Gold Prices Capping Near $1,250 as of May 25th, 2010

With the price capping near the $1250 level, the continued rise in gold has been slowed and has resulted in new short selling by locals looking to capitalize on the backstopping of the bullion bank sell programs. It was thought that the longs holdings of gold would hold steady and not run but it looks like that is not going to be the case today. Apparently the long holders of gold have been properly conditioned by the Feds to bail out at the first sign of a slow down in upside momentum of the price of the precious metal.

Unfortunately that is how this market has traded for the past decade. It is just wishful thinking to believe that might have changed. The charade in gold could end tomorrow would end immediately but not for the current level of computer geeks who don't have the courage to think for themselves. What started out as a slight dip in gold was widely announced to have been a lessening of fears concerning Europe’s credit worries. That in turn caused a big spike in the equity markets early this morning. This was accompanied with some friendly economic news that was putting some pressure on gold.

The Euro moved higher as a result and the the non-leading investors all gave a collective sigh of relief as they plunged back into the risk trades. However by Midday, it all began falling apart again as the Euro got nailed and is currently down more than a full penny against the Dollar and the equities are falling sharply again.

Gold on the other hand has not yet responded because the bullion bank capping generated enough long liquidation to push the hedge funds into the sell mode. It is difficult to understand how a drop in the Euro is representative of a lessening of fears about European debt woes. Due to this, it should not be too long before gold responds accordingly and moves higher.

The problems that are currently troubling Europe are not going to go away. They may fade somewhat from the forefront of trader's minds for a bit but they will be lingering for quite some time. Investors should not be shaken by the short term gyrations caused by these wild market fluctuations. Logic tells us that there are nofundamentals behind them. All such price movements do is to create opportunities for those who keep their wits about them and can calmly analyze the current situation without being unduly influenced by the actions of the group mentality.

It will be interesting to see how gold moves at tomorrow afternoon’s PM fix and whether or not it can get above the 1,000 Euro mark. The inability of the Euro to thus far to manage a complete one day short covering pop is a very troubling sign. It is representative of how eager sellers are to hit it over and over. If it cannot hold yesterday’s low, it is going to trade at 12100 quite rapidly. It is still lower than its worst levels of 2008 when the great carry trade unwind was in full force. Looking at the monthly chart shows that there is not a lot of support for gold until you get down below 11900. That is how serious this is becoming.

The HUI could not hold support at yesterday’s low which coincided with the rising 10 day moving average. Unless we see those hedge fund ratio trades lifted off the shares, the most likely scenario is a drift down towards the 20 day moving average near 460. That will need to hold to prevent some sell stops from taking the shares lower. The index needs to get back above yesterday’s high to create bullish momentum. That level is near 487.

With crude oil selling off, lucky drivers will get a break at he pump for their summer vacations driving. Perhaps the airlines can now can benefit from the lower oil prices and stop trying to find new ways to charge you fees. If this keeps up there may be a higher a demand for SUV's in the future.