Posted: Apr 27 2010 By: Dan Norcini Post Edited: April 27, 2010 at 2:12 pm

Filed under: Trader Dan Norcini

Dear CIGAs,

Market moving news today was the downgrade of Portugal’s debt ratingby S&P from “A” to “A-." That sent the Euro tumbling back downafter it looked as if it might have been making a short term bottom onfading Greece concerns. Voila! To add insult to injury, they also cutGreece’s sovereign credit ratings to junk level and the “fade” onGreece quickly morphed into a panic! That sent global equity marketsinto a tizzy and down they all went with bonds shooting sharply higheras money was quickly sucked out of equities and jammed into “safehaven” bonds.

The result – safe haven flows on the Continent into gold whichcontinues to display strong buying interest on dips in price in Euroterms. This strength is feeding directly into Dollar based gold buyingallowing gold bulls to mount a run into the bullion bank resistanceline just above the $1162 level. As expected, they are fighting likehell to try to prevent a technical breakout on the charts.

The bullion banks have the computer algorithms at their back todayas the swooning Euro is triggering rather broad-based commodity sellingby the hedge funds. Witness the big drop in crude oil , soybeans, corn,copper, etc. When you get this sort of thing occurring, gold also getssold by these programs but even in spite of that, there is sufficientbuying occurring that is not only precluding a sell off in the goldmarket but is also allowing it to work higher against the tide. It doeshowever make it more challenging for the gold bulls to beat back theselling that the Comex gang is hurling their way. That is why you haveto be the more impressed by the tenacity of the gold bulls who arecounterpunching and making quite a battle royale at this criticaltechnical juncture on the price chart.

Remember how back in February through March, the banks were cappingthe rise in gold at the $1130 level? Gold spent more than a monthknocking up against their selling before it finally kicked down thatdoor and then went on the climb past $1170 before retreating a bit. Nowthese same banks are trying to hold the metal at the $1162 level inorder to prevent a climb past $1175 which will open the door for a runat $1200. As long as gold continues climbing higher in terms of othervarious foreign currencies, the gold bears will have their work cut outfor them.

The HUI (gold and silver shares) is following the broader equitymarkets lower but is also seeing a fair amount of buying tied to theperformance of gold with the silver issues getting tugged lower due tosilver’s downdraft today. Once gold can take out $1175 and begin a pushtowards $1200, the gold shares will follow it higher irrespective ofwhat the broader equity markets are doing.

Back to the bonds for a moment – the huge surge of money into thesector enabled the long bond to break out above last week’s high onwhat looks like pretty decent volume so far. The level near 118^20 hasbeen formidable resistance on the charts and it appears to be holdingeven now. However, should it give way before the day’s trading iswrapped up, bonds have a good chance to take a run to this year’s highnear 119^20. One thing appears to be certain for now, the bondvigilantes are going into hiding having failed to take out the bottomend of this year’s trading range. If the bulls can take price throughthat February high, they will more than likely be able to set up acharge towards 124. Needless to say, the feds are LOVING this right nowas they can issue more and more debt and still have the market buy thecrap even as the Dollar moves higher. Who says that someone else’smisery is not another’s blessing? Obama and Bernanke should both begenuflecting towards Europe each and every day and giving thanks forits misery. Were it not for that, both would be watching bond salesplummeting and the Dollar swooning.

The Dollar is winning the “which currency stinks the least” race fortoday. It has to close through 82.50 to give it another leg up on thecharts and the potential to run towards 83.15 or so.

Considering the broad weakness in the stock market and the fearscirculating in many of the pits today, crude oil is hanging in theirrather surprisingly. Let’s see if does move lower from here and if so,whether it can maintain its footing above $80. That will tell uswhether rising gasoline prices are going to be with us for May.

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