Dear CIGAs,

The Dollar had the stuffing slapped out of in today’s session and as it collapsed, gold shot up and through several resistance levels rocketing all the way back to $960 where once again bullion bank selling entered the short covering frenzy to stem its upward progess. This level is gaining more and more technical significance as it is evident that they are attempting to hold the line here on gold. Should the yellow metal be able to maintain its footing above this region for two consecutive trading sessions, the momentum fund algorithms are going to kick back in and drive it higher; perhaps as high as $978-$980. The key will be whether or not the US Dollar can hold above CRITICAL DOWNSIDE support near 78.40 on the USDX. Failure there and 76 is a shoe in for the greenback and no amount of bullion bank price capping efforts will be able to keep Ol’ Yeller from heading up to $980. If 76 on the USDX fails, gold will at $1,000 before you can say, “oligopoly”.

AS you can see on the hourly chart, there is a spike high that was made early this week near 963. Bettering that on a closing basis will be the first feat that the yellow metal must accomplish to make a push towards $978 – $980. I must say that today’s sharp climb higher is very impressive from a technical perspective as it pushed gold back above all of the major moving averages on the WEEKLY chart. It is evident from the ferocity of today’s climb that a good many guys got caught flat footed on the short side and were violently squeezed out.

On the monthly chart, the previous month high near $992 is all that stands between gold and 4 digits but first it has to muster a monthly close above $980, which was the highest monthly close ever on the continuous chart.

Because today’s price action occurred at the end of the month, I want to see more upside confirmation early next week. You often get so much book squaring and position balancing at month end that markets can make pretty wild price movements but even at that, I am impressed at the strength that developed today in gold. Coming in so unexpected a manner, it makes today’s move all the more impressive.

The mining shares seem to be confirming the move higher in bullion at this point in the trading session. Once again the HUI is doing battle with the most stubborn 360 level that has been holding it in check on a closing basis. A close above 360 for the week will put 400 on the map as a realistic objective but the day is yet young so we will have to see what happens, especially in the last hour of trading where we often see shenanigans occur.

Bonds are back to working within that large range trade they have carved out over the past few weeks with 121 on the top side and 112 on the downside. This time around it appears that 114^15 or so seems to be the current floor. That level will take on more technical significance next week while 121 still stands as a formidable topside barrier.

It is odd today watching the bond market machinations seeing that gold is solidly higher as is copper, which continues to soar to the heavens as well as stronger crude oil and grains. One would think that the higher CCI (Continuous Commodity Index) coupled with the weaker dollar would see bonds moving lower in anticipation of increasing economic activity as least as far as commodity prices go, but the exact opposite is occurring. Once again I am at a loss to understand exactly which side of this deflation/inflation battle has gained the upper hand today because of this mixed signal but with equities moving higher, a weaker dollar, and higher commodity prices, it is difficult for me to give any credence to the deflationary move in the bonds. Then again, it might be a simple case of month-end short covering given a bit of an extra kick by the lousy GDP data. We’ll wait until next week for this muddy water to clear up a bit further.

One last thing – as I write this the Dollar is hanging on to 78.40 by the skin of its teeth so things might get interesting before the day is over. I think the feds are monitoring this level quite closely as they can read the chart significance of that support level.

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