Hourly Action In Gold From Trader Dan

Dear Friends,

You can almost set your watch by the completely expected parade of talking heads which graced our ears and eyes this morning. The reason for the “sudden appearances” of Paulson and Plosser are obvious. The Dollar made its LOWEST CLOSE in two months in yesterday’s session and was sitting barely a half a cent above an ALL TIME LOW in the USDX chart. Having no other weapon in their bag of recent tricks to support it, they resorted once again to the tried and not-so-true method of currency manipulation, aka, verbal intervention. What a tragic scene to witness – the world’s premiere superpower resorting to spin to prop up Humpty Dumpty.

Paulson reiterated how a “strong dollar” is in the interest of the US and repeated that the government is attempting to get the GSE reform package put in place. As the old saying goes, “If I had a nickel for every time I heard the phrase – ‘a strong dollar is in our interests’ – I could have retired by now and bought several nice islands in the South Pacific”. Actually, it is not an old saying – I just made it up – but it underscores the comical scene we are regularly treated to each and every time the Dollar threatens to fall off a cliff never to be seen again.

I am reminded of that scene in the hit movie, “The Mummy”, in which the followers of Imhotep are seen walking through the streets chanting in a zombie-like fashion, “Imhotep, Imhotep, Imhotep”. Only in our case we could substitute the zombies for our monetary authorities and parade them around the streets mumbling “Strong Dollar, Strong Dollar, Strong Dollar”. It is evidently an incantation of some sort, a bewitchment, that has afflicted our illustrious monetary leaders- what else could explain this regularly occurring phenomenon in which grown men act like fools, babbling utter nonsense that they themselves do not believe but are convinced that the lemmings that run the hedge funds will.

The problem for our zombies is that the actions they are taking are anything but bullish for the Dollar in the long term as they bail out one failing financial entity after another. Folks talk about billions of dollars as if those are large sums of money but compared to what? Compared to trillions of dollars, which is what we have out there in derivative la-la land, billions are chump change.

As if to back up Paulson, Philadelphia Fed President, Plosser, was trotted out this AM as well. Plossser had no choice but to issue more statements saying that the rise in prices is worrisome to the Fed which stands ready to a hike rates if necessary to contain it. What did anyone expect him to say- “The Fed could care less about rising prices”? Gimme a break already! And yet we have Forex participants rushing like mad to buy the Dollar on that “bullish news”! Scotty beam me up – there is no longer any intelligent life on this planet!

What I find most disturbing are the comments floating around this AM that a government led bailout of the GSE’s will restore confidence in the US financial system and is therefore bullish for the Dollar. Confidence – perhaps – but at what long term cost? That is the question that never seems to be answered by so many of these “experts” nowadays. They remind me of the mob ignorantly applauding the broken window in Bastiat’s famous analogy. Perhaps we are looking at the product of our failed education system here in the US which produces people incapable of deep or serious thought. To think a few months ahead or a few years ahead instead of the moment requires the ability to concentrate and analyze cause and effect. How can that be done when thinking is something that even the investment class has left to their black boxes?

Of course, it goes with saying, that the attack on gold immediately commenced driving it substantially off its overnight highs, highs I might add that took it through the upside resistance zone and put in back into form to take on $990 once again. That was obviously a No-No here in the US and had to be summarily dealt with. I can hear the pundits now:
“Gold is moving lower because the market is voting that the crisis of confidence is over”. Sure it is – makes me want to sell all of my gold and immediately rush out and buy shares in Washington Mutual as a safe haven play.

Some of you have been around these markets for a long time as I have. One of the things that strikes me is that we are supposedly in a new era in which investors are extremely sophisticated. I would pooh-pooh that entire notion for I must say, this is undoubtedly one of the dimmest group of “investors” I can recall. They can be run in and out of markets with ease merely by pushing prices through critical support or resistance levels. I would go so far to say that today’s markets are far easier to manipulate than at any other period in history because of the lack of fundamentalists that are left manning the turrets of the investment houses and money management firms. These modern day technical junkies can be pushed around easier than one-legged man in a butt kicking contest. That is their Achilles heel and is the ONLY REASON government manipulation of the markets is possible. Take away the technical buy and sell algorithms, and our markets would be free once again. The reason is obvious – the feds would attempt their interventions and would be thwarted because fundamentalists, who are not fooled by short-term gimmicks, would lie in wait and pounce on the opportunity presented by obvious distortions of price induced by government led forays into the marketplace such as what we are witnessing today. Such actions taken by a large percentage of the trading/investing community would completely negate the attempts of the Plunge Protection Team which would eventually just go away and leave the markets to themselves. In the long run, that would actually be much more beneficial to our system than these cynical ploys that we are now experiencing.

I have no doubt in my mind that future historians will look back at this time period and marvel at the brazenness of our monetary authorities and the lengths they went through in order to keep the public deaf, dumb and blind about the true condition of the US’s financial system. Sitting here watching the stock market completely erase every single bit of its overnight losses with its move into the plus column supposedly occurring because oil prices moved lower is breathtaking for its naivety. The news from Apple and Texas Instruments was shockingly distressing. Coupled with the woes of Washington Mutual and Wachovia, it served to emphasize how tenuous is the condition of some of the leading financial companies. Yet we are to believe that all of this can be fixed because crude oil prices move lower and gasoline comes down $.10/gallon?

We continue to read verified reports that sovereign wealth funds are divesting themselves of the Dollar and moving more towards the Euro. Yet, some of these new gigantic forces are supposedly the ones who are going to provide the capital that US cash starved firms needs to stay in business. That will be an interesting feat of magic.

Back to gold for the moment – we are now moving into the time frame on a seasonal basis in which gold tends to bottom out before moving higher into the end of the year. I suspect that today’s bear raid is going to be the last hurrah for the perma shorts in gold. We have support coming in at $940 in the August contract followed by $935. Below that is $920 - $915. Resistance is $955.

Truth has an uncanny method of circumventing deception and always triumphs in the end.