Dear CIGAs,

That eerie quiet that I spoke of yesterday – well – it became “unquiet” last evening as traders became convinced that the IMF was going to get involved in the Greece situation as the Eurozone appears unwilling or unable to do anything to alleviate it. The result was predictable once that mind set took firm hold – The Euro, and all of Europe for that matter, was sold off sharply crashing through downside chart support and kicking the Dollar up and out of its range trade as it blasted above the 81.50 level.

Gold was then set upon by a horde of Banshees who promptly knocked out the props beneath it that had been keeping it floating above the $1,100 level. In Dollar terms it is not performing all that well (at least it is bouncing from the chart support level marked out on the daily) but in terms of both the Euro and the British Pound, it is actually doing fairly well. Euro gold came in at €816.491, 2 euros higher than the previous day’s PM fix. Sterling gold at £731.605 was also higher than yesterday’s fix.

The chatter is that there is no inflation in the Eurozone and that is the reason for the selling in terms of the latter mentioned currencies but that misses the point – gold is an alternative currency without obligations attached to it and that is why it will continue to garner buying interest as the currency woes of Europe persist. In Dollar terms it will tend to underperform compared to those other currencies but the Dollar has its own set of issues confronting it as well, not the least of which is another unfunded trillion dollar monstrosity that was just heaped upon the US. For now the Dollar is winning by a sort of default when compared to Europe but the woes in the various states here in the US will inevitably be too significant to ignore by the Pollyannas who exist in the US investment community.

Technically, the Dollar now has a legitimate shot at 83.20 – 83.45 on the weekly price chart.

This Dollar strength led to selling in silver, copper, crude oil and just about every other commodity.

Gold has now dropped down below the $1,100 level which had been attracting buying for the last month but the sell off in the Euro was too much for gold to withstand the attack by the bears. Even with that, as long as gold continues to display strength in terms of the various European currencies, that is going to lend it buying support in Dollar terms and prevent a rout. We will have to keep a close eye on the action of both Euro gold and Sterling gold.

Unfortunately the HUI, detailing the action in the mining shares, broke below the bottom of its recent range triggering technical selling across most of the sector. It has a bit of support near 400 but if it cannot hold there, 390 is the next feasible target. It will need to climb back into the trading range zone to stave off the bears ideally pushing up through 420 to give the bulls some breathing room and unnerve a few of the bears.

By the way, sales of new homes were the worst on record. No doubt the sever wintry weather had a great deal to do with the rotten number but it certainly gives one further pause whenever we hear more talk about the “recovery”. That made the sell off in the bonds a bit murky which sank sharply falling over 1 ½ points at one time. Even at that, bonds have not broken down through support that has emerged near 115^27. We need to watch this however. There are a fair amount of spreads occurring were the short end is being bought and the long end sold in anticipation of the inevitable consequences of the spendathon at the federal level and the QE program. Some are reading the rising yield curve as a sign of an improving economy which incidentally allows the banks to make more money on their lending activities.

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

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