Hourly Action In Gold From Trader Dan

Posted: May 28 2010 By: Dan Norcini Post Edited: May 28, 2010 at 2:02 pm
Filed under: Trader Dan Norcini
Dear CIGAs,

Fitch’s downgrade of Spain pushed the equity markets over the cliff after yesterday’s big relief rally on the news that the Chinese were going to stay with the Euro (what did people think they were going to say? “Oh yes – we are going to dump all of our Euro denominated debt tomorrow morning.”)

I am not particular sure why equities faded on this news as did the Euro since everyone and their mother expected it already, so to me it is not “news”. Still, it perhaps served to bring suspicions concerning the remainder of the PIIGS’s financial footing to the forefront of short-sighted traders’ minds once again.

Once the equities went down, so did everything else except the Dollar and the bond market. That includes gold which while it held fairly well considering the widespread algorithm selling across the commodity futures market, could not get through $1,220, which is a resistance level that must be taken out to spark some short covering and kick it up to $1,227 where it then has a chance to resume trending to the upside.

Failure to take out $1,220 soon will likely lead to a setback down towards $1,190 which is the first level of chart support. Below that is much stronger support centered near $1170 or so.

It looks to me like we have a lot of holiday trade occurring today with some of the markets I watch moving rather sharply both higher and lower as the volume and liquidity drops off in front of Memorial Day.

Open interest has fallen off a decent amount this week during the rollover period and is down near 558,000 contracts. As mentioned previously, I am especially interested in seeing whether the Swap Dealers have continued to draw down their short position in this market. If so, it would make the 4th consecutive week that this fledgling trend has been intact. Keep in mind that we had three big down days last Wednesday, Thursday and Friday which would have given shorts a good opportunity to cover.

August gold is now the lead contract as June gets ready to head into its delivery period. I still do not understand why those who need some large amounts of gold do not stand for delivery and get it out of the Comex. They would end the gold suppression scheme in a week’s time and allow the metal to move to a natural level of equilibrium since the gold shorts could not deliver the gold at current prices.

The HUI is back to following the broader equity markets swinging higher and lower in sync with those.

The sort of wild swings in the equity markets this week is further proof that the hedge fund algorithms have now become the markets in the US. Whatever those infernal things do on any given day, is what the market will do, irregardless of what might be occurring fundamentally. That is why investors must not form judgments on the macroeconomic scene based on day to day price action. Study the longer term oriented price charts for clues to what the big picture is and read guys like my friend Monty Guild’s perspective to keep from having your mind whipsawed by these out-of-control hedge funds.

Jim has given you all the reasons why gold is headed inexorably higher. None of the causes behind the decade-long rise in the price of gold have changed; if anything the disease is becoming more virulent as the health of paper currencies becomes more suspect and the debt-ladened West succumbs to the “cure” of its sickness – too much debt by issuing more of the same.

DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2010/05/May2810Gold.pdf