DAN NORCINI'S WEDNESDAY COMMENTS

Hourly Action In Gold From Trader Dan 
Posted: Apr 21 2010 By: Dan Norcini Post Edited: April 21, 2010 at 2:03 pm
Filed under: Trader Dan Norcini
Dear CIGAs,

Today was quite remarkable given the weakness in the Euro and the strength in the Dollar. The commodity markets seemingly entered a different realm with buying originating across a good many of the individual commodity futures markets even as the bonds were higher and the equity markets were showing some hesitancy. Dollar strength was a non-factor today. Once again it appears that managed money wants to own this sector irrespective to some extent of what the Dollar is or is not doing. This bodes extremely well for gold as you will recall that one of the 5 pillars for a bull market in gold, which Jim detailed many years ago and is still applicable even now, is rising commodity prices.

The Continuous Commodity Index put in a 3 month high today and is threatening an upside breakout from the 2 month long congestion pattern that has dominated its daily chart since early February. Palladium made a two year high today while platinum pushed further above $1700. Clearly industrial demand for both metals is on the rise as is the investment demand aspect of both. That strength is being reflected in both silver and copper and is one of the myriad reasons that gold is moving higher. Incidentally, speaking of silver, it needs to push past its ten day moving average near today’s session high to set up a challenge of $18.60.

I have been keeping an eye on lumber futures and they are putting in a very strong showing having moved up sharply the last week. I am not sure what to make of this whether it is related to mill closures or anticipation of a rebound in home building, but for whatever reason, lumber is signifying an improvement in that area. Lumber has been one of the few commodity markets, along with natural gas, that has not participated in the surge of buying in that sector. Perhaps it is playing catch up as fund managers look for undervalued markets.

Natural gas might be next if that is the case although it is still being plagued with supply issues. If Nat Gas were to finally get something going to the upside, it would help push the CCI (Continuous Commodity Index) higher with rising energy costs then percolating through the entire economy. Again, that would work to the benefit of gold. Energy intensive industry has been the beneficiary of cheap natural gas prices allowing them to keep some of their input costs contained. Should that change, eventually, they would have to push these costs through to the end product which would impact buyers of their production. The Fed is supposedly going to work to nip the inflation genie in the bud but it is the perception of inflation that is more dangerous as once that sets hold, it is difficult to root out without drastic action, something which this nascent recovery is in no wise able to bear.

Speaking of inflation – the bond market certainly is not the least bit concerned by it judging from the price action on the long end. They broke out to the upside and now have a rather clear path to 118^10 level on the technical price charts. Bond traders are betting that there will be sufficient demand for new issues to absorb the tremendous supply coming. They are also betting that the labor market is still so weak that inflationary pressures from wages will not be an issue for the foreseeable future. For now, that seems to be overriding any concerns from the rise in commodity prices. But that can change, and in a hurry so we will keep an eye on this market for clues.

Copper, another bellwether market, has been able to attract buying on dips down towards $3.45. Only if it can accomplish an upside breakout above $3.65 will it be able to mount a sustained charge higher. That level has thus far stymied its upward progress. If it can push past there, it will signify that this market is anticipating a further improvement in the global economy.

The mining shares, while higher today, do not look quite as healthy as the bullion chart although they are higher even as the broader equity markets are struggling. The HUI looks to be caught up in a bit of a crosswind with pressure from the lower stock market battling against buying coming from the stronger gold and silver markets. It is encouraging to see it attempting to disattach itself somewhat from the action in the S&P. If gold can push past the $1175 level, the HUI will follow it higher regardless of what the general equity markets do. If they go higher, while gold sustains an upside run, the HUI will have an additional tailwind at its back that will make it outperform the market as a whole. We will have to wait and see what transpires.

DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2010/04/April2110Gold.pdf