Today’s summary in money, metals and markets comes from Zerohedge. A short posting with several charts describes the market movers and losers on the first day of the US government shutdown:
US Equity markets started green and ended green. The Russell 2000 closed at all-time highs with the best day in a month (up over 2% from yesterday’s lows) on the day the US government shutdown for the first time in 17 years. The USD dumped early (EUR strength on Italy) but clambered back to only a small loss on the day. The big news was in commodity-land where gold and silver were smashed early (and silver rebounded) as were copper and oil. The lunatics had full control into the close taking the S&P to its highs of the day – totally incredible.
While yesterday’s gold and silver price action resembled whipsawing, today’s picture was quite different. Precious metals failed to act as a safe haven when looking at price action. While that may sound as a contradiction, the chart shows a fall through psychological support at $1300.
Gold price during the 1995 / 1996 government shutdown
The last government shutdown in the US goes back to the Clinton administration. It was the longest one in the US history: from Dec. 16, 1995, to Jan. 6, 1996. Interestingly, gold started only to react towards the end of that period. There was initially no reaction at all, as appears from the following chart (courtesy: gold.org). Today, however, things were different.
Gold price today: technical picture
In his market commentary, professional trader Dan Norcini describes the picture on the charts (source):
Gold has also broken technical chart support down at the recent low at $1290. Bulls must quickly take prices back above this level and preferably above $1300 if they are to avoid suffering deeper losses. Bears are growling today and flexing their muscles having picked off downside sell stops and that has turned the momentum negative. Hedge fund computers will certainly notice that.
There is some additional downside support coming in near $1280 extending to $1270. Should that fail, losses will accelerate. Bulls need some help and they need it quickly.
Losses in the soybean market have also worked to pull the rug out from under silver, which still maintains a connection to this market, even though that link has weakened a great deal in recent times. Many traders tend to look at soybean prices as a sort of proxy for food prices in general and if the former are moving lower, they tend to discount any inflation fears and thus sell silver.
The physical market can stem the bleeding in these precious metals but that buying in and of itself cannot push prices higher without momentum based buying and right now momentum is trending lower.
He continues with a technical explanation of the problem in the gold market based on the longer term chart (weekly chart):
Forget all the chatter about backwardation, dwindling COMEX stocks, etc. None of that matters. As stated before the only thing that matters is price action. Why is this so important? Simple- because in today’s markets Hedge Funds are the drivers of trends and they are not buying this market except for bursts of short covering after which subsides, they promptly return to selling. Translations – they are currently missing in action from the buy side. Until they return, price will move lower. Also, the largest gold ETF on the planets, GLD, continues to experience drawdowns of its reported holdings. How in the world can that be considered anything but bearish as it indicates a lack of sustained speculative interest in the yellow metal?
On the chart you will note the Fibonacci Retracement levels. I displayed only the 38.2% level for the sake of clarity and to avoid cluttering the chart. Note that the rally higher that began in late June/early July off the spike low below 1200 only managed to reach the 38.2% retracement level off last year’s high near 1800 before the metal began moving lower once again. It thus failed to extend above the psychologically important $1400 level. That attracted additional selling.
It is now trading within the confines to the pitchfork with the upper line acting as resistance. If the line is valid, the market has the potential to drop towards the median line again which unfortunately is now below $1200 based on this time frame. Also, since the RSI has been mired in that trading range between 50 and 20 and is now headed lower, it is conceivable that we could see it begin moving lower until it nears that same level once again.
This price action is surely counterintuitive, given the recent confirmation of continuing monetary stimulus and the uncertainty in the land of the world reserve currency. Apparently the markets have another opinion about it. If gold will only react when the debt ceiling has been raised, just like in 1995 / 1996 remains to be seen.