Dollar Rises - Gold Sinks

Same story as yesterday - The US Dollar is gaining some ground at the expense of the Euro and that is undercutting the bullish case for gold.

Geopolitical concerns are still lurking around due to events in Ukraine but as long as the market feels that escalation dangers are limited, safe haven flows into gold are waning.

Gold has now dropped $100 since making a try at $1400 on March 17. That proves the old adage that markets tend to generally fall faster than they go up ( this is not an "always" thing but it does seem to occur more than the reverse). In the case of gold, the market moved up almost entirely on worst case scenarios of WWIII, Russian moves out of the Dollar, a new Cold War, etc. None of these events have panned out exactly as their proponents have suggested they would.

This is the danger inherent in rallies which are predominantly driven by short covering as was being noted here. Once those buyers are run out, who is left to chase the price higher? Gold needed to see FRESH speculative interest coming in from the hedge fund community and it was not getting it; especially after the FOMC gave such a hawkish view on the US economy and proceeded with their tapering plans.

In watching the price action closely during the session, gold managed to claw its way back off the worst levels of the session when the stock indices initially weakened early today. As the equities then moved higher into the plus column, gold began moving lower again. Right now, as I type these comments, the equities are once again weakening a bit but gold is actually moving lower, along with silver I might add.

The HUI was actually higher early in the session but has since then given up its gain and has turned negative. Its losses however have been contained at this point although that could change by the end of the trading day.

Take a look at the following chart of the HUI. Note a couple of things on the Directional Movement Indicator. First, the -DMI ( Red Line ) has crossed back above the + DMI ( Blue Line) for the first time since the month of January. The bears have regained control over the market. Notice also that the ADX line ( Dark Line ) is showing some signs of turning higher suggesting the Potential for a trending move lower. I think we would have to see a downside violation of the 210 level however for this to occur.

I want to also note that much was made on some sites about the so-called Golden Cross, where the 50 day moving average crosses above the 200 day moving average from below. Many technicians regard this as a bullish development. For such an event to actually mean something, it is usually understood that the price of the underlying security ( in this case the index ) must REMAIN ABOVE both moving averages. That has not been the case here with the HUI. It has fallen below both moving averages just shortly after the time the Directional Movement lines reversed signaling the Bears were grabbing control of the market once again. In other words, any bullish signal from that event has been negated.

This underscores the rapidity at which markets move nowadays and especially markets which are driven by geopolitical events. Here is a bit of trading advice - unless you are very fast on the draw and spend significant amounts of time sitting in front of a computer screen watching prices and events, leave markets driven by geopolitical events alone. They are too dangerous for all but the professional traders who can move more quickly than the average screen watcher. Yes, you might miss a great opportunity for a big profit but you also risk suffering from severe losses. Just ask any of the bulls who bought up near $1390 who were just convinced that the West was going to level sanctions on Russia after the results from the Crimea region came in over that weekend a while back.

Also, never base a trade ( or an investment ) for that matter on a headline. NEVER! Let the market technical price action do that for you, AFTER you do some research on your own and not rely on the predictions of some "expert" who makes his or her case about why such and such market is going to the moon.

Remember, markets are based on differing opinions. Some are bullish; some are bearish. But keep in mind that they are just opinions and in that sense, guesses as to how the market might respond to a particular scenario. The only true proof consists of the price action. It either confirms or validates ones opinion or it does not. It really is that simple.

Traders who quickly realize that the market is not accepting their opinion and get out of the way become survivors and experienced traders. Those who want to blame other forces ( manipulators), etc, and whom refuse to get out, become former traders with a lesser net worth.

All that matters in this profession is whether or not you make money; not whether you were "right". You are only "right" if the market confirms you are right. Other than that you are just a guy with an opinion that meant nothing. Period. Humility is a virtue that will serve to protect you long after pride has made fools out of prognosticators who keep serving up one dogmatic prediction after another.

"Put not your trust in princes, in mortal man in whom there is no salvation", says the Psalmist. Wiser words were never recorded.

Here is a Daily Chart of Gold to close out these comments. I have noted the "Golden Cross" on the chart for your convenience. That is the 50 day moving average in green crossing above the 200 day moving average. Note that price has fallen below both of these moving averages, a bearish development. Typically in a strongly trending market to the upside, price will remain above these levels.
 

Bulls do have a support level within the general vicinity of that cross which comes in at the 50% Fibonacci Retracement Level at $1287. They only missed that by a few dollars today. If the bulls can reverse today's losses tomorrow to close out the week, they have a chance at stabilizing prices here. If not, and if $1287 gives way, there is some light support near $1280. After that, $1262 - $1255 is the next target.

For Gold to get some recent Bears nervous, it will have to regain its "13" handle for starters. If they can manage that, some of the shorts will go ahead and ring the cash register and move back out.

ECB Chatter Weakens Euro; Dollar Rises

The chatter in the Forex markets today centered around the comments of Bundesbank President Weidman who seemed to be concerned about the low level of inflation in the Euro Zone. Throw in the comments of some other major European Central Bankers and that hit the Euro as talk grew that the ECB was moving in the direction of its own version of Quantitative Easing.

Over here in the US Fed Governor Charles Plosser (head of the Phillie Fed) commented that the hurdle to change course on the Fed's plan to taper was "pretty high". By the way, he was concerned that inflation was currently a little low and that he would actually like to see it creep up a bit! How's that for some candid talk?

This sort of stuff, coming from Central Bankers in the West, along with further weakness in the mining shares, was enough to pull the rug out from underneath those buying gold out of any Dollar weakness concerns. If rates in Europe are not going up anytime soon and if the Fed is continuing its current tapering plans, then Gold has those headwinds to contend with.

if that were not enough, copper prices continued to fall lower today out of worries over the health of the Chinese economy. What really has the market roiled however is that persistent weakness in the Yuan. That makes copper more expensive to purchase for Chinese buyers. In a market already experiencing demand issues, that is not helpful.

There is a bit of chatter however that the economy over there is weakening to the point where the Chinese authorities may soon try to do something to generate some growth. Who knows exactly what that might be but it was enough, at this point, to prevent copper from falling any lower. Copper is holding about last week's spike low near 2.87 for now. I would be concerned if it broke down below there as the odds would increase that silver is not going to hold support down near $19 if that were the case. Silver has become a teenager once again.

Here is the chart of gold. As you can see, the bears have regained control of the market on the short term chart. Notice how the price consolidated the last couple of days near the 38.2% Fibonacci retracement level indicated. Then today, it fell below that and as of now, has not yet recovered.

It did manage to hold above psychological chart support at the $1300 level. Bulls would not want to lose that as it would further shift the sentiment in the market in favor of the bears. If $1300 goes, then look for a test of the 50% retracement level near $1287. Bulls need to recapture $1340 to gain any sort of traction right now. They certainly need some help from the miners which are down over 2% as I type these comments ( basis HUI).

The US Dollar Index needs to clear 80.50 to run out some of the recent shorts. If it does, gold will more than likely be unable to hold support on the downside. We will have to monitor developments in the currency markets to get a sense of whether or not that is going to be the case.

Silver Succumbs to Gold Weakness

Silver had been managing to hold above $20 today in spite of the Gold weakness until late in the session when gold began sinking even lower and the shares continued to puke. That finally pulled the rug out from underneath it and it became a teenager once again. It had managed to become an adult in early February but could not act its age and decided it liked the "freedom" of having  "teen" in its age.

In looking over its daily chart, the bears are back in control of the market, which is essentially meandering back and forth in a broad range. It is below the 50 day moving average which is bearish but as is the case with any market stuck in a sideways pattern, moving averages are not especially useful in analyzing them.

This is reflected in the ADX line which continues to head lower indicating the lack of a firm trend.

It is going to be interesting to see how gold trades in Asia this evening. Will bargain hunters surface or will they sense lower prices ahead and thus hold their fire to secure the metal at a better price. If the West starts selling gold once again, Asia is going to have to provide whatever price support this market might have.

The Dollar

Gold loses nearly 2%

Last Friday's COT report showed a fairly large build in new longs among the hedge fund community. Unfortunately for them, those new longs BOUGHT HIGH and ended up SELLING LOW; not a particular good way to impress their clients.

Nearly all of those new longs were immediately under water as soon as the FOMC issued its statement last week. That and the fact that WWIII did not break out, as many of the perma gold bugs were predicting, was enough to turn the momentum back and that did it for the momentum-based funds. They are now selling.

In looking at the Daily Chart, it has now turned negative once again with the loss of downside support near $1320. Gold has currently encountered a bit of buying support at the 38.2% Fibonacci retracement level from the $1180 low to the recent high shy of $1400. Failure to hold here, and a test of PSYCHOLOGICAL support ( there is nothing as far as Technical chart support about this level ) at the $1300 will be shortly in order.

If that is not enough to bring in dip buyers, then the next logical chart level that I can see is closer to $1287.

The ADX turned down last week suggesting a halt in the recent uptrend. That has certainly been confirmed with the crossover by the Directional Movement Lines. The Bears have now seized control of the market once again. We will have to see whether or not the Bulls can seize it back again but they are going to have to resurface very, very soon and at a bare minimum recapture $1340 - $1345 to run out some of the new shorts.

If you notice, the short-term uptrend line has also been broken.

Silver is actually holding up better than gold today as it thus far seems reluctant to move below $20 for any length of time. It might be drawing some stability from the fairly steady copper market.

Mining shares are of no help whatsoever to the entire metals complex at this point. There is a zone of congestion on the HUI chart between 210 - 220. That index looks like it is headed there. So far the miners are down nearly 4% today.

By the way, bonds are getting some money flows into them today. Interest rates have dropped a wee bit on the Ten Year to 2.737 as I type these comments.

No much else to say except the week has started off poorly for gold bulls. Maybe it will end better.

Carnage in Biotech Sector Provides Support for Gold

The big news of today in my view is the barrage of selling that engulfed the Biotech sector. It was indiscriminate, hitting the entire sector. The selling in that sector put an end to the feel good stuff that marked yesterday's equity trading.

From what I could tell, what got the ball rolling downhill was some Democrats in Congress who started making noises about Gilead Sciences Hepatitis C drug known as Sovaldi.

That was enough to send investors ( read - hot money ) fleeing in droves out of the entire sector. Biogen Idec, Celgene and others got absolutely mauled as a result.

Take a look at the Ishares Nasdaq Biotech ETF ( IBB). It fell a whopping 4.74% in one day ( sounds like a mining share ). Volume was enormous.

It fell through the 50 day moving average although based on this chart, such moves in the past have tended to be buying opportunities.

The Dollar was a bit weaker today and that helped gold move higher but the big development was back in the Volatility Index or VIX. It leaped sharply higher as the panic selling in the biotech sector triggered a wave of unease across the broader equity markets as the session wore on.

Keep in mind that comparison chart I put up the other day showing the VIX and comparing it to the price of gold.

As the VIX moved higher, so too did gold. Interest rates also moved down a tad today as some safe haven buying was seen in the Treasuries as a result of this biotech event ( the Yen was up once again). What we thus saw today was gold getting a bid as a result of a safe haven play once again.

Whether or not this holds is an unanswered question at this point. From a technical perspective, gold managed to hold above chart support near $1320. At the current moment, gold is stuck in a range between $1340 on the top and $1320 on the bottom. Those two levels hold the key to its IMMEDIATE future. If it powers through $1340 and does not lose that level, it should try again for $1360-$1365 where it should meet up with eager sellers.

If it loses support at $1320, it will be down to $1305 - $1300 for a test.

Copper bounced a bit today as the hammer formation from Wednesday so far has been holding it. Today's COT report shows that the only category of traders that are net long the copper market are the index funds; everywhere else is short, including the Commercials. That is going to be a big level moving forward. If copper falls below that level, I honestly do not see anything on the chart in the way of support for at least another $.10 - $.12 cents. It's chart still looks heavy to me but for now the bulls have managed to hold it together after the metal has plunged nearly $.40 over the last month!

I will get something up later about the Gold COT report. A quick comment I can make at this point before I get the chart together is that this week new buying finally managed to exceed short covering in gold among the hedge fund category. That is encouraging if you are a bull but the problem is that the data DOES NOT COVER what happened in this market beginning on Wednesday, when the Fed came out with its hawkish comments. Gold lost some $40 since then before it managed this biotech-induced bounce today. It would not surprise me to discover that a goodly number of those brand new long positions, many put on above, $1380 are now history as they are deeply underwater at this stage.

A close look at the chart and you can see that gold is currently corralled between the "Initial Support" Zone and the "Secondly Support" Zone. It do not see an opportunity here unless one wants to just roll the dice. Those who are inclined to be bullish, will see the success at holding above $1320 as an opportunity to get long. Those who are inclined to be bearish, will see the inability to clear $1340 as a reason to get short. As for me, I see better opportunities elsewhere until gold can tip its hand. There is nothing wrong with sitting on the sidelines at times and letting others roll the dice because that is what you are essentially doing with gold at this juncture.

It is difficult for me to envision the Dollar breaking down hard as we move foward considering what the FOMC just gave us this week. Barring any further escalations in geopolitical events, that means the driver for gold is going to have to be economic data releases. If interest rates are set to rise as the Fed has stated ( spring 2015) then positive real rates will tend to make for stiff headwinds against gold breaking above $1400. If, on the other hand, the economic data does not improve any with the return of the warmer, more seasonable weather, then the Fed, which is highly data dependent at this point when it comes to make decisions regarding monetary policy, is going to have do modify its hawkish comments from this Wednesday. That should give some support to gold.

I still believe the key to gold is the US Dollar and the key to the US Dollar is interest rate levels here in the US. Higher rates will keep a lid on gold, UNLESS, the market becomes convinced that inflation is moving higher faster than interest rates are moving higher. That seems very unlikely given the benign inflationary environment that the market is convinced now exists. Please bear in mind that I am not giving my own view of inflation - I am giving you the view of the FED and the majority of big players in the financial realm.

What I can tell you is that those of you who love eating red meat ( Bar-B-Q ing is my heritage and pastime) had better get ready for some stunning sticker shock at the meat counter. That is one area where you are going to witness some mind-boggling price increases this spring and summer.

Hopefully we will get a good planting season and a good growing season here in the northern hemisphere next month and produce some very good and large crops. That would go a long way to easing some price pressures at the grocery store but the impact from such an event is still some ways off.

At least the price of electronic goods is staying nice and low. It is going to be interesting to see what happens to crude oil as we move into the warmer weather. Natural gas, after spiking to kingdom come this winter when the now famous Polar Vortex enveloped nearly half the US, has come back down to earth in a rather rude fashion. Anytime we see lower energy costs, it benefits the consumer and business.

I am going to be most interested in seeing if that sell off in the Biotech sector has run its course come next Monday. That will drive money flows next week.