Dear CIGAs,

Gold charged higher last evening, exactly in the same fashion as it had done the previous evening and in a repeat performance from yesterday, held onto its gains in spite of the constant barrage of selling coming from Goldman and Morgan. The breach through overhead resistance near the 1012 – 1015 level attracted more momentum based buying from the funds with the sinking dollar undercutting the bearish arguments and the chatter about the big spec long position.

Funny thing about markets, they have a habit of generally ignoring the pontifications from all of us so-called, “experts”. What I have seen over and over again through the years is that pundits tend to look at the past when attempting to make predictions about market action. When it comes to gold, the commitment of traders report is pointed to as a nearly infallible predictor of future gold behavior. Contrarians assure us that once speculative long positions reach a certain level, a sell off is practically assured. The result usually is that longs get nervous, spooked and then run, which becomes a sort of self-predictive prophecy as price then drops due to liquidation.

The difficulty however in using COT reports to predict market behavior is that an event of some sort, a change in the weather forecast, a change in fiscal policy, a change in demand, etc, something, anything, is needed FIRST as a TRIGGER to cause the longs to decide that prices have run high enough and that prudence dictates they book some profits. Without that, price tends to continue in the direction that momentum is carrying it and like anything rolling along under its own momentum, the charge can continue in that same direction for a lot longer than many suspect. In other words, let the market itself tell us when there are “too many longs”. How will we know that? Simple – when prices dip and no longer attract dip buying. Trying to call a top when there is genuine and palpable fear about what governments are doing to their currencies is a risky endeavor.

Some technical aspects – today’s PM fix was the an all time high and the best since March 2008 when it came in at 1011.25. Price has broken out of the short term consolidation pattern below $1012.

Gold priced in terms of British Pound Sterling continues to hold above the 600 level while Euro-priced gold is just 8 euros below the 700 level.

The HUI smashed through heavy resistance centered near the 440 level and now looks to have a decent shot at its all time best just above the 500 level. There is some resistance located near the 490 level . The monthly chart of the HUI is most impressive looking as the RSI is strong but not yet overbought.

The US Dollar is perched tenuously just above some important support near 76. A breach there and it is quite possible that the Dollar could experience a sharp drop all the way down to 72. It is extremely oversold from a technical perspective on the daily chart but on the long term monthly chart is has a long way to go before any oversold levels are reached.

Click chart to enlarge today’s hourly action in Gold in PDF format with commentary from Trader Dan Norcini