Marché de l'Or: Gold Daily Charts from Pierre and Jesse

Mon ami Pierre dit:

La correction mineure de l'or que nous attendions semble terminée et le support vers 1.157 USD l'once ne devrait pas être cassé à la baisse.

Nous avons donc repris pour nos clients des positions à la hausse sur l'or pour la moitie de notre capacité d'achat.

Que nous augmenterions pour le cas où l'or baisserait néanmoins vers 1.146 (moyenne mobile à 200 jours).

Une cassure à la hausse de la résistance vers 1.211 (moyenne mobile à 50 jours) propulserait l'or vers 1.340 d'ici fin 2010.

Cordialement. Pierre Leconte

The correction is probably now over with the low set at 1,157 and a position has been taken. He will increase this position if gold continues its correction down to the 200 DMA at 1,146.

Gold will go higher to challenge the important overhead resistance at the 50 DMA of 1,211 and if it breaks out he thinks this will set up its rally to a year end high of 1,340.

Gold Daily Chart: Le Café Américain



I am pleased that we both agree from different perspectives. There is a great deal of resistance to gold now in the New York and London markets, so the way higher will likely not be easy unless something happens. I think silver may break out first and lead gold higher but this I cannot say for sure. But a break in the silver cartel would certainly do the trick.

One difference from a technical perspective is that if the price of gold falls to the 200 DMA at 1146 and can 'stick it' (not intraday) this will violate the lower bound of the handle, and I will have to then look at the more boring chart formation of an inverse head and shoulders formation that has completed at the high, and is now retracing the rally.

And this from Richard Russell

"Now I want to reveal my latest thoughts, which have finally come together. The US has a national debt of $13 trillion (that's trillion, not billion). There's no way in God's name that the US can ever pay off that debt. Actually, if the US does nothing the interest on the debt will eat up the nation. Worse, aside from the national debt the US has over $50 trillion in unfunded liabilities.

To put it frankly, the US is facing a debt future that can not be solved by cutting back on expenses and raising taxes. Even if the US taxed away all the income and profits of individuals and all corporate profits, the government would still not be able pay off its debts.

In my opinion, the US MUST default on its debt. There are two ways to default. One is simply to renege on the debt. I don't think the US would ever do that. If the US did that, nobody would ever deal with the US again. The other way to default on the debt is to inflate it away. I'm absolutely convinced that this is the path that the US will take. If the US inflates enough, then over time (many years) the devalued dollar will tend of reduce the power of the debts…

Lastly, what about gold? Gold formed a head-and-shoulders pattern. The pattern broke down, and August gold sank to 1156. But there gold held. It was if a net closed under gold. The plunge scared many of the late gold-buyers out of the market. Since its July 27 low, gold has been quietly creeping higher.

My guess is that gold has bottomed. Too many investors and too many central banks are potential buyers of gold. And they are 'bottom-fishing."

As far as I'm concerned, the "word" is out. The US will default on its monster debts. The US will default via systematic inflation. This will gradually "kill" the dollar. The protection against declining purchasing power of the dollar (brought on by Fed inflation) is gold.

As this is recognized by the masses, gold will move higher. Ultimately, this will develop into the speculative third phase of the gold bull market. The Russell opinion -- this is the time for gold accumulation and patience, a lot of patience.

Question -- Russell, I see a few of the smartest hedge fund managers (Soros, John Paulsen) have been buying heavily into gold mining shares. So, gold bullion or gold mining shares, which should we buy?

Answer -- The fund managers don't want a "safe-haven" position in gold -- they want potential profits. I believe the fund managers who are stocking up on gold mining shares are thinking that a speculative third phase in gold lies somewhere ahead. They're thinking that if gold explodes on the upside, the gold mining shares will go nuts. The shares will go crazy because they have the leverage. It will not cost them any more to mine gold even if the price of gold advances (yes, but union labor may cost more, and there will be the problem of higher taxes.

So I'll admit it -- if gold goes nuts on the upside, fortunes will be made by those holding gold shares. But I still prefer the actual product -- bullion gold. It's a cleaner play, no worries about a mine running out of reserves, no worries about union wage-boosts, no worries about political back-lash or confiscation, just fewer worries. And I avoid worries whenever I can.

To wind it up, I don't care for the stock market's action, but I do like gold's action. Gold and cash, that's where I want to be. And I'd be happy if my subscribers would copy my position."

A Paired Trade in Precious Metals Options and Futures Was the Basic Setup for the Sell Off

This contribution from a trader I know made sense to me. It helps to explain how the trade was set up for a sell off into the metals expiration, although I have not dug down into the numbers to test the theory in detail.

I think the fact that it occurred in rollover week facilitated a sell off. For this to have 'worked' those writing the gold and silver puts had to have been 'set up.'

Since these are generally fairly sophisticated players I had not thought of it, although I am sure they were hedged as well. Sophisticated traders are rarely purely long or short and are often involving intra-market dependencies. Still, one has to wonder if one of the big bank trading desks found a way to set up some large institutions or hedge funds, are they are often wont to do.

"What happened prior to the week of expiration was a large build up of commercial long positions. They were purchased in pairs with with puts. It looked delta neutral.

The banks sold the futures carefully creating a bear flag and then sold the balance on the break. Meanwhile the puts were kept and they minted money.

When you see a build up in longs on the commercial side it is never good in my experience, for gold and silver only.

Regards, Sabre"

SP 500 and NDX September Futures Daily Charts

There was a big rally today that started last night with the futures. The demimonde had its media spokesmodels out cheerleading early on. They became almost apoplectic on a slightly better than expected ISM number that was still rather dismal, all things considered.

If one bothered to look beyond the headlines to the new orders and inventories, it was apparent that they portend a further decline in activity. But that sort of thing is not said when the rally monkeys are in heat.

Stocks ran up to overhead resistance levels, and continued to be led largely by the SP futures, with the broader market lagging the push higher.

Whenever this happens it is hard not to be skeptical of the character of the rally. The Jobs Report is on Friday, with the ADP report on Wednesday morning. Consensus for the Friday Jobs is a loss of 87,000, and for the ADP report expectations are for a gain of 25,000.

SP 500



NDX

US Treasuries On the Long End Are Looking Toppy

Treasuries are not something I like to go long or short unless they are part of a paired trade. The long end of the curve is starting to look like a viable trade, unless one anticipates a short term stock market event and a flight to safety.

Friday is the Jobs Report.

People who have been holding Treasuries as a long term trade have done well. That trade on the long end of the curve is now starting to look like dead money, but these things take time to develop, and the bull trend in Treasuries has been powerful.