Dan Norcini: Gold Analysis

Gold Chart

Gold bulls breached resistance at $1750 but have been unable to keep the market ABOVE that price. That will be necessary for them to set up a run towards $1775- $1780 where a major upside resistance level is located.

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There is a bit of weakness in Euro Gold today which is coming off of the rather large rally in the Euro in today’s session. That rally sent the Dollar down below critical support at the 79 level on the USDX but that market has rebounded back above 79 thus far. A close below 78.80 should set the Dollar up for a drop towards 78.

It is indeed fascinating to watch this shifting back and forth between risk trades and risk aversion trades as one headline after another takes precedence in the minds of traders. Today, European debt fears have temporarilty taken a back seat and that has allowed Dollar bears to pressure the market. It has also sent the long bond careening lower off the top of that three month trading range that I mentioned in yesterday’s comments.

Crude oil weakness is limiting the CCI and preventing it from pushing up to 600 in spite of the sharp fall in the Dollar. Natural gas, after giving us all a big head fake higher last week, has resumed moving lower and is once again threatening to close in on that major low made on the day that Chesapeake announced some production cuts. If the market fails there, we could see nat gas moving all the way to 2.00. This warm winter combined with huge storage overhang, it giving consumers one helluva deal on their heating needs this year and will likely do so for cooling needs this summer at this point unless we see some serious cuts on the supply side.

Copper continues floating higher on this sea of liquidity but will need to something on the demand side due to economic activity to push through $4.00. Right now it is all speculative interest playing it from the long side due to the zero interest rate environment. In other words, the Fed’s gambit will result in higher costs for electrical wiring for homebuilders and other manufacturing interests down the road. In this sort of free money environment, it is very difficult to gauge how much of the “demand” coming into these markets is genuinely due to demand for the physical product versus demand coming from hot money chasing risk assets. The danger comes when or if the latter demand source dries up due to some extraneous event setting up the real possibility of extremely sharp drops in price as this hot money goes washing out of the market en masse.

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