Dear CIGAs,

Once again the big news in today’s trading is the action in the Dollar and the US bond market. The carnage continues in the bond market with prices absolutely in free fall as support levels from Friday’s session were obliterated as wave after wave of selling flooded into the pits. Watching this debacle unfold in front of us, I cannot help to shudder at the effect these soaring interest rates are going to have on all those supposed “green shoots” that are sprouting up. To me it looks like a case of Round Up being sprayed on all of them. After all, what exactly are consumers supposed to think when they see prices of tangibles shooting higher (gasoline, food, hardware, etc.) while interest rates on loans of any kind are moving higher at the exact same time? Just how can rising interest rates in an environment in which so many are either unemployed or underemployed be beneficial to any recovery? Maybe all those folks associated with the struggling auto industry in some form, shape or fashion will rush out and immediately buy new houses or new plasma TV’s to lock in some nice “LOW” rates before they go even higher… Don’t hold your breath waiting for that to occur.

Against this backdrop, crude oil is moving ever so slowly closer to $70 barrel, with unleaded gasoline over $1.90 at the wholesale level over at Nymex. Wheat is closing in on $7.00 bushel while soybeans just topped the $12.00 mark. Platinum is over $1200. Even lumber managed to move higher today although that one is somewhat suspect as far as I am concerned. Still, you can get the point – commodity prices are shooting inexorably higher as the Dollar drops further and further. While the price cappers were intent on pushing gold back away from the $990 level, they are spitting into the eye of a hurricane with the relentless rise in the entire commodity complex and the implosion in the bond market.

Over on the currency front, the only majors that were down against the greenback today were the Japanese Yen and the Swiss Franc. Both are being used by the carry trade as risk comes back with a vengeance. The Yen in particular was hit hard dropping over 150 points. The Dollar dropped below the 100 WEEK moving average at one point during today’s trading session but has managed to claw its way back to that level for now. It is so oversold that some guys are looking for a bounce although such a bounce will not last long as its technical picture is horrendous. There is a swing low on the weekly chart that was made back in December of last year that corresponds very closely to today’s session low. Should that level give way in the immediate future, the Dollar is going to drop rapidly down towards the 76 level. Below that is major, major support near 72. If that gives way, kiss the dollar goodbye and gold goodbye to the upside.

June gold has entered into its delivery period. Thus far deliveries are not all that impressive but we will continue to watch this. The action is now centered around the August contract. Open interest remains quite low (388,000) for gold to have made it to less than $10 from the $1,000 mark especially when you consider that the last time gold was up near these levels, open interest was closer to 590,000.

With the mining shares being hit once again by the same crowd and gold running into the bullion banks’ selling barrage just shy of $1,000, long side players will need to dig in to prevent the short term oriented momentum crowd from moving out and creating some selling pressure. AS long as weakness in the Dollar continues and commodity prices are rising across the board, gold will attract dip buying on any setbacks in price.

Incidentally, copper prices are on a strong upward tear. Apparently the thinking is that the economy will be markedly improved by the latter part of the year.

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