Dear CIGAs,

It would appear that yesterday’s move higher in the mining shares as reflected by the up day for the HUI was a precursor of things to come in the gold pit. With the HUI popping back above both its 10 and 20 day moving averages, momentum buying was seen in the Comex gold pit with it too moving back above both of the same moving averages. The ten day had only recently turned down giving some reason for concern but a couple of consecutive closes above that level, and further short covering should be seen.

Today’s strength in gold puts it into position to take on stronger selling resistance that has thwarted its further upward progress over the last couple of weeks. Bullion bank selling centered around $1,020 has held it in check and prevented it thus far from eclipsing its previous all time high above $1,030.

Technical support surfaced first near the 987 – 985 level on the recent setback with that support having moved up to near 995. That will be the level to watch if we get any further price weakness to see if the same crowd makes their presence felt once again.

With the Dollar appearing to be bear flagging on its technical price chart, gold bulls should have the wind at their back. The greenback is looking very vulnerable here and the fact that it could not manage more than a meager 2 cent blip before sellers moved in is quite foreboding. If the specs decide to really go after it, 76 could fall and with that fall, it goes to 74 and gold will crack $1,030.

The Fed has boxed itself into a horrible corner as their inability to raise rates to protect the Dollar has left it defenseless. About the only thing that is providing any sort of support for it is the rapidly fading, “safe haven” status that has brought buying into Treasuries and the greenback during any sort of equity slide. That will only go so far since carry traders will beat the Dollar to oblivion, in much the same fashion as they once did to the Japanese Yen. I have long believed that the US monetary authorities, protestations to the contrary, favor a weakening Dollar not only to help with export competitiveness but also as a means to inflate away the gargantuan sums of indebtedness that the nation is incurring.

Were it not for the fact that the British Pound is perhaps devaluing at a faster rate than the US Dollar, the greenback would probably already be below 76. A quick glimpse of the gold chart, priced in terms of British Pounds, reveals the debauchery of that currency and explains why gold continues to garner buying support on any price dips. Simply put – investors who are tuned into what is happening know all too well what their respective monetary authorities are doing and will have no part in allowing their wealth to be pilfered by these thieving politicians and monetary lords.

Take a look at the chart and notice how British Pound priced gold continues to trade above the 600 level.

Click chart to enlarge in PDF format

The Euro will need to climb back above the 14720 level to bring on some short covering. I am watching it carefully for signs of European exporter complaints although I have noticed something differently as well. Note the Euro-Yen cross chart below – can you see how sharply the Euro has fallen against the Yen? The Japanese Yen is moving higher on many of the crosses as more and more traders/investors are seeing it as a proxy for Asia. It could very well be that even Euroland is no longer as concerned about the level of Euro/Dollar as it once was because they too realize that their future economic export demand is going to be coming from that corner of the world. So while the Euro gains against the Dollar, it falls against the Yen and perhaps other Asian regional currencies, making them extremely export competitive, Euro/Dollar notwithstanding. If that is the case, and the European monetary authorities stand quietly by while the Euro climbs above 1.50, then the bullion bank days of reining over the Comex are coming to a rather inglorious end. Stay tuned on this one.

Click chart to enlarge in PDF format

Expect some technical selling resistance to surface near the 430- 432 level on the HUI. Should that be bested, the recent highs above 440 are back in play. If those fall, gold and the shares are going to accelerate rather sharply. Again, we are coming into a period in which seasonally gold is very strong so the perma bears are going to need a lot of help from a stronger Dollar to reinforce their faltering defenses.

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