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-- Posted Friday, 14 March 2003 | Digg This Article
April Gold: Close = $336, -$10.6
In spite of the fact that retail sales for February were awful, the rumors that perhaps some in the Iraqi military will surrender sent the US dollar through the roof, and subsequently gold prices sank like a brick. As we mentioned earlier this week, gold was growing weary of the countless delays towards a conflict and many gold bulls were already out with profits. The slump today confirms once again how much gold is emotionally driven.
As they say, a rising tide lifts all boats, and such seems to be the case today with gold equities. Talk of surrender was good news for not only the US dollar but also equities, with the Dow, S&P 500 and NASDAQ all much stronger, and this obviously lifted the XAU index. Is this just a corrective bounce in an otherwise bearish equity market? A war would have little to do with the internal supply and demand fundamentals of gold. Clearly gold had rallied in anticipation of war. The risk premium in gold has dwindled, once again showcasing the psychology that drives gold prices. Recall our comments earlier this week “If events (Iraq related) transpire favorably, quickly and in a relatively benign manner, the risk premium in gold could evaporate.” Such was the case today. However, there remains much uncertainty regarding Iraq, and if anything throws a wrench into the spokes we’ll find the US dollar and stocks weaken again, and gold rally. In spite of the bullish inventory numbers from yesterday, the energy markets also breathed a sigh of relief and sank on the apparent good news of a potential surrender by many in the Iraqi military. However, even if war doesn’t occur or if the war effort goes smoothly, don’t anticipate crude back down to $20 anytime soon, as inventories are still low. And of course, the unexpected should still be expected from Saddam, and a costly drawn out conflict could cause crude and gold to accelerate higher on a dime. The Dow recently broke through the 7600 area, but the many unknown variables relating to a war still weigh on the economy. After all, retail sales numbers for February were the worst in years. It’s obvious that Iraq is a distraction to consumers and investors. Once Iraq is off boil, will N. Korea or some other country heat up to throw us off balance again? The US dollar gained over one hundred and fifty points today, which of course had a lot to do with gold sinking. Overall however, the EC still has the dollar pinned against the ropes. The inverse relationship between gold and the dollar isn’t perfect, but it does still seem to exist. The dollar is still trending lower, the economy and stocks are floundering, and higher energy prices are tightening the noose around the neck of the economy. Another close tomorrow in this area could keep bulls on defense for a bit, but eventually serve to attract fresh longs. We said, “Only lower gold prices are likely to coax buyers into the arena if war doesn't break out soon”, and we’re getting that dose today. We also mentioned, “with the large bearish head and shoulders pattern, one might assume there are more weak longs to clean out through the $340 area, maybe then the uptrend can resume.” and here we are. Of course it’s all a big guessing game one-day to the next. We can forecast and assign all sorts of reasoning or rationale to market movement but what really matters is to position ourselves and be certain we have a strategy with a favorable risk/reward ratio. The floor in the $345 region was breached today and prices have now corrected over $50 from the highs near $385. Maybe aggressive traders could enter longs in this area. Be sure to watch TradeScope daily, and remember, futures and options offer flexibility as one can just as easily be short or long any market. Each contract/option = 100 ounces, a $1 move in a futures contract = $100. Contact me anytime to discuss strategies to fit your needs.
To open an account and receive trading recommendations on gold futures or options contracts (also stock indices, energies, currencies, etc.), or to use PaperTrader Online contact me at erik@altavest.com. Visit www.altavest.com to request a Free Starter Kit. Keep in mind that there is risk of loss in all trading.
May Silver: Close = $454, -9.5-cents
This week we referenced the “large head and shoulders that has formed over the last four months, which is bearish.” And, with the help of a collapse in gold, silver bulls bit the dust today. As we all know, the volatility is quite high as everyone is on edge over Iraq. We can’t get too cute in assuming we can predict prices daily. Overall, there is plenty of potential for this market to rally and get through 500, but only on the shoulders of a willing gold market. But with prices now chugging along the low road, look to the 443 area as major support. As with gold, perhaps aggressive bulls might want to buy, maybe near 445 or so, but as always be sure to exit if wrong. On a close above 475 look for new highs. Each contract/option = 5,000 ounces, a 1-cent move in a futures contract = $50. Contact me anytime to discuss strategies to fit your needs.
To open an account and receive trading recommendations on silver futures or options contracts (also stock indices, energies, currencies, etc.), or to use PaperTrader Online contact me at erik@altavest.com. Visit www.altavest.com to request a Free Starter Kit. Keep in mind that there is risk of loss in all trading.
-- Posted Friday, 14 March 2003 | Digg This Article
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