-- Posted Monday, 17 August 2009 | Digg This Article
| | Source: GoldSeek.com
Dec Gold: Open= 949.2 High= 950.4 Low= 931.1 Last= 935.8 +11.8
The trending pattern in gold prices continues to leave traders flummoxed about which direction will prevail shortly. From a charting perspective, the winding pattern cannot continue much longer with prices now constrained between two narrowing trend-lines. Today’s sell-off puts closing prices right on the upward sloping line, and must be making some bulls nervous as the stock market appears to finally be entering a correction.
Although the New York region showed growth in the manufacturing sector for the first time in 15 months, overnight weakness in the Asian markets set the tone for the rest of the globe today. A contraction in stocks will be negative for precious metals as we’ll likely see strength in the U.S. dollar and the yen as a result of traders unwinding carry trades in those currencies.
For now, the losses in stocks should be considered a correction, and not the beginning of a new leg down in stocks. The market already priced in a depression-like scenario back in February, and based on the improving economic figures the global economy showing some recovery from a severe recession. Quarterly growth was seen in Germany, France, and Japan, though certainly many other nations are seeing contraction in GDP. In rebounding from thoughts of the next depression to just a recession, there’s growing sentiment that stock valuations have overshot their mark.
It’s a valid belief and most likely true. Just as stocks dropped well below their true value back in February during the panic selling, this currently rally in stocks belies the fact that the U.S. economy is still struggling with job losses, no growth, and skeptical consumers. Will those who did not belief in the recovery now jump in to buy stocks on a correction or will traders hold back, waiting and waiting for prices to get cheaper, thus moving back into a deflationary situation?
For better or worse, gold is likely tied to economic growth. Without growth, the prospects of demand-led inflation cannot materialize, and it is not yet apparent the U.S. is following the same path as Zimbabwe in terms of monetizing debt. Bullish sentiment in the U.S. dollar fell below 10% recently; suggesting that bearish sentiment is getting a bit too crowded and a correction could help restore some balance.
For gold, the chart is winding tighter and tighter, and a breakout on the chart will occur soon, likely with a close below $935. Traders may want to be patient and wait for gold to break out of this seven-month old, coiling chart pattern, and then follow the herd. While there are many bullish inflation arguments to be made, the market is not embracing those views at the moment.
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.
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Thank you,
Thomas Hartmann
Altavest Worldwide Trading, Inc.
800 994 9566 x109
949 488 0545 x109
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-- Posted Monday, 17 August 2009 | Digg This Article | Source: GoldSeek.com
