-- Posted Friday, 12 June 2009 | Digg This Article
| | Source: GoldSeek.com
Aug Gold: Open= 956.3 High= 959.2 Low= 936.2 Last= 940.0 -22.0
Over the past four days, gold bulls ran into a stiff wall of resistance when prices moved above $960 an ounce but managed to hold support above $950, and so the market traded sideways. That changed today, as prices fell $22 an ounce, proving that bulls did not have the ammunition to sustain solid buying support for this metal.
On the charts, one could draw a small head and shoulders formation, which is a topping formation. The break below support moves the downside objective to $915, near the 61.8% Fibonacci retracement level. While on technicals, it is possible to see a bull flag formation forming on the US dollar index chart, which suggests more upside potential if the dollar can manage another close above today’s high.
A lot of eyes will be on the BRIC summit next week, in Russia, as much speculation has swirled whether or not these nations will implement some plan to replace the US dollar as the global reserve currency. What is becoming more apparent is that these nations simply see the US dollar as losing its grip on that status. Neither China nor Russia wants a collapse of the US dollar, for both nations hold over $1 trillion worth of US assets. It is better to try to stabilize the dollar and then slowly diversify into other assets, which is exactly their plan.
Over the past few weeks, the BRC of BRIC noted their intent to buy $70 billion worth of IMF debt, though not from the sales of US debt. Indeed China will continue to purchase US debt, albeit at a slower rate. Russia does not have quite the stake as China, but it too, is not in a position to see some $140 billion devalued substantially. What we see are more deals being done in yuan, real, or rubles, instead of the dollar.
These nations, which make up 15% of the global output, are warning the US that if fiscal affairs are not put in order, they are prepared to move forward without the US once they divest themselves. For lack of better words, the world has been high on dollars for so long that quitting cold turkey would collapse the whole system, so a detox treatment is needed to slowly wean the global economy off of dollars and US debt. Unfortunately, the US retains ultimate control over the fate of the dollar, either by controlling spending or not.
Inflation still appears to be too far off to be a bullish influence on gold for now. Job losses, unemployment, falling number of hours work, are all taking a bite out of wage growth. There are simply not an excess of dollars in the hands of consumers at the moment, which is a key driver of inflation. Prices of commodities may rise, as we see in oil, gasoline, and some foods, but this may have a negative impact on consumer spending in the months ahead. With the price of gasoline topping $3.00 on the West Coast now, and supplies hitting 5 year lows, its safe to say that prices this summer could be reminiscent of last year. $4 gasoline proved to be quite deflationary.
Gold bulls ought to be patient and use a combination of futures and options to hedge against further downside potential. It does not appear that explosive inflationary pressure is just around the corner, so using a combo of long futures, short calls and long puts could help reduce the long-side exposure of the futures position. The short calls may limit the upside profit potential but that is offset with limiting the downside risk. Traders that want to be simply long futures ought to wait for some short of washout low in the low $900 range as proof that buyers are stepping back into the market. The last six days have proven that traders are using rallies to exit the market.
Review charts on these markets here www.britefutures.com. Remember that futures and options can be used for bullish or bearish positions; feel free to contact me to discuss trading strategies. Each contract/option = 100 ounces, a $1 move in a futures contract = $100.
To open an account and receive trading recommendations on gold futures or options contracts (also stock indices, energies, currencies, etc.), or to use our online paper trading service BriteTrak, contact me at tom@altavest.com. Visit www.altavest.com to request a Free Trading Kit. Keep in mind that there is risk of loss in all trading.
Thank you,
Thomas Hartmann
Altavest Worldwide Trading, Inc.
800 994 9566 x109
949 488 0545 x109
Fax 949 488 7625
-- Posted Friday, 12 June 2009 | Digg This Article | Source: GoldSeek.com
