Dear CIGAs,

Gold was greeted in New York with the usual selling pressure turning the daily chart pattern increasingly less friendly after bulls failed to push price above the downsloping trendline resistance shown on the attached chart. That trendline continues to dominate the daily chart technical picture and until bulls can shove prices convincingly above it, the bears will growl confidently over their view of the market.

Price is now once again below the 100 day moving average and is attempting to hold above the first level of horizontal support near the $880 level. Failure there and price moves to test critical support near the $865 mark. Bulls cannot allow price to fall below that level or a large amount of long liquidation will occur having the potential to take price down to $820 – $816.

Bulls have a shot at reinforcing the triangular consolidation pattern if they hold their ground here. This pattern, should it be maintained, will be moving towards a resolution in two-three weeks time.  Equities fading from off their best level as I write this is supporting gold helping it to recover from its worst levels of the session. A push above Tuesday’s high will trigger some short covering. The late session price recovery has to be encouraging to the bulls.

Safe haven flows into gold are drying up some as evidenced by the breakdown in the US long bond and the rally in the equity markets. While bonds are being pressed down by looming oversupply fears, gold has not yet made the transition to an expected inflationary scenario. It will need further help in that progress by continued strength in the CCI (Continuous Commodity Index).

The long bond weekly chart shows price sitting exactly on the 50 week moving average. Bond bulls will attempt to hold price near this level for if they fail here, bonds will move down to test the 100 week moving average about 400 points below the current price. That level has held for the last 1 ½ years on any test. It is quite an education observing the battle between the market and the market manipulators at the Fed and Treasury over the level of long term interest rates. The Fed announces a concerted effort to artificially shove long term rates lower in an attempt to breath some life back into the comatose real estate market while at the same time the Administration goes on a drunken spending orgy in the trillions of Dollars. This unprecedented increase in debt issuance then run smacks dab into the reality of what is left of the free market system in which price is determined by the level of demand versus supply. Too much supply and insufficient demand leads to lower prices – an economic law that the Fed apparently feels they can circumscribe. Bonds are firmly below the level of that day in which the Fed announced its much heralded intention to make periodic buys in the Treasury market having the same effect as printing money into existence. I am not privy to the inside workings of both Fed and Treasury but I can say with a great deal of confidence that there is gnashing of teeth taking place at the price action in the long bond.

The HUI and the XAU are showing consolidation patterns as both continue to trade within a broad range carved out since December of last year. Silver was hit hard today but it too continues to trade in a very broad triangular consolidation pattern kept in check by a downsloping trendline drawn off the February and March peaks but holding support in the general vicinity of $12.00 – $11.80.

Copper, if it is going to fail, should run into selling pressure near the $2.10 level. If it can breach this level, then it will probably move on up to retest the zone near the $2.20 level. This market still bears close attention because of its reputed predictive abilities. A further surge in copper prices will lend credence to the continued shift away from deflation and towards inflation in the minds of investors and traders. It is also notable that copper prices moved higher today even in the face of a stronger Dollar.

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