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Detective Gregory: "Is there any other point to which you would wish to draw my attention?"
Holmes: "To the curious incident of the dog in the night-time."
Detective Gregory: "The dog did nothing in the night-time."
Holmes: "That was the curious incident."
Arthur Conan Doyle, The Adventure of Silver Blaze
Gold rallied hard on a short squeeze and then settled back and closed around the 1850 area. Somebody stop me! LOL
Comex Option Expiration Next Week.
AND the Fed meets at Jackson Hole at the Kansas City Fed's annual soiree.
Let's see what happens. That may be very telling with regard to what inning of this game we are in depending on how gold acts here, and to what extent we see a correction, consolidation, or a continuation.
There are rumours of margin increases and an indication from a large US broker in the last document below. They do like to run things up so they can then smack them down, as they did with silver.
Besides, we can't let Venezuela's Chavez have his evil way with things can we?
My forecast was for a run to 1850 on the short cover, and that was exceeded. Now I would look for a very serious attempt at a bear raid, and some sort of correction. If that bear raid fails for whatever reason, this thing will have legs to the upside, but watch for the secondary attacks after expiration.
The key variable is a fresh wave of monetary and global crisis or some announcement of some version of QE3, even if it is just an interest rate program on the longer end.
Unless that is, if we are tottering very close to one of those game changing things that catches us by surprise. Well, everyone except all those who knew it would happen, at least, after it does.
"People can foresee the future only when it coincides with their own wishes, and the most grossly obvious facts can be ignored when they are unwelcome."
George Orwell
A wild day in the markets as fears of a European credit crunch, and possibly a eurodollar squeeze, combined with renewed fears of a US double dip recession had equities reeling and investors flying into the safe harbor of gold, and to a lesser extent, silver.
The miners were beaten bloody with a few notable exceptions. You may wish to note those who held their ground and even moved higher today.
I think the Philly Fed contraction brought the Ten Year Treasury yield down to the 2 level which is quite amazing. Does that signal deflation? Perhaps, but the CPI came in quite high at .5%. I suspect there is a lot of hot money floating around looking for a place to hide, and it ran into Treasuries and gold.
What next. It really depends on how the equity option expiration goes tomorrow, and how the market frames itself up for the Comex expiration next week.
I would not be buying new gold or silver bullion positions here on a risk reward basis until I see how it goes next week unless we get another curve ball from Europe. But that does not mean I would be shorting them either, except for hedging.
Gold can run higher to the 1850 area without a lot of effort just on a failure to correct and short covering into the weekend. After that, we will have to see. I would like to see it pause occasionally, to avoid a repeat of the silver parabolic rise and craftily engineered smackdown.
And of course next week is the KC Fed sponsored Jackson Home EconoFest. Something is quite possible to come out of that august gathering.
Even with its bounce today, take a look at the dollar chart and ask yourself, 'if that was a stock, would I buy it?'
I noted yesterday that the failure to rally appeared a little ominous.
Stresses in the European banking sector had worried of another Lehman like spike in LIBOR and a eurodollar squeeze had the markets off balance all night.
The US market went down on weak economic new in initial claims and company prospects, but the Philly Fed came out with a dramatic contraction, and that sent equities tumbling and Treasuries soaring.
There was a pronounced flight to safety in the dollar and especially gold.
Tomorrow is option expiration, so the real market action will show up after the opening trades. Keep your eye on support levels.
