Take a look at the following comparison chart of the price of gold ( IN BLUE ) versus the Volatility Index, or as I prefer to call it, the Complacency Index ( IN RED ). By the way, this is a 2 hour chart.The VIX measures investor nervousness, lack of confidence, fear, panic or complacency, comfort, ease, confidence. When it is rising, investors are nervous; when it is falling, they are confident.With that in mind, observe how the VIX spiked higher as tensions began building over in Ukraine as that came onto the radar screens of traders/investors. The more the hype ramped up about WWIII, new Cold War, etc., the more nervous traders became. As the VIX soared higher, gold followed up right along with it as its safe haven status came into play.Additionally, the US Dollar refused to get any sort of safe haven bid during the crisis, further aiding the upward path of the gold price.Notice however, that as soon as the VIX moved lower, so too did gold. Simply put, markets that move up on geopolitical events tend to come down just as fast once traders digest the news and the worse possible outcome does not come to fruition. As the VIX moved lower and investors began to look at the Western sanctions, they realized how insignificant those were going to be and the extremely limited impact it would make on markets worldwide and they began moving back into stocks as nervousness faded.Yesterday the Fed came out with what were generally interpreted as hawkish comments. Traders were caught off guard by Fed Chair Yellen's comments that interest rates would be going up sooner than expected. The current view, now that the Fed has made its announcement and Yellen has answered questions, is that the bond buying program ( QE) will end this fall and interest rates will possibly move higher 6 months later. Effectively, next spring will see higher yields is how the market is viewing the Fed's new standing.With no inflation in sight as far as the market ( and the Fed ) is concerned, traders are moving out of gold. Adding to that is the fact that concerns over China's economic growth are mounting. This is putting pressure on some key commodity markets, notably copper and that is working to take some of the buying out of the sector. An additional headwind for gold is the strengthening Dollar. With the Fed talking higher interest rates, the greenback is drawing support at the expense of the European currencies in particular, as well as the commodity currencies, such as the Canadian and Australian Dollar.As long as there is the potential for further flare ups or escalation of tensions in Ukraine and in Crimea, traders might be hesitant to remove the total " WAR" premium out of the gold price. They seem to have just about removed it all at this point but it is holding above $1320 for now. That is the zone that they needed to hold in order to maintain control of this market on the daily chart. So far, they are still hanging in there. It looks to me like the buying in the mining shares is offering some support to the actual metals at the Comex. Silver by the way, is once again flirting with being a teenager. Copper continues to act as an anchor on the grey metal.The Dollar has generated a buy signal on several of the daily charts. Gold holding support therefore must be a bit encouraging to the bulls but I want to stress this again - this must hold or they will cede control back to the bears and set up a likely test at $1305 - $1300. Lastly, take a look at the Goldman Sachs Commodity Index, the daily chart. It had managed an upside breakout recently but has since surrendered those gains and is now trading back below its former breakout point which seems to once again be acting as overhead resistance to the sector as a whole. There remain individual commodity markets which are still showing signs of strength but we are trying to see the sector as a whole to gauge whether or not there is a general bid into this asset class. With the US Dollar strengthening once again, my guess is that some of the hot money from index funds that was blindly buying across the sector will be forced to be much more choosy.
All that was required to launch the US Dollar higher away from strong downside chart support near the 79 level on the USDX chart was a hawkish sounding Fed. With the announcement today that they would trim another $10 billion/month off of their bond buys, interest rates shot up on the long end of the curve and with that, so did the Dollar away from support.The rally in the Dollar, along with higher interest rates ( the latter is the big deal) resulted in a barrage of selling in gold as bulls rushed for the exits. The result was a clean break of the first level of chart support noted on the chart. The selling did not abate until gold reached the secondary support level noted.This level had better hold or gold is going to fall back closer to $1300.The breakdown in the ADX indicates the uptrend has been halted. I am closely watching those Directional Movement lines to see if we get a downside crossunder of the +DMI below the -DMI. So far the bulls remain in control of the market but if that support level gives way, I would expect to see it reflected in this indicator. That could very well put the bears back in control on the daily chart. Keep in mind, based on the long term monthly chart I posted up the other day, the bears have retained control over this market but their hold was slipping. If the daily chart breaks down further, they are going to be emboldened further and a lot of those who were forced out during this recent rash of short covering, are going to come back in on the short side once again.The jury remains out therefore. Let's see what we get. We are going to need some positive economic data to confirm the Fed's rather rosy view of the economic outlook. They are content to place a fair amount of blame for the recent poor data on the record breaking cold temps. That may be true but the warmer months are arriving and we will know very quickly whether or not that is indeed the case.One last thing - the Euro failed to best 1.40. In my view, that will be required for gold to best $1400.
The headline title says it all - without a further escalation in the tensions over in the Crimea, gold has nothing to keep the bull fed and thus the path of least resistance is lower for now. Longs are bailing out, especially those who bought Sunday evening up near the highs and some fresh shorts are attempting to chase them further.The market has encountered some buying in that first zone of support I noted last evening on the charts. Here is an updated version of the same chart showing the buying zone. If the bulls cannot hold it above today's session low, then the path lower is open towards $1330 - $1325. There looks to me to be a bit of support that could show up near $1340 previous to that.Yesterday the ADX line was flattening out indicating the potential for a halt in the recent uptrend. Today's action has actually turned it down. Bulls are still in control of the market on this shorter term chart unless gold loses $1320. That would put a big question mark into place.Gold is therefore probing lower now as it seeks to uncover buying lurking beneath the market. The question is whether or not these buyers are willing to let it move lower before stepping in or are eager enough to hold it here and now. I honestly do not know the answer to that and thus have to wait and watch and observe. Price will have to extend past $1390 now to run out some of the fresh shorts and to attract some more new longs. With the Fed on track for this week, price action could be volatile so hang onto your hat. If events over in the Crimea region flare up, gold will flare higher as well. STay tuned.
Pardons for the brevity and lateness of this post - it has been a busy day - again....Gold has been reacting down since about mid-morning on Monday as word spread about the extent of the sanctions that the US was imposing to ostensibly punish Russia for its "invasion" ( US view) of the Crimea region.I have made no secret of my view that the people of that region consider themselves as part of Russia and wished to remain that way. Why we are meddling in that matter escapes my comprehension as the turnout among the voters was spectacular and the vote was overwhelmingly lopsided in favor of that region becoming a part of the Russian Federation.To express US displeasure the sanctions were so limited and so puny that one of the Russian ministers or deputies mocked them openly. Gold wasted no time in properly interpreting them - much ado about nothing and promptly sold off.Remember, a market that is being news driven especially when that news is geopolitical in nature, requires a constant barrage of bullish events or an escalation to propel it higher. Markets tend to factor in the worst possible outcome - if they get it fine - if they do not get such an outcome, they usually sell off. That is what gold is currently doing.At this point, gold is going to require a further deterioration on the ground over there to keep driving higher. This is the reason why buying any market on geopolitical events requires one to be extremely fast and nimble on their trading. Everyone who bought the market on expectation of the worst is now in the process of taking profits while they can.Let's see at what level the dip buyers show up again but for now, gold has failed to extend to psychological resistance at the $1400 level. It made it close but that move higher was met with plenty of profit taking by longs who realized the end of the world did not occur Sunday evening here in the West and new selling by opportunistic shorts who sold against what they believed was a $1400 ceiling. Interestingly enough, the US Dollar still seems to have few friends. That should tend to keep gold supported on this retracement lower.There looks to me to be some resistance among Forex traders to take the Euro to 1.40 for now and that is keeping the greenback from moving lower. The currency markets are so volatile right now that trying to read where they are going next is relatively fruitless. All I can say is if the Euro can power through 1.40 then gold should respond positively and move higher. If it cannot and the Dollar remains stable, some of the "war" premium is going to be bled out of the yellow metal.
At the risk of further alienating some former "friends" in the gold community, I felt the necessity to post up a long term chart of the gold price so as to provide a bigger picture perspective of how I see this market at the current time.The gold price has a nice recovery off of the double bottom near $1180 and in the process, has improved the balances of the long suffering bulls' investment portfolios in the process. Those who failed to heed the charts on the breakdown of support at $1530-$1525 and instead listened to all the perma bulls and their various theories of why the market simply HAD TO GO HIGHER, are finally seeing a respite in the bleeding of their net worth. I am happy for them as some of them are advanced in years ( I Have read their private emails to me) and were incredibly fearful of what these paper losses meant to their retirement plans or their livelihood.By the way, for some of you folks, I do hope you have learned the painful lesson of being 100% invested in a single sector. Under any circumstances, that is simply not wise. Too many things can occur which none of us can foresee as we are at best mere mortals.Let's start with the monthly gold chart and with my favorite technical indicator, the Directional Movement Index. I like this one ( I use many others) because it helps me to gauge sentiment and that is what I am after as a trader.For a bit of a refresher course - the index is comprised of three lines. Two of them are called Directional Movement Indicators. One is the Positive Directional Movement Indicator; the second is the Negative Directional Movement Indicator.When price is moving higher or sideways, and the +DMI ( the BLUE LINE ) is above the -DMI ( the RED LINE ), the bulls are in control of the market and sentiment is bullish.When price is moving lower or sideways, and the -DMI is above the +DMI, bears are in control of the market and sentiment is bearish.The third line, the ADX line ( DARK PURPLE ) is the trending indicator. If it is rising, no matter if prices are going up or going down, the market is trending. If it is falling, the current trend has been interrupted and the market is either reversing course temporarily or moving sideways. Only if this line is rising is the market in a trending move.With these few facts in mind, let's now apply this to the chart and see what we can discern.Go back to the early inception of the decade+ long bull move in gold and look at late 1999. There, for the first time in some years, the +DMI crossed above the -DMI. The bulls had regained control of the market from the bears. However, look at the ADX line - notice is was moving lower. What does that tell you?Answer - the downtrend that had been in place was interrupted but the market had NOT YET entered a trending move higher. All that this indicator was telling us was the bullish forces had asserted themselves with enough vigor that the bears could no longer gain any further downside traction.It was not until 18 months or so later that the ADX began to turn higher indicating that the strong potential for a trending move was now present. A few months later, that is precisely what happened and look at what happened to the price - it moved $150 or so higher.Here is what is important to note however and why my current view of gold is what it is - that gold is currently in a BEAR MARKET on the long term charts with the latest move higher a bear market rally. Take a look again at that +DMI line and compare it to the -DMI line. When that +DMI first crossed over the -DMI line back in 1999, it DID NOT once ever fall below that line again for a full 14 years! Please bear in mind that even with the sharp fall in price during the onset of the US credit crisis in 2008, when price imploded lower by over $300, the +DMI remained ABOVE the -DMI line. The two lines did meet but the negative crossover never occurred. How do we interrupt this? Answer - even though the price had been whalloped, bullish sentiment remained intact. Yes, it was battered and badly bruised, but it was still there.Do you also see what was happening to the ADX line. Over this same period, it never once ROSE DURING A PERIOD OF FALLING PRICES. What does this tell you? Answer - all moves lower in price were viewed as price retracements in an ongoing bull market. The idea of a LONG TERM BEARISH TREND did not exist.Now, let's look at what happened in early 2013. Do you see it and do you the significance of that event? If you guessed that the -DMI crossed above the +DMI and that the bears had seized control of this market for the first time in 14 years, go to the head of the class! In other words, the bullish sentiment had been finally broken completely. Bearish forces were now in ascendency in gold.If you also look closely, you can see for the first time that the ADX line, the trending indicator stopped moving lower during this fall in price and actually began turning higher as price moved lower. For the first time in over a decade, the potential for a trending move LOWER was in place. That potential was aborted when the price refused to break any lower than $1180, ( not far from the industry average of the cost of production ) and the potential downtrend was halted. However, the -DMI line remained above the +DMI line revealing that bearish sentiment towards gold remained intact. If you look at the area within the ellipse noted on the chart, you can see that the ADX is again moving lower, this time as the price moves higher. That tells me that the market has not yet resumed a bullish trend higher. What it tells us is that the market is moving sideways and while the bears remain in control, the bulls are attempting to regain control of the market. As long as the +DMI remains below -DMI, the bears, while ceding ground at the moment, still dominate.That explains the Directional Movement Indicator and why I maintain my view that the current move higher is a rally in a longer term bear market. Based on this analysis, gold is moving sideways ( falling ADX) and is in a range trade between $1425 on the top and $1180 on the bottom. Now one may not agree with my assessment, but that is the interpretation based on my analysis of this particular indicator. Again, one can disagree with using this indicator but I am basing my view on how this same indicator has served us so adequately over the last 14 years. That is an objective interpretation and as such as it is a fact. 
