Dear CIGAs,

It looks like someone forgot to tell the US equity markets that they were supposed to be “stimulated” by passage of the $825 billion and rising “stimulus” plan approved by the Dems in Congress last evening. Then again perhaps investors looked at the plan and were not “stimulated” by its details since all those digital TV’s that it gives away money for are not made in the US but overseas. I did want to let the readers know that I sent in an invoice to the feds in the amount of $25,000 requesting a direct payment to me personally so that I could purchase a really nifty 4 wheeler that comes with a built in cooler for hauling cold drinks on those outings in the great outdoors. I will let you know when I get the check so that you can also apply. I am not worried about the cost because when I am gone from this planet I will be leaving it to my kids since they, along with their grandkids, will end up being the ones that are paying for this anyway.

By the way, some one has calculated that the size of the package means that the feds could send every man, woman and child a check for $2,700 or $22,000 for every person living below the poverty level in the nation. No doubt that could be increased a bit if they eliminated the $50 million that the bill throws to the National Endowment of Arts and $ one billion for Amtrak, which has not shown a profit in 40 years!

Even the bond market has finally figured this one out – as lousy as the economic data gets (did you see that new home sales hit a 14 year low according to today’s data release) the bonds still cannot muster much of an upward move. Traders there are slowly coming to realize that bonds are not such a “safe haven” when the feds are multiplying them faster than ACORN can register non-existent or dead voters. Bond traders rightly fear a tidal wave of supply that is going to overwhelm whatever demand still exists for them.

The bond chart has turned absolutely horrendous with today’s sell off breaching a short term support level which had emerged near the 128 ^15 level. There looks to be nothing in the way of technical chart support until down near the 100 day moving average at 125 ^08. About the only thing that the bond bulls have going for them is the extremely oversold level but that is not a lot to hang your hat on once sentiment shifts, especially in a market that had blown up into a bubble of cosmic proportions. Tomorrow’s weekly and monthly close in the bonds will be significant.

All of this contributed to gold’s rise from support – if bonds are no longer safe havens then where can one go with their wealth to protect it from the depredations being inflicted upon it by Central Bankers and ignorant politicians. Answer  – Gold.  Pause here as the camera pans in closer to zoom in on the bullions coins I am holding in my hand and then pans back out so that you can see the 800 telephone number to phone so that you can purchase some gold and pay for the cost of the advertisement.

Seriously, sometimes I get the feeling that we sound like a TV advertisement for gold but when you look at what is transpiring in the world around us and see the folly that passes for statesmanship among our leaders, you get the idea that you are watching a train wreck in slow motion. The monetary authorities and the politicians set the stage for this mess, greed on Wall Street took over and now the monetary authorities and the politicians are somehow supposed to fix it all. It reminds me of the story of the clumsy janitor cleaning a store full of fine crystal – he knocks over some of the crystal and attempts to sweep it up but in the process the handle of his broomstick knocks more crystal off of shelves that are behind him. As he turns to deal with that mess, once again the broomstick takes down more crystal to the point where he has managed to ruin nearly everything in the entire store. It would have been better off if he had never even attempted to clean the store in the first place.

Technically the price action in gold is most encouraging. After stalling out at $920 due to bullion bank price capping, gold probed lower looking for buying support and found it almost exactly on the topside of the Downsloping trendline from which it broke above last week. This is classic, and I do mean “classic”, bullish price action from a technical perspective – a triangular consolidation formation in which the market is coiling tighter and tighter and then breaks out, sees a retest of the breakout point and then rebounds in the direction of the initial breakout.

Tomorrow’s price action becomes most important now. In a “normal” freely traded market, more often than not, the market will continue in the direction of the breakout after completing such a pattern. I have seen this pattern occur so many times in the span of my trading career that I have long ago lost count. However, we all know when it comes to gold, that this market is anything but a normal “freely traded”, protestations of the willfully blind notwithstanding. That is why we need to see this thing get a strong close on Friday. If it does, it will show that the bulls have unnerved the shorts and recaptured the initiative and are in a position to try to take the bullion bank redoubt at $920. If it cannot, it will show that they have surrendered their initiative and allowed the shorts to regroup after giving them a sharp, swift blow and a good fright. The side with the greatest conviction will win. Perhaps the fickle fund managers will surprise us and show some resolve for a change instead of cutting and running. If the bulls can manage to close gold above the $900 level on the weekly charts, they will have gained the upper hand in the gold war. Don’t forget that tomorrow is also the end of the month and that the close will be significant from a long term chart perspective. Gold’s monthly chart remains most impressive and I will get one for you tomorrow to keep in front of your eyes everytime the deflationists and their demise of gold predictions trouble you.

The HUI and the XAU picked up their divorce from the broader equity markets once again which is encouraging to see for the friends of gold as the miners need to continue their upward trek if the gold sector is going to advance as a whole. The HUI still needs a good close above the 307 level and preferably above 310 to get things moving. The XAU needs to get a close above 127 and preferably above 130 to fire that index higher. Shorts are going to try to dig in at these levels so bulls will have to prove their mettle to dislodge them from their lairs. At least in today’s session, the share bears are getting gored by the bulls.

The Dollar moved slightly higher today mainly on the back of weakness in the Euro. Also the commodity currencies from Australia and New Zealand were especially weak which makes gold’s move higher all the more impressive as nearly every factor that in times past would  have seen strong downward pressure in gold was present today and yet for all that gold still moved higher. Couple that with weakness in the bonds and it sure looks like more and more people are viewing gold as the last safe haven around and the best place to be right now.

Crude oil continues moving within its trading range as it drops lower to test the downside portion of that range. Higher crude oil prices will serve to benefit gold but are not essential to its welfare as investors are buying gold now out of currency concerns and not so much for inflationary pressures. That will come in time as this orgy of newly created money eventually begins to flow back into the commodity sector further on down the road.

Click chart to enlarge today’s hourly action in Gold in PDF format with commentary from Trader Dan Norcini