Gold’s rather lackluster performance yesterday in the face of both a sharp Dollar fall and a huge surge in the Euro can be explained by the open interest figures released by the Comex this AM which showed a good sized drop of over 10,000 contracts in the active December contract. Gold bears could not break it down below $1,330 so they covered but longs apparently used the rally to lighten up on some of their positions. Translation – the fresh buying power needed to take it higher and get it above $1,350 was lacking. Apparently some of the weaker handed longs are having doubts especially after the big plunge of Tuesday.

This became evident in today’s session where gold ran into selling on the rally up bringing in some additional long side liquidation. Stability in the Dollar is working against some of the more fickle longs and has them heading for the exits. Unfortunately, that is exactly what the shorts having been trying to induce since they lack the firepower to push the market lower on their own. As stated yesterday, all that is necessary for to force the shorts out of the gold market is for the longs to just sit there and do nothing. But alas, ‘twas was not meant to be.

In looking across the entire spectrum of the commodity markets this morning, most of them are seeing selling pressure as once again we are back to the: “Dollar higher – we need to sell” or “Dollar lower – we need to buy” trading “strategy”. The Dollar does not seem to be particularly strong but it is also not falling either and that has spooked some longs out of the commodity sector in general. They’ll snatch profits now and wait for another chance to get back in later, presumably after another Dollar selling binge commences.

Basically what things have come down to for the time being is the amount and timing of the Fed’s next QE program. Depending on the mood of the day, the Dollar alternately sees buying or selling. You can see this process especially well in the crude oil market. It soars, then plunges, then soars and then plunges again. Up and down, back and forth, it is following the QE trade making pretty much meaningless gyrations in price. About the only effective thing it has been doing is shredding traders to pieces. Floor locals are making money however as they love these kinds of markets. After all, who needs to sleep when you can plunder the small specs and put your kids through college on the proceeds of their largesse!

The dollar is attempting to hold or put in a temporary bottom near and slightly above the 77 level on the USDX. Perhaps there is some second guessing going on in regards to that QE program. That is about the only thing that I can come up with for the time being to explain the stability. It is probably a scenario where they have already baked things into the pie and now everyone is sitting around waiting to see how the finished product looks.

The HUI fell flat on its face again as once again the hedge funds whacked it down. Its failure to hold above the 500 level is disappointing as it is sitting tenuously right on the 50 day moving average. There is additional chart support near the 480 level. If for some reason it were to fail there, you are probably looking at 465 or so. That would pretty much erase the gains of the last two months so there would have to be some very Dollar friendly news coming from some quarter to justify pushing them down that low.

Equities were barely higher and bonds were barely lower. About the only thing moving up was the Dollar (and cotton of course). Not sure what to make of today as it really is about money flows only so I am not reading too much into the action of the broader markets. I still think we are stuck in some sort of holding pattern while waiting for the FOMC to act in early November. The economy stinks, further QE is coming, the Dollar is being ruined and gold is going to go higher. For now, we just let the short term technical gyrations shove things around in pretty much meaningless activity.

As I have written to over a hundred email inquiries by now, decide on whether or not you want to be a trader or an investor. If you are an investor, use the dips in price to acquire value and ride the trend until it is exhausted. That will be when the Dollar is fixed (good luck on that). If you are a trader, you can play the game along with the hedge funds but just be careful that you do not end up becoming road pizza.”- Dan Norcini, More at http://www.goldseek.com/email/lt/t_go.php?i=2822&e=MzM0MTg=&l=-http--www.jsmineset.com/">JSMineset.com