Dear CIGAs,

The CCI (Continuous Commodity Index) bounced from near the 50% retracement level of its move up from the December low as money flooded back into the commodity sector after that same money flooded out of it yesterday. The idiocy and madness continues unabated it seems. Trying to read too much into any one day’s price action has become the sport of fools so let’s not get snared in that net. Rather let’s try to use the longer term charts to see if we can see how the battle between the deflationists and the inflationists is faring.

Obviously with crude oil and copper soaring, gold was not going to stay down today, and with the equities continuing their orchestrated low volume move higher, the good times were here again in the minds of the hedgies, or better yet, their trading algorithms which were busy jettisoning everything that looked remotely like a commodity yesterday.

The grain pits, led by the soybean market, tore higher today as news of Chinese buying set a fire under those markets. When you get a combination of the energy markets (crude and natural gas) moving higher alongside the grains, you are not going to get serious selling pressure in gold outside of the bullion banks as nearly all of the spec funds will be buying.

I marvel at the copper market which is flirting once again with its highs made just a few days ago having quickly shrugged off the weakness of the past two days. It is difficult to argue with the trend in there but it sure makes once wonder if that market either knows something that the rest of us do not or if it is beginning to get ahead of itself.

Bonds – well, they are becoming almost completely unpredictable… down sharply at one point on the surging commodity markets and higher equities only to miraculously come soaring back after news that the auction on 7 years went very well (at least that is what we are supposed to believe). Apparently some feel that yields are at decent levels and want to own them but who really knows what games are being played in that market behind the scenes. There is simply way too much government intervention in the bonds with QA buys and such taking place to know how strong demand really is.

Gold managed to climb back above support down near the $932-$930 level which gave way yesterday. That is a good sign but I will not rest easier until price gets back above $940 and remains there. Only then can one say that the bears’ advantage has been lost. For now, $930 is a key support level that must remain intact to keep price from dropping down below $920. Only a climb back above $950 turns the tide in the favor of the bulls.

Open interest shows that the longs are indeed being forced out in gold with bullion bank short covering occurring.

That’s it for today as I have to keep things rather abbreviated.

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