a problem that is not going to go away merely because electronic digits were transferred to the balance sheets of some entities by the charlatans at the Federal Reserve.
There is also a further inclination to sell commodities in general which is hurting silver in particular as copper and crude oil are both weak, a development which tends to bring the overall sector into disfavor for the time being. That is a complete 180 degree flip from recent weeks when the “improving economy” theme led to ideas that commodity prices were going to move higher as demand globally soared and “risk” trades were jammed on. My how fickle these lovers have become!
When one sees the grains, all of which have a very bullish set of fundamentals also experiencing selling, you can rest assured that it is hedge fund algorithm selling which is occurring. Wheat, which at the immediate moment has the most bullish set of fundamentals going for it was even dragged lower early in the session. Even cotton, which went on overnight to make yet another 140 year high in price, did not escape the selling as it moved over 500 points off its best level after posting that astonishing figure. About the only commodity that I can see that did not move lower today were the hogs, which keep moving steadily higher as the cost for a nice pork chop or some slices of bacon keep heading up and up and up.
The HUI, while weaker today is not utterly collapsing as it moves closer towards a critical support level near the 481 region. Considering the extent of the weakness in the bullion and the overall weakness in stocks today, it is no surprise that it is lower. Gold stocks however continue to get cheaper and cheaper with longer term oriented investors checking their powder to make sure it is dry. Watch for a move down into a new low for this leg followed by a higher close the same day for signs that the selling has been exhausted.
Now that consumer confidence is moving higher and the economy is improving bonds are moving higher. Yes, you read that correctly – higher. Nothing like official sector manipulation of interest rates in the name of sound economic management by the Central Bank to keep the markets running smoothly. One would think that with all the fears of QE being withdrawn by the Fed, (which is what is leading to selling in the commodity complex), that the bond market would be anticipating the same and would be moving lower since that is the sole factor that has been propping the market up. What do we get instead – more of the same QE as the Fed continues its purchases. Either the bond market has gotten it all wrong and the QE is going to continue indefinitely or the commodity sector has gotten it all wrong with that side of things expecting the QE to disappear. And one wonders why there is such stupidly insane volatility in all of our markets these days. If you want to find the chief culprit behind that, look no further than the boy wonders at the Fed, the source of all market mischief and mayhem.
Let’s see what kind of action we get in the Asian markets for gold overnight. I would not be surprised to learn that some of the bigger Asian Central Banks are also closely eying the gold chart in anticipation of a foray into the buy side. During times like these, try to remember the recent talk from some highly placed officials concerning gold’s re-entry into the monetary system. Such comments are not idle chatter but reflect the thinking taking place behind the scenes from many quarters. The nation with the most gold will end up making the rules – none of that is going to be lost on Asia, whose gold holdings as a percentage of their official reserves are pathetically low. Russia is well aware of this and that is why we got the news yesterday that they are going to continue to shore up their official gold holdings. Others nations from that side of the globe will do likewise.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2011/01/January2511Gold.pdf
Selling pressure on gold began immediately after the close of pit session trading yesterday and that selling continued into the overnight hours and then into today’s New York session. In the process, support near the critical $1320 level was tested and held. However, bulls are by no means yet out of the woods as the market still looks heavy right now. It is going to have to climb back above $1345 for starters to give the bulls some relief.
If $1320 were to give way on good volume, get ready for a bit longer protraction in this latest price retracement as that would turn the daily chart quite negative and even dent the bullish aspect of the heretofore armored weekly chart. The weekly is very close to forming a rounded top pattern which would imply a move as low as $1285 before we might see some concerted buying.
We will have to see when the overall spec long side liquidation winds down before we can stabilize. The faster they get out the better. Yesterday we had a massive drop in Open Interest of nearly 82,000 contracts spread across the entirety of the futures board as far out as December 2015. That is simply phenomenal for its sheer size. One has to wonder at this point how much more downside the market is going to be able to generate if those specs who are going to run have now already done so. At first glance I thought the numbers were erroneous!
What I am interested in watching is the extent to which these specs can ditch their longs and whether gold can hold its chart support levels. Rallies are going to be sold as long as price is below the important moving average levels but apparently there is a massive amount of short covering occurring into this long side liquidation as well. Remember a lot of these shorts have been underwater since August of last year. Some who might have been able to hold on in spite of the paper losses are viewing the massive spec selling as a gift into which they can buy and get flat or at the very least reduce some of their exposure to the short side.
Also, Gold is moving from weak hands into strong hands in this leg down. None of the issues that have given rise to the economic turmoil that has led the metals higher have been substantially dealt with. Instead they have been plastered over with money printing, the problems being essentially kicked down the road to be handled later. The hope is that “growth” will take care of the larger issues at hand. That is wishful thinking but for the time being, the Central Banks appear to be winning the battle based on the all the cork popping and toasting that is no doubt going on over in Davos. As said many times in my comments, if lasting prosperity could be built upon a foundation of spiraling debt, other generations far wiser and more frugal than this would have been long ago implemented it. Need more prosperity – just print more money. A massive federal debt of over $14 trillion, the highest in percentage terms of GDP since WWII; states, counties and municipalities in danger of bankruptcy or in serious budget deficits; hundreds of thousands of underwater mortgages, etc, is a problem that is not going to go away merely because electronic digits were transferred to the balance sheets of some entities by the charlatans at the Federal Reserve.
There is also a further inclination to sell commodities in general which is hurting silver in particular as copper and crude oil are both weak, a development which tends to bring the overall sector into disfavor for the time being. That is a complete 180 degree flip from recent weeks when the “improving economy” theme led to ideas that commodity prices were going to move higher as demand globally soared and “risk” trades were jammed on. My how fickle these lovers have become!
When one sees the grains, all of which have a very bullish set of fundamentals also experiencing selling, you can rest assured that it is hedge fund algorithm selling which is occurring. Wheat, which at the immediate moment has the most bullish set of fundamentals going for it was even dragged lower early in the session. Even cotton, which went on overnight to make yet another 140 year high in price, did not escape the selling as it moved over 500 points off its best level after posting that astonishing figure. About the only commodity that I can see that did not move lower today were the hogs, which keep moving steadily higher as the cost for a nice pork chop or some slices of bacon keep heading up and up and up.
The HUI, while weaker today is not utterly collapsing as it moves closer towards a critical support level near the 481 region. Considering the extent of the weakness in the bullion and the overall weakness in stocks today, it is no surprise that it is lower. Gold stocks however continue to get cheaper and cheaper with longer term oriented investors checking their powder to make sure it is dry. Watch for a move down into a new low for this leg followed by a higher close the same day for signs that the selling has been exhausted.
Now that consumer confidence is moving higher and the economy is improving bonds are moving higher. Yes, you read that correctly – higher. Nothing like official sector manipulation of interest rates in the name of sound economic management by the Central Bank to keep the markets running smoothly. One would think that with all the fears of QE being withdrawn by the Fed, (which is what is leading to selling in the commodity complex), that the bond market would be anticipating the same and would be moving lower since that is the sole factor that has been propping the market up. What do we get instead – more of the same QE as the Fed continues its purchases. Either the bond market has gotten it all wrong and the QE is going to continue indefinitely or the commodity sector has gotten it all wrong with that side of things expecting the QE to disappear. And one wonders why there is such stupidly insane volatility in all of our markets these days. If you want to find the chief culprit behind that, look no further than the boy wonders at the Fed, the source of all market mischief and mayhem.
Let’s see what kind of action we get in the Asian markets for gold overnight. I would not be surprised to learn that some of the bigger Asian Central Banks are also closely eying the gold chart in anticipation of a foray into the buy side. During times like these, try to remember the recent talk from some highly placed officials concerning gold’s re-entry into the monetary system. Such comments are not idle chatter but reflect the thinking taking place behind the scenes from many quarters. The nation with the most gold will end up making the rules – none of that is going to be lost on Asia, whose gold holdings as a percentage of their official reserves are pathetically low. Russia is well aware of this and that is why we got the news yesterday that they are going to continue to shore up their official gold holdings. Others nations from that side of the globe will do likewise.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2011/01/January2511Gold.pdf
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