GOLDTRADER'S GROUP (NEW BLOG): Jan 29, 2010

Friday, January 29, 2010

DAN NORCINI'S FRIDAY NIGHT COMMENTS

Hourly Action In Gold From Trader Dan Posted: Jan 29 2010 By: Dan Norcini Post Edited: January 29, 2010 at 3:02 pm
Filed under: Trader Dan Norcini
Dear CIGAs,
The big news today was the 4th quarter US GDP number. The shocking number of 5.7% growth, the fastest pace in six years, far exceeded the expectation of most analysts (Count me in as being extremely sceptical of that number especially with unemployment at current levels). That sent equities on a tear higher and while gold has recently been moving in lockstep with those, today was a turnaround from that pattern. It was taken back down through the $1,080 level as the Dollar shot upwards making mincemeat of yesterday’s sellers.
The recent pattern of the Dollar moving lower on “good” news was disrupted as traders bid the greenback higher on the “happy news”. At that point it must have been moving higher purely on momentum because the equity markets did a complete “about face” dropping well off their highs and moving into negative territory at one time. What makes the initial move higher in the equities even more suspect was the action in the bond market, which moved up more than half a point – that is not what I would expect from bond traders if they were convinced the economy was on the mend and ready for a stronger recovery. If bond traders thought for one moment that the growth number served up by the Feds was (a.) realistic, and/or (b.) sustainable, they would have taken the bonds down sharply out of concern of Fed rate hikes and liquidity withdrawal measures.
Further confirmation that the bond traders’ dubiousness is appropriate would be the bearish chart pattern in crude oil. That market certainly is not acting like energy traders believe the economy is growing at a 5.7% clip or the price of crude would not be dropping $10 barrel from $83 to $73. Heck, while we are at it, if the feds would create a cash for old refrigerators program, a cash for old motorcycles program and a cash for old television sets program, we could probably get a GDP number up near 9% this quarter and go on to pass China in our rate of growth. Like I said earlier, a 5.7% number sounds like a pile of hooey to me – then again I own a cow that just laid a huge egg big enough for 50 omelets. Takes about the same amount of intelligence to believe the latter as the former.
There are so many mixed signals being given off by the various bellwether markets that attempting to get a read on things is becoming an exercise in futility. Between constant government intervention and surreptitious rigging operations, combined with hedge fund algorithm madness, money is ricocheting back and forth in such chaotic fashion, that many traders are getting chopped to shreds. That is resulting in more and more players moving to short term trades, which then makes volatility increase all the more. Probably the best thing to do for the average investor is use the weekly charts which tend to filter out so much of this short term “noise” that seems to be getting louder to the point of annoying.
Back to gold – speculative long liquidation continues its rather torrid pace dropping off substantially in yesterday’s down market. Both longs and shorts are getting out with the shorts having their intentions frustrated by the buyer of size that continues to make their presence felt below and near the $1,080 region. It is evident that physical demand for gold is helping to stem the rate of price decline in gold. Bears are continuing to pressure the metal trying to reach further fund stops below the $1074 level but are being stymied by the strong buying that is occurring. The longer gold can bounce back from the current lows near $1,080, the stronger that support becomes technically as tentative speculative longs will begin dipping their feet in the water with nervous shorts quickly ringing the cash register when prices dip down near this level. That serves to reinforce the level further. As usual, time will make it clear for us. I am encouraged however to see this determined buyer continuing to surface on these selling bouts. Could it be China or India?
For now, the technical posture in gold remains bearish for the short term so rallies will continue to find willing sellers until price moves back above the $1100 level and remains there for a least two consecutive sessions. Support remains near the $1075 level with another level of support beneath that at $1,030 – $1, 025. Incidentally, February gold enters its delivery period next week so the speculative action will be focused on the April contract. It will be interesting to see what we get in the way of gold deliveries, not that most of us believe anything that the Comex warehouses report. You could probably have 8000 contracts of gold stopped and the warehouses would report a movement of 1,200 ounces out.
I will send up a monthly gold chart later on today.
One of the big problems that the gold bulls have is the poor technical performance of the gold shares. It is difficult to get too excited about the metal’s prospects when you have hedge funds leaning on the shares with their ratio spreads. We really need to see the HUI get above 407 – 410 to garner some bullish excitement and give us some signs of life. For right now, about the best thing I can say for the shares is that many of them are extremely oversold on the daily charts.

SEE CHARTS AT: http://jsmineset.com/wp-content/uploads/2010/01/January2910Gold.pdf