Dear CIGAs,

Welcome to the first day of summer. What a start!

It goes without much saying that the news out of China dominated today’s 24 hour trading period. The hedge funds went wild in the commodity complex early on with the thinking that any appreciation in the yuan will stimulate economic activity and thus be good for business globally. They scarfed up tangibles and unloaded gold on the thought that there is no longer any need for a safe haven.

All of this is longer term stuff but that does not matter in today’s markets where the entire business cycle is now complete in 24 hours. Funds unload positions in a matter of hours or reload them in the same period of time. Today they were unloading gold.

Sadly for the friends of gold, the spike into a new record high overnight followed by a drop down below Friday’s low on the price charts has resulted in a bearish downside reversal day. The candlestick charts refer to it as a bearish engulfing pattern. With open interest at record levels, it is going to take a Herculean effort by the longer term oriented bulls to prevent a technically related long liquidation bout. We will have to see what develops overnight and into tomorrow’s trading session. Everything will hinge on the attitude toward risk in the next couple of days.

For now, the news out of China has knocked the sovereign credit woes off the radar screen for the investment community. Again, keep in mind that any appreciation in the yuan and subsequent economic effects are not going to occur overnight. Even at that, it does nothing to change the fiscal condition of any of the nations involved at the center of these concerns nor the fact that the West is spending too much money.

Still, technicals dominate the markets short term and they have to be respected if we are to avoid being hurt by the “skilled” traders at the hedge fund desk (note this is pure sarcasm on my part as unloading all or most of one’s entire position in one trade is not skill).

The HUI is also seeing selling today in spite of the higher equity markets and it too is threatening the same bearish chart pattern as the metal itself. I think the fact that silver, while its short term chart pattern turned negative today, has not put in a downside reversal (yet) might be helping to keep the HUI from looking even worse. The close is going to be important to see how the technicals look at the end of trading today.

I am not the least bit concerned about gold longer term but wanted to comment on the short term charts for the trading element. Don’t let the Elliot Wavering Prechterites who will now come out of the closet like the roaches they are scare you into throwing away your insurance. We will wait to see where the buying support emerges in gold and then can have a better feel for the charts at that point.

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

One quick comment about the Los Angeles Lakers victory over the Boston Celtics in the NBA finals – it is a good thing that the Lakers won – judging from what I can see of the “victory” celebration in the city, if they had lost the entire city would probably have been burned down to the ground and would now be in ashes. In case you missed it, a mob of revelers managed to go berserk with “joy” that led them to smash windows, set fires, destroy cars and who knows what else as they emptied onto the streets after the game. I sure don’t know about you, but heaven help us all when things get really nasty in this country should a currency crisis come our way. Many in this generation have little to no ethics or honor.

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