Dear CIGAs,

Volatile trading was the norm in today’s session as news of an outbreak of a dangerous form of flu sent markets reeling as traders attempted to sort through the various news report and make some sense out of the constant stream of news releases.

Before I get into the technical action in gold, let me mention here that I believe it is extremely unfortunate, rather almost reckless, for the media to refer to this new form of flu as “swine” flu. First of all, there is absolutely no proof or evidence at this time that a single pig anywhere in the US or in Mexico has contracted or even incubated this new form of flu. The Mexican Organization of Pork Producers and Hog Industry, Ornapor, inspected all hog production facilities in the vicinity of Mexico City’s 20 million people and did not find a single contaminated pig. Here in the US, there have also been no reported instances of any hogs or hog herds having contracted the disease. The authorities are completely baffled as to the source of this form of flu and yet the media continues to label it as “swine” flu merely because the experts have “conjectured” that it “might have been” incubated in a pig because pigs are known as mixing vehicles for various forms of flu and this one has elements of human, pig and bird flu in it.

So based on this “weighty” analysis, an entire industry here in the US has been shoved into extreme economic distress with even China and Russia succumbing to the hysteria and slapping bans on imports of US pork. It all just serves to show how reckless and irresponsible reporting can destroy hard working farmers and livestock producers especially when even the health authorities all will emphasize that one cannot contract the disease by eating properly cooked and prepared pork.  As far as I am concerned they might as well have called the stuff “Armadillo Flu” because for all we know, some damn armadillo incubated it. It is nice to know that I have been joined in my views about this nomenclature by none other than the World Organization for Animal Health, also known as the OIE, a Paris-based organization which also is calling the term “swine” flu misleading and suggest another name such as North American influenza based on its area of origin. Perhaps, just perhaps, our pork producers will be spared this madness if the media and the rest of the authorities actually do the right thing and change its nomenclature.

Meanwhile, I am actually far more concerned about our hogs here in the US contracting the disease from humans rather than humans contracting it from hogs. Hog producers out there make sure that you follow strict bio-security measures and protect your hog herds from excessive exposure to visitors and closely monitor the health of your swine herders. I would suggest you cut out all unnecessary guests from your barns until such time as the authorities get a better feel for the true dynamics of this flu. It may very well be that the flu cannot actually be contracted by hogs but as of yet we are unsure so caution and prudence are in order.

Now if further investigation reveals and actual herd of pigs in Mexico as the source, then I will be the first to retract what I have said above but until that time, the use of the term “swine” flu should be banned as far as I am concerned. One other point, thus far all of the cases here in the US show no exposure whatsoever to any pigs or pig products. Rather the flu was apparently spread by human to human contact. Just keep this in mind as this situation unfolds.

Back to the various markets – equities, grains, crude oil, nearly everything commodity, were all sharply lower overnight as the news about the new form of flu spread and traders sold first and asked questions later. If the flu turns out to be the beginning of a serious epidemic world-wide, then fears of a slowdown in consumer spending will be justified as people attempt to minimize as much as possible exposure to the general public. In Mexico the cancellation of soccer games, school classes and other assorted activities gives one a sense of where things might go should this thing ramp up further. I am not a physician or a health expert of any kind but at least this outbreak is occurring during the late spring and summer months here in the northern hemisphere and not during the colder months that we normally associate with flu outbreaks. That is at the very least helpful.

Gold was higher overnight on the news and maintained its gains until, (you guessed it), it came into New York where the usual culprits smashed it down. Don’t ask me to give a reason why it was sold down – I have none other than that which we all know already. Silver also was taken down after surging above $13.20 overnight. The gold shares held up better with the HUI and XAU weaker, albeit only slightly at one point with the XAU actually working into positive territory. Getting a read on any market with today’s flu related volatility is going to be extremely difficult and traders and investors would do well to withhold dogmatic assertions based on price behavior until things simmer down some and we can get a true reading on some of these markets.

With that caveat, gold ran into selling resistance near the downsloping trendline shown on the price chart with the market losing its footing above the 40 day moving average. Bulls need to force price above the $930 level to spark a further round of short covering and to tip the technical picture firmly in their favor. Gold is still registering a mixed picture with very short term signals friendly but the intermediate term picture bearish with the longer term picture still bullish with the monthly chart showing the $1,000 level holding the bull charge contained while the 20, 40, 50 and 100 month moving averages are trending solidly higher. Neither side has a clear advantage at this time with the gold shares’ price action probably tipping the balance of power in the favor of one camp or the other. The knee-jerk rush back into the Dollar for a safe haven play against flu fears (I am merely reporting what these mindless cretins are doing) is leading to gold selling with the risk aversion plays the dominant theme for today. Sure – I get it – North American flu fears mean buying the North American US Dollar… no further comment….either way – stronger dollar leads to price capping and gold selling.

May Silver will be going into its delivery process this week so we will get a chance to see how that fares especially with the recent drawdown in Comex silver warehouse stocks associated with the sale of SLV.  Heavy deliveries with little to none in the way of retenders will be encouraging. We will have to wait and see how things go.

Bonds moved higher as equities plunged overnight also helped by $7 billion in Fed buys but surrendered their gains as the stock market recovered from its losses with tech leading the way higher. Bonds look increasingly vulnerable to a technical breakdown here but I have been predicting that for some time now and have been thwarted repeatedly as they rise from the edge of the precipice just about the time they look to be dropping off the ledge. Only 12 ticks separate them from taking out the big range day of the Fed’s quantitative easing policy announcement. This market is becoming a real key to what we can expect in the months ahead so let’s keep a close eye on these things. If we can see the danger on the charts, rest assured the Fed’s chart watchers can see it also and will attempt to shove them away from the danger zone. Our illustrious money overlords do not want higher long term rates.

Natural gas is getting quite ugly and severely oversold but cannot seem to muster even much of a bounce at this point. Crude oil managed to recapture the $50 level during the session after being down as much as $3.00 barrel at one point but could not maintain its footing above that level for long. At least energy is still cheap, for now.

In closing let me offer a funeral dirge for the grand old Pontiac division of GM. Those of us who were hot rodders in our day will fondly remember the glorious Trans AM Firebird, which was one of the finest muscle cars ever made, not to forget the old “GOAT” or GTO. No one seeing the Trans AM  in its hey-day will ever forget the awe-inspiring combination of design and power that it projected with those stylish spoilers and throaty pipes. Requiescat in Pace old friend.

Dear Dan,

Media runs out of junior gold companies, attacks Swine.

Regards,
Jim

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