Dear CIGAs,

We are certainly living in a strange world when the payroll numbers can induce comments such as the following from a market analyst at a major bank: “strong, strong, strong”. Excuse me – how does a number that shows the employment rate including the underemployment rate at 17.2% of the population rank as “strong”? Then again, I probably need an adjustment in my mind to allow me to see more clearly. Back when I was in school in what now seems ages ago, when nearly 1/5 of the population is either out of work or looking for full time work and cannot secure it or stuck in part time work unable to move to full time, that was not considered a healthy economy. It certainly would not have elicited the word, “strong”, thrice repeated.

Either way, in a reversal from the current psychology, traders bought the dollar instead of selling it as they moved away from risk trades which is another way of saying that the Dollar carry trade was suspended today. The new chatter is that the reading was so unexpectedly “strong”, that the Fed is going to have to rethink their current low interest rate strategy and will soon raise rates. Oh sure they will…

Gold saw a fair amount of long liquidation associated with the stronger dollar which generated selling across pretty much the entirety of the commodity complex. Even the grains were socked today.

Do not let days such as this rattle you. Keep in mind the old adage: “the trend is your friend”. Ignore all the rest of the day to day gyrations. Those are made for short term oriented traders who think that they can outrun the hedge fund black boxes. Good luck is all that I can say to that.

AS far as the Dollar rally goes, in looking over the charts, it would need a solid weekly close above the 76.50 level to generate some more buying enthusiasm from a technical perspective. Until it does that, rallies will attract selling.

Keep in mind that Central Banks are now buyers of gold and will not change their new philosophy because of a short term chart signal. That buying will undergird the gold market as it moves lower into technical support levels.

As far as those analysts ignorantly proclaiming that gold is in a bubble, they have no idea what a chart pattern of a market in a bubble looks like. Gold’s rise has been steady and strong with it picking up momentum only in the last month or so. The market is taking a well deserved rest, especially as we move towards year end and traders begin to square positions in front of the holidays. Besides, if gold is in a bubble, Central Banks such as India and China, who are looking to acquire more of the metal, must be dolts as well.

Nothing short of major changes to US deficit spending and US monetary policy which also deals with the structural problems of gargantuan indebtedness is going to cure what ails the Dollar. The US wants, nay, needs a weaker Dollar to enable to deal with its debt problems. Dollar strength will attract the attention of those nations looking to lighten up on their Dollar holdings and to do so in a matter which is least disruptive to the Foreign Exchange markets. Translation – Dollar strength will be sold.

Shortsightedness is the sickness that kills investors. Be wise and do not adopt the convictions of the short term one minute bar chart readers for they have none.

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