DAN NORCINI''S TUESDAY COMMENTS WITH CHART

Hourly Action In Gold From Trader Dan


Posted: Jun 29 2010 By: Dan Norcini Post Edited: June 29, 2010 at 2:11 pm
Filed under: Trader Dan Norcini

Dear CIGAs,

Yesterday (Monday) we had a carbon copy repeat performance of the previous Monday’s price action in gold – a move resulting in a bearish downside reversal day on the price charts. Today (Tuesday) we have a carbon copy repeat performance of the previous Tuesday’s price action – a move lower in follow through selling met by strong buying that took price well off the session low and forced some of the shorts out of the market. Clearly bears are being short-circuited in their desire to drive a significant number of speculative longs out of the gold market. The reason, in my opinion, is very simple – gold is functioning in its historic role as a safe haven and as a currency of last resort due to ongoing, legitimate concerns over the long term welfare of the current monetary system.

What we are witnessing is a first rate battle between technicians and fundamentalists. The bullion banks have always relied on the fact that today’s markets are dominated by computer algorithms which are mindless machines that buy or sell based SOLELY on signals generated by price action; in other words, technical factors which oftentimes have little or nothing to do with reality. Over the last decade, by concerted selling of paper gold contracts on the Comex at key technical levels, they have been able to flip these algorithms into sell mode and generate waves of downside pressure regardless of what the particular longer term fundamentals are that have been relentlessly driving gold inexorably higher. What would then happen is the big buyers of the physical metal such as India, Vietnam, Russia or the Asian Central Banks, would wait for prices to fall as the long side specs bailed out. Their buying would put a halt to the selling spree, cement a bottom at a new and higher price level, and then the next leg higher in gold’s march north would then commence. However, what has been happening more recently is that these downside waves have been of shorter and shorter duration as more and more of the largest gold buyers on the planet have wised up to the games being played by these banks who are working in concert with the feds to artificially suppress the price of the yellow metal and distort its market signals.

Time and time again we get comments from the talking heads on TV who sound rather confused when it comes to explaining the movements in the gold price. “Gold should be doing much better considering the state of affairs.” How many times over the last 10 years have we heard these exact words repeated from TV pundits who know little if anything about the metal? Yet, it steadily marches higher and higher not only in dollar terms but in terms of most if not all of the world’s major currencies. What that tells us is that notwithstanding the attempts to control the yellow metal’s rise, investors and large gold buyers worldwide want to own and hold it as a haven against what they see is a systematic debauching of most of the major currencies due to excessive debt and nearly unlimited increases in the supply of paper money. They want a store of value, plain and simple and that is precisely what gold is. It is honest money which cannot be conjured into existence at the stroke of a computer key and has ZERO liabilities attached to it.

These buyers are stepping into bouts of weakness seeing it as an opportunity to acquire the metal cheaper realizing that the conditions which have led to gold’s rise are not getting better but are actually deteriorating. It is this fundamental reality which is inspiring the bulls to join the battle against the enemies of the metal who continue to rely solely on market technical factors generated by price action for their only weapon of attack. In other words, the entire bear argument in gold is derived SOLELY from the price action on the technical charts. If the bulls can call that bluff, particularly if they would force these paper loving shorts to stand and deliver the physical gold, the whole military complex of the perma gold bears would crumple overnight. The bullion banks are spitting into the eye of a hurricane and daring the storm to get them wet. If gold bulls can once again build on their gritty performance of today, just as they did last week, the gold shorts had better start looking for some damn good wet suits.

Now for the technical stuff on gold – the market bounced off the same level as it did last week helping to confirm the region near $1,225 – $1,227 as a good support level. This is the former all time high from late November of last year so from a technician’s perspective, it is functioning perfectly as the “polarity principle”. That is to say a former resistance level when once violated to the upside will then “reverse polarity” and serve as a good support area to the downside during retracements in price. As long as gold holds this level on a pit session CLOSING basis, the market should be okay.

On the upside, gold will have to move back above the 10 day moving average and preferably get a close above $1,255 to put the onus on the bears to make another stand if they are going to hold it under $1,265.

I am still keeping a watchful eye on the momentum in this market as it is waning to the upside but that is because of what I explained earlier in this short missive. Technical factors are not to be ignored from a trader’s perspective even though the longer-term oriented investor who is armed with a solid fundamental understanding of the metal can rest easily since those are aligned in his or her favor.

It should not be forgotten that big buyers of gold such as Russia and China’s Central Banks, not to mention India, will become active on bouts of weakness in the metal. We can probably discern their footprints in the market price action should that occur. For all I know, they may already be active which is perhaps one of the reasons that the bears cannot seem to break this market down.

Let’s see what we get for price action in tomorrow’s session and see whether the friends of gold can turn the tables on the bullion banks once again.

I wanted to add another point of interest, gold in Euro terms is performing extremely well.

The price action in the S&P 500 calls for some comments – the market is flirting dangerously with the 1040-1036 level. If it CLOSES BELOW that level and stays down there for another trading session, the bottom is going to drop out of the equity markets in a real hurry as things will turn quite ugly. The equity bull crowd had better hope that they can muster enough recruits to their cause or they are in serious trouble.

That leads me to the price action in the mining shares. They are drafting lower following the broader equity markets but compared to that broad index are down 1.5% compared to a fall of 3.15% in the S&P. There looks to me to be two things at work here – first is the standard hedge fund ratio trade where they buy the bullion and sell the shares. It does appear that there is also another spread trade at work however, one in which the mining shares are being bought against a strategy of selling the broad index. That is a good money making trade for today’s session and might begin to shore up the shares against some of the hedge fund gold bullion/mining share trade. We’ll see.

Bonds are getting another flight to safety bid with the 10 year yield falling below the 3% level (WOW!). Crude oil is down nearly $3/barrel as it could not take out the $80 level. Deflationary fears are too strong for crude oil right now to move higher.

The overall commodity markets are seeing more sharp selling as both index funds and hedge funds barf up their long positions. The CCI (Continuous Commodity Index) cannot seem to push through the 480 level as it is becoming a victim of the “global slowdown” theme. “DOCTOR COPPER” in particularly looks like it needs some drugs or something to perk it back up as its chart is not inspiring to say the least. Lumber has its bottom falling out of it so one can safely say, at least for today, that not a whole lot of people are confident about economic recovery at this point. It is that lack of inflationary pressures which tends to induce selling in gold but that has to be weighed against the role of gold as a currency, which is what attracts buying in the metal.

DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2010/06/June2910Gold.pdf