There is not much to say about gold today other than what has been said repeatedly now for some time – it is stuck in a range trade with a bit of a higher bias to it as downside support thus far remains firm with the upside continuing to be capped by bullion bank selling at or near $1,130.

Ditto for the Dollar which is also stuck in a range but cannot seem to muster any enthusiasm for a downside breakout. Every single time it moves into the zone near and just below the 80 level, the volume dries up indicating that the trade simply does not want to take it lower. Currently there seems to be little appetite to push it down or on the flip side, to push the Euro up. Euro bulls are attempting to squeeze the shorts in there but they cannot recruit sufficient numbers to their cause to accomplish it. For now, the dollar is seeing buying below 80 and selling above 81.50.

After the shorts were run out of the Pound yesterday, sellers re-emerged today negating most of the upside blip.

The fact is that as concerns over Greece ebb and flow, the Forex markets are going to ebb and flow accordingly. And as the Forex markets ebb and flow, gold is going to ebb and flow. That is why we are seeing so many markets in range trades. There is too much uncertainty, lack of firm conviction with a corresponding lack of willingness to put money on the line, to allow one side to gain a sufficient tactical advantage over the other.

Speaking from the perspective of market price action, traders are grabbing at ultra short term profits wherever they may be found and then either getting out or reversing and flipping to the other side for another attempt at a quick but small gain.

Having said that however, gold is still maintaining its short term uptrend but it will need to push through $1,130 in a convincing fashion on strong volume to force the beginning of short covering among the weaker-handed shorts. Should it do so, that would set price up to run towards $1,145. One thing about this market, it is impressive that even with the Dollar higher, it is shrugging off selling pressure to a large extent by refusing to break down. This tells me that buying based on fears related to Europe is still keeping the gold price very firm in terms of those respective currency units and that will continue to put a floor of support under US Dollar priced gold. Euro gold is firmly above the €800 level and holding there.

With the Euro getting hit hard and the Dollar up sharply, commodities are getting sold down today as the algo trade resumes.

There are only a few commodity markets that are higher today as a result.

Weakness in the broad equity markets is bringing in a bit of selling to the mining shares as the HUI is down a bit around midday. It has to push above 431- 433 for a breakout of its range trade.

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

The bulk of the weakness in the US Dollar today can be attributed to a short covering rally in the British Pound. That market is so heavily loaded with speculative short positions that any push higher through notable technical resistance levels will easily spark a bout of buying in this market which has been beaten to a bloody pulp since the beginning of the year. Early in the session it broke above the 20 day moving average which is a key level for many of the trend following funds.

With the Euro oscillating around the unchanged level and the Yen lower, it was strength in the Pound plus the commodity currencies that weighed on the Dollar. For the Dollar to drop sharply lower it will need the participation of the Euro however, as that currency has the largest weighting in the basket of currencies comprising the USDX.

Gold which had pushed higher and broken through the selling barrier erected by the bullion banks near $1,130, was unable to maintain its footing above that level without the Euro’s participation in the short covering Pound rally. As soon as Sterling faded, the Dollar inched back higher and gold moved lower further reinforcing the significance of the selling resistance in place above the market at $1,130. Once Sterling moved higher again, the Euro tagged along for a bit and gold moved back off its lows. For gold to break free of its stranglehold, bulls must dislodge the bullion banks from their perch at $1,130 and do it in convincing manner.

Beneath the market, gold is still seeing buying coming in near $1,100 and is maintaining its six week old uptrend of higher low and higher highs.

For now we remain mired in a trading range with neither side being able to gain a clear cut advantage.

I continue to watch copper for signs of an upside breakout. It has run into selling near the $3.50 level but is bouncing higher this morning after moving lower over the last week. With crude oil above the $80 mark and copper also higher, especially alongside of another surge higher in the US equity markets, it is safe to say that the “recovery” mindset is becoming more entrenched.

Yet, it is still odd that bonds will not move lower confirming this. Evidently that market is being influenced by the Fed’s announcement confirming the need for low interest rates for some time. All we need now is a resumption of the “Goldlilocks” word to describe the economy – not too hot, not too cold, but just right. For now, the equity gang sees the low interest rate environment as a reason to load the boat on equities.

Perhaps they were also reading the reports from Panasonic that their new 3-D TV’s sold out within their first week of release here in the US. If consumers are willing to plop down 3 G’s for a box out of which things come flying at them, then the thinking is that the consumer segment must be willing to spend more on lots of other toys and gadgets and that the economy is on the mend.

It is rather interesting to take a long term view of the S&P 500 chart on the monthly. It shows a double top near 1575 – 1585 with the former made in March 2000 at the height of the equity mania and the latter coming in October 2007. The same chart also shows a double bottom with the low near 767 made back in October 2002 followed by the spike low made early last year in March that pushed above the 750 level for the monthly close.

Basically we have the S&P in a decade long trading range between 750 and 1500. With the price action of the last two days, it has pushed just above the middle of this 750 point range and is on target technically speaking to make a run towards 1235 – 1240, or the 61.8% Fibonacci retracement level. That region is also the confluence of the downtrending 40 and 50 month moving averages which will make it a tough nut to crack should prices be able to work to that level. The 10 month moving average is trending firmly higher and just made a bullish upside crossover of the 20 month last month. If bulls can push this index above 1240, then they have a legitimate shot at moving it back towards the top of the decade long range near 1500.

Only if the bears can push the monthly close below 1025 can they hope to regain the initiative.

For now, it certainly appears that the low interest rate environment has succeeded in reflating the stock markets. The moment that changes, the bears will be in the driver’s seat once again especially with these rather rich valuations and rosy projections. It is way too early to be concerned about mortgage resets but later this year those will begin to occur and when they do, equity bulls had better hope that the labor markets have shown a decided improvement for the better.

I said all that to say this – the mining shares are riding some of the wave of buying that is pushing the broader equity markets higher. We could even see the hedge funds moving to ratio trades involving the shares on the long side and bullion on the short side. That remains unclear but in an environment in which equities are moving higher, it would be a logical trade. We will know their strategy by keeping tabs on the HUI/gold ratio.

Today has the HUI knocking on the door of last week’s high near and just above the 430 level. The index will need to move through this level for the majority of shares to kick off some sort of trending move higher and break the choppy range trade of late. The stronger the S&P, the better the chance they have of so doing.

The Dollar looks sloppy here but it has thus far failed to attract sufficient selling interest on its move lower this week to force out the speculative longs in a large way. Volume has simply dried up on the move below 7990 indicating a reluctance on the part of the trade to follow it down, at least for today. We have two more trading sessions left in the week and perhaps that will make the chart a bit more decipherable. A fall through support in the Dollar accompanied by good volume would do wonders to help gold break out of its box. That means all eyes are on the Euro. If the bulls can squeeze the Euro bears as they have done the Sterling bears, the Dollar is going to get whacked. That has been a tall order thus far.

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

Today was another case of “Buy Europe” as traders reacted to further rumblings out of Brussels that the EU finance ministers were finagling a way around the original Euro treaty of 1991 which supposedly prevents bailouts of countries that screw up their own fiscal house. The idea, best that I can understand it, is that the member countries would pool some funds and provide direct loans to Greece. Germany apparently did not like the idea.

Traders did however and began buying up the European currencies as the Euro, Swiss Franc, and the British Pound were all higher today after getting whacked yesterday. Seems like the Yo-Yo model is still intact. Tomorrow- who knows?

Regardless, today was “what risk – there ain’t no risk” and with that, everything that moved and was not nailed down to the ground was purchased. Crude oil, copper, grains, cotton, you name it – the only exceptions that I could see were natural gas and sugar. Yes sirree bob – the algorithms are alive and well as the weakness in the Dollar triggered them to buy today after triggering them to sell yesterday.

I think I have found a solution to the world’s search for plentiful and cheap energy – I read somewhere that some clever inventors are trying to use the motion of the ocean’s waves to produce energy. Forget that – how about harnessing all the motion that is generated and then wasted from these damn algorithms and funnel that into some device that can crank out electricity and crude oil would become obsolete overnight.

As I said yesterday, there is no trading fundamentals anymore in these markets, it is all about money flows from hedge funds and those are all cranked out by machines. The machines are running the markets in what seems like a “Terminator” movie. Skynet is probably not far behind. By then it will decide to get short the grains and decide that to really make a lot of profits, it needs to eliminate demand sources so it will generate another order to kill off the carbon-based humanoids that eat the stuff. Once demand is then curtailed, prices will fall and Skynet can clean up on those shorts. Honestly, that is what it feels like at times sitting here watching the money being crammed into markets and ripped out the next day only to be stuffed back in the following day.

Skynet is obviously long the equity markets as the S&P 500 made a yearly high in today’s trading session negating a potential double top near the 1150 level. The day is yet young so it remains to be seen whether or not John Conner can take it down. It could be I actually have the wrong movie in mind as the entire rally might be part of “The Matrix” and its imaginary world of illusion. I certainly have no idea what they are trading in there as the stock market has priced in one helluva recovery. Even the Administration was forced to admit the obvious today that the unemployment rate is going to stay elevated for an extended period of time so I am a bit confused as to where all the “demand” from this consumer demand driven economy is supposed to be coming from. But that is just a case of the “market” being far wiser than any of us. I am sure they have that all figured out.

Back to gold – the bounce back up and away from $1,100 confirms that level of support and the bottom of the trading range. With the push through $1,120 short covering was triggered among the weaker shorts taking price up into the region where the stronger-handed shorts once again emerged near their former level of defense near $1,130. Bulls will need to jam price through their selling to get the market on track for a test of the high from 2 weeks ago. That level, centered near $1,145 is what stands between them and a push to $1,160.

The bullion banks will attempt to stymie the move higher here at $1,130 and then try to take price back down to the lower end of the trading range. Interestingly enough, gold has been making a series of higher lows over the past 6 weeks with the result that while it is still in a consolidation period or range trade, the range is tightening or constricting. The longer it can hold above the $1,100 level, the higher the odds are that the breakout move will be to the upside.

The HUI is following the pattern seen in the gold today. It is higher moving away from support near the 409 – 410 level but it too is meeting overhead selling as it works in its range trade. The top of the range is 429 – 431.

The Dollar continues to flirt with a technical breakdown as it inches ever lower towards the bottom part of its recent trading range. It came within a mere few points of taking out the bottom of the range and inducing some stop loss sell orders from being activated but the bulls were able to muscle price away from the danger level – for now. Volume just seems to dry up as it moves toward 80 on the downside but this could get quite interesting if the bears show more conviction and attempt to make a concerted effort to pick off those swelling stops. Just like gold, although in the inverse, the Dollar’s range is tightening but it has been making a series of lower highs that show up more on the hourly chart rather than the daily. The jury is still decidedly out on this thing but as close as it is to critical support, one would have to give the slight edge to the bears at this point. Once again, it all depends on how traders/investors react to the developments coming out of Europe in relation to Greece. That situation is so fluid and traders are so fickle that predicting anything in advance is a fool’s errand.

It is probably also not helping the Dollar any when we read that the President has nominated Janet Yellen, current head of the San Francisco Federal Reserve, to the position of Vice Chair of the Federal Reserve. She is as dovish as dovish could be. Traders would interpret such a choice for that position as a signal that the Dollar will be sacrificed and that inflation is in the cards. Yellen is another Academic with ZERO private sector experience whose entire resume can be summed up as “perpetual university student”. There is certainly nothing there to inspire the least bit of confidence when it comes to supporting the currency.

Bonds are strangely higher today when one considers a yearly high in the S&P 500 and a general reflation trade. I have given up attempting to figure that market out as it is undoubtedly so heavily intervened in by the monetary authorities that the signals it gives off are dubious. One would think that with gold moving higher today and the Dollar lower that the last thing that would be moving higher is the bond market. After all, if the economy is so damned good that the equities can put in a yearly high leading one to believe the chatter that the Fed is moving towards draining excess liquidity because things are so peachy-keen, then why would money be flowing INTO and not OUT OF bonds.

In the meantime, don’t worry about a single thing – bankrupted states, financially impoverished towns, townships, counties and cities, falling tax revenues, chronically high underemployment rates and federal government spending that can only be described as a treacherous betrayal of the next generation of citizens – none of this is important – the only thing that matter is that the stock market is higher so all is well. Let the good times roll baby!

Personally it looks to me like America has been bewitched.

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

Following is a chart depicting the reported holdings of US Treasury debt by some of the largest creditor nations.

Each month the Treasury reports this data and each month we plot it to attempt to gain some insight into who is financing the continued profligacy of the US. Last month the numbers reported out showed the Chinese selling $34.2 billion worth of Treasury debt in December 2009. That was enough to drop them into second place behind Japan as the largest holder of US Treasuries. That obviously caused quite a stir at the time.

This month, Treasury revised the holdings data and while they show China still selling that same $34.2 billion from November to December 2009, they made an upward adjustment to the overall holdings number, increasing it by a substantial $139.4 billion. That was more than enough to kick them back up into first place once again as the largest holder of US Treasury debt ($894.8 billion).

The Treasury reported that China did sell another $5.8 billion worth of US debt from December through January 2010, dropping them down to $889 billion as of the most current data.

It appears that a large chunk of those Treasuries that were moved over into the China column came off of the reported holdings of the UK. Their number was adjusted downwardly by $124.4 billion. Also, the Caribbean Banking Centers were downwardly revised $56.5 billion. It is not unusual to see a significant adjustment to the UK with most of that moving over to China. It just tells us that some Chinese are buying through London money centers.

The last chart shows the relation of the US Trade deficit in relation to both long term and short term money flows.

Click charts to enlarge in PDF format

Following are a few charts detailing the release of this month’s Treasury International Flows data for the month of January 2010.

A few salient points –

Every asset category saw a drop in purchases from the previous month whether it was debt or equities. What strikes me however is the continued sell off of US Agency Debt (think Fannie and Freddie) as well as US Corporate debt. While the rate of sales of US Agency debt has declined (although there continues to be net divesture of US Agency debt which no doubt is related to the woes in the housing sector), the rate of selling of US Corporate Debt seems to be accelerating.

While this data is dated by two months, and a lot can happen during such a time interval, it is evident from this data that foreign investors are losing their appetite for US corporate debt. If that is indeed the case, then it is difficult to see how talk of a “jobless” recovery is going to continue with emphasis on the word “recovery” this time around. I fail to see how one can paint the picture of a healthy recovery when foreign investors want no part of providing capital for US corporations. Maybe they are not as prone to being manipulated by the Spin and BS that comes out of Wall Street as US based investors apparently are. Who knows? But either way, this is something that bears continued monitoring. If US Corporate debt is not finding a home outside of the US, it could be that these foreign lenders want a higher rate of return on their capital before they are willing to part with it. That comes right off the bottom line of US corporations.

Investors are still buying US equities but at a reduced rate. Purchases were at an eight month low. Apparently, Treasury Debt is still being taken although purchases were the lowest in three months. They are still at respectable levels however. It seems as if the only US securities that have much interest from abroad are this Treasury debt. That is telling.

I will get some info on the trade balance and the country ownership of Treasuries up a bit later.

Click here to view today’s Foreign Treasuries and Notes Purchases, Foreign Agency Debt Purchases, Foreign Purchases of US Corporate Bonds, and Foreign Net Stock Purchases charts from Trader Dan Norcini…

It appears that we are back to the old familiar pattern of strength in the Dollar bringing in algorithm selling of commodities and by connection, gold. Friday was a bit of a break from that norm as it now appears that we had a bout of pre-weekend short covering in the European related currencies during which gold was sold lower on ostensibly easing fears concerning Greece. I say “ostensibly’, because it was evident that the take down in gold was a bear raid.

Today, copper is getting knocked down as is crude oil, which has seen its gains from last week completely erased. As said many times here ad infinitum, ad nauseam, these markets are not really trading fundamentals all that much on any given day but rather fund order flow. If the funds buy, locals buy. If the funds sell, locals sell. That is all that these markets have become.

We now have cases in which there is so much managed money coming into certain commodity markets at times, that it is chasing out commercial hedging interest. The result is large air pockets above the market which causes markets to shoot sharply higher on up days. There are simply no sellers on those days. The flip side occurs when these same funds are not buying or actively selling – the market then falls into a void as there are no bids to be found. The commentary usually calls this “volatility” but what it really is in my opinion is a sign that these funds are far too large for the markets and that we need to see the CFTC rein them in.

The commodity markets came into existence to provide a risk management tool for bona fide Producers or Users. When they are unable to use the markets for that purpose, then it has become evident that something is seriously out of whack. I read far too many reports of commercial hedgers incurring damaging margin calls because these huge hedge funds are driving prices to extremes unwarranted by the fundamentals. Eventually the market will correct such an occurrence but in the interim, underwater hedges can wreak havoc with risk management programs. The problem is not so much with the mega commercial firms which are well capitalized as a general rule or can at least secure financing enabling them to meet margin calls and ride out their hedge until it is time to lift it. It is the smaller or mid-sized commercial entities which do not have such access or the financial wherewithal to deal with a short hedge that goes deeply underwater due to a barrage of algorithm buying, that get the short end of the stick. More of these guys are trying to move their business to private contracts off the exchange but apparently the exchanges do not care as they love the increased volume of trading and fees associated with the business of the big boys. Besides, the exchanges have also figured out a way to make lots of money renting computer server space to high frequency traders. Some call this “progress”. It looks to me more like a case of short-term sightedness versus long term health of the markets. Enough of my soap box pontificating for one day however.

Even though the Dollar is fairly strong this AM, gold is managing to hold above unchanged, not too bad of an accomplishment considering the extent of the selling hit the broad equity markets. That is no doubt related to the strong showing of gold when priced in terms of the various European related currencies. It is going to be insightful to see if gold can maintain a foothold above the €800 Euro level and the €730 level in British Pound terms.

Gold is continuing to attract buying above the $1,100 level which is becoming more significant from a technical perspective. It’s range trade continues with the bears having the short term advantage. Bulls need to push it back over $1,120 to force a bit of minor short covering. The 10 day moving average has turned lower which is near term bearish but I want to add that markets in ranging or consolidation patterns do not generally pay much attention to moving averages but more so to those particular technical indicators such as the Stochastics which are designed for that pattern.

As far as the Dollar goes, it continues its ranging trade with the bears simply unable to take out the support level under the market and force a bout of long liquidation which would feed on itself as the froth in the market just keeps foaming. The problem for the bears is that Europe just will not cease occupying the minds of currency traders and that keeps sellers coming into the Euro, the Pound and Swissie which then begets more buying in the USDX. This is going to be resolved one way or the other fairly soon but for now, the 6 week long trading range continues.

The mining shares as evidence by the HUI are succumbing to the broad equity market weakness. So far they have been able to hold last week’s low but they are dangerously flirting with that level. A breach of that would allow sellers to take the index down towards 405, which is the 40 day moving average. They will need to hold that level or run the risk of a move towards 390. From what I can see of the HUI, it too looks like it is stuck in a trading range like so many of these other markets.

The long bond is also stuck in its range bouncing off the low end of the band that has contained it for the last 2 months.

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

Please see the following charts for a view of the Dollar along with some assorted charts of interest.

I have also included the COT charts for both the US Dollar and Comex Gold.

For gold, there is not much of interest this week other than the fact that the Swap Dealers were the big sellers with Managed Money actually selling as well. The other Reportables, (some of the big locals, CTA’s,) did some net buying as did the general public. The Producer/User category added fresh shorts but those were outnumbered by more fresh longs. All in all, nothing to get excited about. For gold to trend higher it will need the managed money category to stop selling and begin further rebuilding their net long position.

Click here to view this week’s charts on the US Dollar Index, the HUI, Gold/Bonds Ratio, Dow Jones/Gold Ratio and Disaggregated Commitment of Traders charts with commentary from Trader Dan Norcini

The move lower in gold today was attributed to easing concerns over Greece and consequently Europe in general which led some to move back into the Euro and out of gold as fears subsided and safe haven trades were reversed. The thinking among some is that the worst is over in Europe and that the Euro is cheap. Even the British Pound received a lift today. So too was the Swiss Franc as “Buy Europe” was on the table today.

The result was that while the Dollar here was weaker here, gold moved lower as did the mining stocks.

It was a strange day in the commodity markets for while in general the weaker Dollar has seen algorithm buying in this sector, crude oil, copper, silver, were all down. Even corn was lower. Even more strange was to see the bonds higher here since they tend to move in tandem with the Dollar since a falling Dollar is seen as a sign that “risk” is back in.

Truthfully, I cannot make much sense out of any of this today. It seems more a case of position unwinding in many of these markets than anything, particularly coming on a Friday which at times can make getting a read on things iffy in the first place.

The HUI will be okay as long as it can stay above 405. Failure there and it will tend to move towards the 390 level.

The Us Dollar is flirting very dangerously with the 79.80 – 80.00 level. A breach of that level that stays down for at least a day, will send the speculative longs, which are still loaded up in this market, packing. Eventually that will get the attention of gold and provide it some good buying support once this repositioning in regards to Europe eases.

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