DAN NORCINI'S MONDAY COMMENTS

Hourly Action In Gold From Trader Dan

Posted: Apr 05 2010 By: Dan Norcini Post Edited: April 5, 2010 at 1:47 pm
Filed under: Trader Dan Norcini
Dear CIGAs,

Welcome to another new week in the gold market and another week of bullion bank price capping displays. Today’s price action in gold makes the price capping by the above culprits at the $1,130 level most evident as once again it was repelled from that level earlier in the session, even in the facing of a surging crude oil market and a copper market that has gone on to make yet another yearly high. Also, with the equity market, as evidenced by the S&P 500, putting in a new yearly high, the reflation trade was in full swing today.

More investors are apparently buying into the idea that the economy is recovering and are putting money to work especially in the energy sector as they are hoping for renewed demand for that complex as things improve. Even natural gas moved higher today and that has been a dog for some time now. Lumber also moved higher.

While the Euro was not particularly strong, strength in the British Pound, the Yen, the Aussie, the Loonie, etc, was enough to put some mild pressure on the Dollar. Given the combination of the above factors, one would have expected to see gold taking out the overhead selling at the top of the trading range but the longs could not quite kick the bullion banks out of the way until the last hour of pit session trade where a move up in the Euro from the unchanged level gave the gold bulls enough support to take out the selling. I must say however that the bullion banks seem terrified of losing the battle at $1130 judging from the ferocity of their selling here today.

Technically, the push through $1,130 is bullish but it needs additional upside to attract more recruits. A push through $1,145 is necessary for gold to say goodbye to its trading range and begin a trending move to the upside. Technicals are now firmly favoring the upside.

I am encouraged by the action in the gold shares as the HUI has moved exactly to the level where selling has contained it for the last 5 weeks. With the equity markets moving solidly higher, the shares should not be having this much difficulty plowing through that level and kicking off some sort of uptrending move but thus far they have not been able to garner sufficient recruits to the bull cause to do so. It appears that they are waiting and watching to see if bullion can push through $1135 or so. A closing push through 435 should squeeze out some shorts and bring in fresh buying. Momentum indicators are all positive in the HUI right now as are the moving averages but it still must prove itself.

Perhaps more important than any of this however was the price action in the long bond which fell through the bottom of a 3 month low that had held prices going back to August of last year. Bonds have a critical support level down near the 112 level. If they take that out, and right now it sure appears as if they want to move down to at least test it, the interest market could get ugly very quickly.

The central planners should beware what they wish for.

In their attempts to reflate the economy they are managing to perhaps awaken the nearly extinct bond vigilantes. There is no doubt that the bond bears are looking at the supply coming down the road to fund this insane government spending binge and are saying that demand is not sufficient to absorb it at current yields. No doubt they are also eyeing the move higher in crude oil with a great deal of concern. A surge in energy prices would lead into inflation fears. Expectations are more dangerous to central planners than reality at times. The yield on the 10 year jumped to hit the 4% level today. That is the highest it has been in 10 months (June 2009). If the yield pushes above 4.3%, the charts are going to show a technical breakout which has the potential to see them reach 5%. I do not know how this is not going to crush the real estate sector which is already struggling with a surfeit of available homes and pitiful demand. Then again, it is certainly not going to help government to see the interest it must pay on all that borrowed money moving higher. What the hell, they can just print more money to pay those increased borrowing costs so why worry.

If investors are shunning bonds in favor of jumping on the new bull market train for equities, then that source of demand is fading at the exact time that the red ink is flowing at the government. Should the Dollar suddenly fall out of favor for any reason, bond prices could sink quite sharply. Stay tuned.

Just a quick reminder here that the financial woes of many American cities, counties and states is not going away anytime soon as difficult choices must be made on the spending front that are sure to prove extremely unpopular. We seem to forget such things as the attention of the majority turns to the one high after another in equities. Apparently, such things are trivial compared to the technical charts which show the S&P having fully regained 50% of its losses since peaking in October 2007. “The trend is your friend” is the trader’s adage and no matter what is occurring, it is still up. Fighting the tape might be heroic but it does not exactly do wonders for one’s trading account so do not argue with things until the trend turns. The big banks can make huge profits borrowing short and lending long with the current yield curve and seeing that the financials comprise so large a portion of the stock indices, bulls will be happy particularly with energy shares going along for the ride. Crude is moving into a seasonally strong period which will support further gains in that sector.

One last thing for today, the CCI (Continuous Commodity Index) is currently trading at a 2 month high. If it can tack on a few more points this week, it has a shot at matching the high made in January of this year. I think it is important to note that in January, the US dollar was trading down near 77. It is currently near 81.10. Even with the move higher in the Dollar, the commodity markets are no longer falling apart. That is telling. Commodities have regained more than half their losses since the credit crisis debacle began in what seems like eons ago. Managed money wants to own these things irrespective of what the Dollar is doing. The tide is slowly turning or so it would seem as the link is weakening.

DAN'S CHART: http://jsmineset.com/wp-content/uploads/2010/04/April0510Gold.pdf