Dear CIGAs,

Gold came roaring back today as equity buyers from yesterday barfed them all up today in a case of indigestion that was reportedly due to disappointment over lack of further news out of China in regards to their stimulus package. That was at least the rumor – whatever – the fact is that yesterday’s blip turned into a classic example of a “dead cat bounce”. By the way, for those new to the investing and trading jargon – if you drop a dead cat from a high enough building, it will manage a small bounce after it hits the ground. Now that we have that cleared up…Did you ever think you would live to see CITI trading as a penny stock?

While yesterday was a “reflation” day in the commodity sector with money coming back in on the China news, today was a “deflation” day in which most of the commodity markets got sold off once again. Yo-Yo – let’s all play hedge fund Yo-Yo.

Copper ran out of buyers today but silver, platinum and gold were all higher. Again, these three metals are trading as precious metals or safe havens in today’s session. Today hedge fund computers were selling commodities as the equities collapsed. Panic buying also hit the bonds today forcing shorts out and driving the long bond up into the 20- day moving average. For the life of me, I do not understand the obsession of bond buyers in the face of a coming avalanche of supply and serious dilution of any value those paper IOU’s might have but I suppose old habits die hard and lemmings will always be lemmings. It dovetails nicely with Monty’s comments on the rush into the Dollar in his remarks yesterday. Bond buying will run its course when serious minded investors realize that bonds are a sucker’s play. I harp quite a bit on this because if only a small fraction of the knee-jerk, reflexive buying that screams into bonds would instead move to gold, it would easily surpass the $1000 mark again. Of course the cynic in me says that the feds are delighted to see the bonds soaring higher because it sends a signal to the market that those paper scraps are actually worth something especially as they intend to issue gazillions more of them and desperately need some sucker/(s) to buy them. Oh yes, I forgot – they are backed by the “full faith and CREDIT of the US government”. I don’t know whether to sit down and guffaw about that or to weep. The words, “confidence” and “US government”, are like oil and vinegar. They no longer mix.

Technically gold found support near that 40 day and 50 day moving average region that I have detailed. There is a zone of congestion that occurred back in late January and early February that lasted for around 2 weeks from which it may be able to set up a trading range with perhaps $930 as the upper portion of that range and $890-$900 as the bottom of the range. I am simply not sure just yet and need some more time to elapse to get a better read on things. That being said, should $930 give way on a pit session close, it would bring back $960 as a probable test.

The HUI put in a potential spike bottom on Tuesday of this week but needs to close above the 290 level to confirm that. The XAU’ action is very similar and needs a close above the 120 level to confirm a short term bottom is in.

The action in the Dollar is interesting in this sense. Today should have had a lot going for the Dollar with the bonds soaring on a safe haven bid and the equities tanking. We have seen the Dollar put in strong gains on days like this in recent weeks. Today however it seemed to run into a wall of selling just below the 90 level. I do not want to call a top yet in the Dollar because it has defied gravity and been the recipient of safe haven but the fact that sellers were willing to step in on a day like today, at a technically significant level, is something I take notice of. Again, it is too early to make any predictions yet but I am keenly watching this especially because the shorter term technical indicators are showing some signs of bearish divergence. I am also watching the Euro which came well off the session lows.

I want to repeat this even at the risk of beating a dead horse and mainly on account of the emails I receive every single time gold experiences any sort of price movement that is not straight up. The deflationists are dead, flat out wrong about the future of gold prices. The Prechterites, who have been wrong on gold going back as far as this bull market in gold began, continually are forced to raise the ceiling from which their long anticipated and predicted collapse in gold prices must occur. Anytime you see them coming out of the woodwork like roaches keep this in mind – GOLD IS NOT A COMMODITY – it is a CURRENCY. Loss of trust in paper currencies is why gold shines. Whenever you hear chatter about market tops and such, remember that their analysis is US centric and is not global. IN other words, they base their entire premise on the Dollar price of Gold. That is their fatal weakness. While many here in the US think we are the be all and end all of things, there are millions and millions of investors outside of the US who do not price gold in Dollars; they price it in terms of their own domestic currencies. Contrary to the foolish deflationist assertions that gold is experiencing a contra rally in a bearish long term trend, gold has just come off of making new, all-time, record highs in terms of most every other currency on the face of the earth. That my friends, is not a bear market and any assertions to the contrary display an ignorance that is nothing short of remarkable.

According to this mentality, record inflows to the gold ETFs, scarcity of gold bullion coins, high premiums in those same coins, record all time highs in price, etc. are all somehow synonymous with a bear market rally in gold! Astonishing….the only explanation that I can come up with for such a nonsensical assertion is that the proponents of such blather have just loaded up on put options and are hoping like hell that they make some money to compensate them for all their previous trading losses in gold.

Folks – savvy investors buy gold because they are worried about protecting themselves from the depredations of Central Bankers and their currency-debauching activities. Short term oriented traders on the other hand move in and out of gold and will go long or even short at times, but their time-line and their motives are not the same as those seeking safety and capital preservation. Do not confuse the two.

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