Posted On: Thursday, June 26, 2008, 1:48:00 PM EST
Hourly Action In Gold From Trader Dan
Author: Dan Norcini
Dear CIGAs,
Boy howdy did the market waste no time in letting Ben know what it thought about the recent FOMC statement!
Gold began recovering from its yesterday morning beating minutes after the FOMC statement hit the wire yesterday afternoon and then continued moving steadily higher as trading progressed from the far East, into Europe and finally into New York in today's session. Interesting enough, the analysts were attributing gold's rise to the weaker Dollar in lieu of the FOMC but in all honesty, the Euro, while higher for the day is not all that strong compared to what we are accustomed to seeing with gold as strong as it is today. If you will notice, the Canadian, Australian and New Zealand Dollars are all weaker against the Greenback. Crude oil is up sharply higher, completely ignoring yesterday's bearish EIA numbers but the real key to gold is that the entire commodity sector is surging higher. The grains are very strong (Corn put in another all time high) as are all the various metals with the result that the CCI index made another record high this morning. Its move higher is what is helping to keep a very firm bid under the gold market and has attracted the momentum funds in a big way now that overhead resistance at $910 has been shattered. Inflation fears are first and foremost on the minds of players.
My take on this is that while the Forex markets are pushing the European currencies as well as the Yen higher, the market views the Fed's statement from yesterday as a capitulation of any attempt to talk up the Dollar. Bernanke's bluff has been called and the weakness of his hand revealed. Economic data simply will not permit the Fed to hike anywhere near as soon as many had been duped into believing by all the hawkish talk coming out of the Fed prior to the FOMC statement. That has attracted a wall of money back into commodities as an inflation hedge and is the reason why gold is so strong. Further helping gold is the horrific beating the darlings of yesterday’s stock rally, the financials, are receiving in today’s session.
The stock market is being pounded to kingdom come as those same financials get shellacked due to a series of downgrades by Goldman Sachs which issued a sell recommendation on Citi. That prompted a near immediate response from Wachovia which promptly then downgraded Goldman in a tit-for-tat exchange being played by the investment banks. If you listen carefully, you can almost hear them saying to each other as soon as their recommendations are made public, “NA-NA-NA-NA-NA, we downgraded you before you downgraded us!” or, “Take that, you swine!”
It certainly appears that a whole army of gold shorts were taken out in today’s massive upside move judging from the speed and ferocity of the move that occurred. The range trade continues to snare its victims as shorts sell on weakness attempting to hitch a ride on what they are convinced is the beginning of a downtrending move while longs have been snookered into buying near the highs as they too wait for an expected breakout. Today’s move has come the closest to being a legitimate break from the trading range but we want to see gold maintain its footing above the top of the recent range ($910) for a while longer. Volume has definitely been strong which is a plus but so far the mining shares as pictured in the XAU and the HUI have not broken out from their trading bands although both are very close. Ideally we want to see both bullion and the shares climbing out of their range trades together and in convincing fashion, not just edging beyond the upper limit of the recent range. Nevertheless the ability of the bulls to take gold and hold it above $910 is very impressive considering that the selling there has been intense!
I mentioned yesterday that the plunge in gold that occurred early in that session had taken out all the rest of the new longs who had bought in last Thursday and Friday. That turned out to be exactly the case as open interest plunged in yesterday’s session by nearly 5,000 contracts dropping all the way back down to 396,000. That is exactly the level it was at on the end of Wednesday’s trading session of last week. It is amazing to me to see how the bullion banks are so easily able to trip up the hedge funds who continue to live and die by their idiotic black box algorithms. Use your heads guys – that is why God gave them to you and throw away your computerized trading platforms if you want to make any money trading the gold market! You can beat the fire out of the bullion banks if you simply learn how to trade against them. They are NOT CLEVER or SOPHISTICATED in the least. Twenty years ago the traders of that era would have taken them out to the woodshed and beaten their rear ends with a stick and sent them home crying to Mama! Trading is war and the sooner you realize it and adapt your strategies to counter the tactics of your enemies, the sooner you will win it. Sticking with the same battle plan and never altering it allows the enemy to have the advantage. Wise up!
Let’s see how gold fares the rest of its North American trading session and then as it moves into Asia.