DAN NORCINI'S WEDNESDAY COMMENTS

Hourly Action In Gold From Trader Dan


Posted: Apr 28 2010 By: Dan Norcini Post Edited: April 28, 2010 at 1:59 pm
Filed under: Trader Dan Norcini
Dear CIGAs,

Hat’s off to the gold bulls who were able to overpower the bullion bank line of selling at the $1162 level. After being initially repulsed from that line in yesterday’s New York session when the banks seemingly threw everything but the kitchen sink at the metal, even on a day in which widespread commodity selling was the norm, the longs refused to run instead digging in their heels and fighting back. Open interest indicates the fierce contest that took place as it surged over 6,600 contracts in the most active June contract. That feat enabled them to push the closing price right up to the resistance line on the technical charts that the Comex bears had been attempting to enforce. Today, when both Euro gold and British Pound priced gold went on to make brand new all time highs today at the London PM Fix ( €880.613 and £764.218 respectively), that strength was enough to give the bulls the force necessary to finally make a decisive breakthrough of the Maginot line at $1162.

There is one more test standing between the Gold bulls and a run at $1200 and that is $1172 – $1175 (today’s session high). If the longs can take price up through that and hold it there for at least another couple of hours, that should push out some more of those shorts on the fund side who have been siding with the bullion banks as well as bring in another wave of momentum based buying. With the gold shares also moving higher, both cylinders are firing in sync which means the advantage goes to the bulls.

I should note that while yesterday’s session witnessed a “risk aversion” move in the currency world, with both the Dollar and the Yen the beneficiaries of “safe haven” flows, today is seeing the Dollar higher in a continued move away from Europe but also widespread selling of the Yen. The result is that Yen priced gold has gone on to make another new high on the charts. Gold is soaring in terms of just about all of the major currencies (I will provide some updated charts this afternoon detailing this). As stated here before, it is this continued surge of gold priced in alternative foreign currencies which is making the life of the bullion banks quite uncomfortable right now and leading to sustained buying on dips in the Dollar price as well as attracting further money flows from the Managed Money side of things.

The reason for this is obvious, gold is trading as an alternative currency and a safe haven given the turmoil and gnawing fears clawing at the stomachs of investors, especially as they wait for the next shoe to drop. Yesterday it was a downgrade of both Greece and Portugal; today it is Spain. Tomorrow could it be Italy? Then what happens when the ratings guns get trained on some of the US States or municipalities? Combine this with the fact that such occurrences will lead to continued need for accommodative monetary policies (read that as low interest rates and lots of money being printed) and you can understand why managed money is actively seeking out a store of wealth and is becoming suspicious of paper debt. Would you want to be stuck holding the general obligations of any nation (or state for that matter) when there is a very good likelihood that such debt is going to be downgraded causing your wealth to evaporate overnight? If that were not bad enough, then the currency that the debt is issued in gets sold down giving you a double whammy. Gold starts looking very, very attractive; no let me rephrase that, essential rather, if you are going to attempt to preserve the fruits of your life’s labors. Translation – there is a growing loss of confidence towards paper currencies and a move towards gold.

This is where the derivatives kings have brought us all. Now that these shamans have conjured up indices in which they can place bets on whose debt is going to get whacked next, they can just about wave their magic wands, mouth some incantations and then short the hell out of the debt causing a self-fulfilling prophecy. They make billions while their target gets crushed. It should be obvious by now that these damn derivatives contrary to Alan Greenspan’s near incessant blatherings while he was Fed Chairman, are not enhancements to productivity but are rather tools of the devil that bring only destruction and misery in their path. They provide no economic benefit to anyone but the big banks who spawned these damnable monstrosities for their own pleasure.

Back to the gold shares, the HUI is attempting to confirm an upside breakout on the weekly price chart from a 5 month long triangular consolidation pattern drawn off the November 2009 high and the February 2010 low. It broke above that formation early this month but then pulled back to retest the top of the breakout line last week. Today’s session high near 455 is the key to a trending move from a technical perspective. Bulls are pushing hard to close price over this level at the end of the week and hold it there. If they can accomplish this, it bodes very well for their prospects next week and beyond and should set the index (and of course the individual stocks that comprise the index) on course for a run towards the mid January 2010 high. That is the last technical level on the weekly chart before a test of the November 2009 high becomes possible.

DAN'S CHARTS (TWO):
http://jsmineset.com/wp-content/uploads/2010/04/April2810Gold.pdf
http://jsmineset.com/wp-content/uploads/2010/04/April2810HUI.pdf