DAN NORCINI'S TUESDAY COMMENTS

Hourly Action In Gold From Trader Dan

Posted: Mar 02 2010 By: Dan Norcini Post Edited: March 2, 2010 at 1:57 pm
Filed under: Trader Dan Norcini

Dear CIGAs,

Gold continued its impressive performance from yesterday as it gathered more upside momentum enabling it to knife through the determined bullion bank selling near the $1,130 level that has held it in check for two weeks now. The move is all the more telling since it is occurring in the face of Dollar strength. As noted previously, the game in gold has changed thanks to what is occurring in Europe and the consequent one record high after another in both the Euro price of gold and the British Pound price of gold. That is proving too be a bridge too far for gold bears to deal with.

Euro gold was fixed €831.243 (another lifetime high) while British Pound gold came in at £752.857 (another lifetime high as well) at the afternoon London fix. Let me remind you that when we see these record high gold prices what we are actually observing is the degradation of the currency. The British Pound in particular is in serious trouble. The Swiss Franc is faring a wee bit better than the Euro and the Pound but all of Europe is pretty much being painted with the same brush right now as Swissie Gold is at levels not seen since January 1980!

This sort of thing begins to feed upon itself as fear begets more fear. If not checked, it is just a small slip from fear to outright panic. I would think that a move above €900 in Euro priced gold or a move above £800 in British Pound priced gold would spark more of what might be termed “panic buying” in gold out of Europe. Do you remember the media buzz when gold first breached the $1,000 level here in the US? Imagine the newspapers on the Continent when gold breaks above the €1,000 mark! Such events can happen with considerable speed so we cannot rule this out even though it may be a bit premature to be talking about €1,000 euro gold.

This brings me to another point – Asian Central Banks are in the process of diversifying their massive reserves. We know that some of the diversification included the selling of US Treasuries and the buying of European issued debt. That is now suddenly not looking like that wise of a move. Indeed, more and more Western issued debt is going to be coming under suspicion which makes the old barbarous relic (gold) look increasingly like the smart play. Put yourself in the place of the managers of this huge stash of reserves. You are sitting there watching European currencies plunging into a sink hole with that debt paying a meager yield so you turn to look at Treasuries. While the Dollar has stabilized out of default, its masters are managing it in reckless fashion by spending trillions that they do not have and have no way to ever repay, with yields also very low by any standard of historical comparison. What would you do??? Gold anyone?

What makes the move higher in gold more convincing is that it is being confirmed by the mining shares. The HUI finally broke through the sellers’ blockade at 420 pushing above the 50 day moving average in the process. It is currently sitting right on the downsloping trendline drawn off the December 2009 and January peaks. Another day of strength with a strong finish could see some of those hedge fund ratio spreads begin to lift and take more of the pressure off of these things. The bulls have to prove their mettle first however and put in a spirited finish to end today’s session. So far, the price action is very impressive.

The Dollar continues to push above the 81 level on the USDX but is having trouble maintaining a foothold above it. Each day it has climbed above that level it has slowly faded and moved down as sellers have entered the fray. Again, it is not that the Dollar is strong ( this is a clue to the clueless talking heads at CNBC) it is rather that Europe is so weak. Remember the Dollar’s value on the Forex markets is set against the other currencies out there. The real key to understanding the value of the Dollar is to view the gold price and not its levels on the Forex markets.

On the technical front – gold’s break above the $1,130 level takes it outside of the recent range trade and could constitute an upside breakout and the beginning of a trending move. I say “could” because while the major moving averages are all now pointed higher, I would like to see one more day of trading above $1,130 with preferably a test of that level that sees price rebound higher. That accomplished we would then have one more resistance level to deal with. That level is centered between $1,152 and $1,155. A strong push through this level and there is very little in the way of chart resistance until $1,200.

There is a band of decent support near the $1,100 – $1,104 level. Below that is $1,088 – $1,092.

Open interest in gold had a nice jump of 5440 yesterday revealing the influx of fresh managed money which is exactly what this market needs to take it higher.

Crude oil broke through the $80 barrel level this morning. That has been a tough nut to crack. A push through $81 would set it up for a test of $84. Higher crude prices, while not necessary to a move higher in gold, certainly do not hurt gold’s cause any.

Copper is strongly higher today as well. Continued strength there is associated with both the Chilean earthquake and possible supply disruptions as well as general metal buying by commodity index funds.

DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2010/03/March0210Gold.pdf