Dear CIGAs,

The US Dollar managed to bounce precisely near the critical 78.40 support level on the weekly price chart just in time for the Chinese delegation’s arrival in Washington. Even an avowed cynic such as myself has to marvel at the temerity of the US monetary authorities intervention foray this morning. The fact that the pop higher in the Dollar came at a major chart support level makes the stunt even more obvious. Were the Dollar to have broken below 78.40 and taken out this swing low made early last month, there was a very real danger of a sharp meltdown all the way to 76 before any buyers would have be anticipated to show up. That would have made the US lose face in front of China and strengthened the hand of the Chinese as they voiced their dismay at US profligacy and runamok spending.

All is well in intervention land but even at that, no amount of chart tomfoolery is going to undo the growing global movement away from the US Dollar. Our cursed monetary authorities’ shortsightedness has destroyed our children’s monetary future and dashed our nation’s greatness upon the rocks of favoritism and elitism. We are all going to end up paying for this but this is exactly what Jefferson and Jackson and others warned about when they waged war against National or Central Banks usurping control over a nation’s currency.

The perma gold bears at the Comex, aka, the bullion banks, wasted no time in smashing bids  above $958 once again showing their presence at the rigged Comex market. This time however, the sell off in crude oil coupled with a flight away from risk and back into the Yen, led to panicked long liquidation as gold dropped down through the bottom of the trading range that has held for the last few trading sessions. Not only did it drop below $946 – $948, but it fell all the way through critical support at $940. Failure to gain its footing here sets up further downside and a test of the $932- $930 level. Conversely, a push back above $946 and into the trading range zone will allow for further consolidative type trade.

With today’s raid on Gold, the price charts have turned bearish once again short term. The daily chart however shows more of the same constricting pattern that has contained gold since February of this year. The highs are lower but the lows are higher as we move from February towards July. In other words, gold is forming a coiling pattern on the daily charts. Seasonally we normally do not see a lot of strength in gold until late in August so this pattern is nothing to be concerned about as long as gold can maintain its footing above $900. I would be a bit concerned were it to break down at that level as it could conceivably move down towards $880 were that to occur but even that would not particularly bother me since that would correspond with the 100 week moving average on the weekly chart which still shows a very broad sideways pattern going back as far as January 2008.

Puff the Magic Dragon must have been at work in the bond market today – either that or the friends of the Fed were given orders to buy bonds for window dressing for the Chinese delegation. The trend in bonds is still lower but they too might attempt to carve out a range trade above 112^16 and below 121^21.

Crude oil also seemed mired in a broad range as well working between $70 and $60.

What we appear to have are markets that are generally at the mercy of currency movements as a move higher in the Dollar and in the Japanese Yen translates to risk aversion and selling in commodities and a move lower in the Dollar and in the Yen translates to risk preference and buying in commodities. Because the Dollar has not yet broken completely down many commodity markets cannot clearly break out into defined uptrends but are retaining choppy price patterns. AS to when this will end, I am unsure but unless the US monetary authorities can suspend the laws of supply and demand, the Dollar is going to break down at some point and that will be that. Once the fat lady sings for the Dollar, gold will shoot up through $980 and then $1,000 although it might be the fall before that occurs.

The HUI was once again stymied around that pesky 360 level. It cannot seem to muster sufficient strength to convincingly better that level, especially on a closing basis. There is chart support near the 330 level and better support near 320. Below that you have to look as far as 305 before expecting some buying to emerge.

Interestingly enough, copper, while lower today, still has not at this point collapsed sharply lower. Based solely on its price action, one has to question how much of the risk aversion trade is more than a one day wonder. With the grains seemingly refusing to move lower, tomorrow could be a complete reversal of today’s downside action in gold and upside action in the US Dollar. Given the current state of idiocy of today’s electronic markets, I hesitate to do anything more than merely conjecture but without a sharp break in copper, I cannot see the risk aversion trades gaining much in the way of follow through especially given the fact that the Australian and New Zealand Dollar were both higher today in the face of a rush into the “safety” of the US Dollar and the Yen.

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