-- Posted Thursday, 24 April 2008 | Digg This Article
| Source: GoldSeek.com
4-23-2008
Gold’s Problem
As I see it, in terms of market events, we’re in what I’d call the “Perfect Storm”, but for some reason, it’s staying sunny instead of stormy. Think about this; yesterday Oil prices soared to a new record high and the US Dollar Index sank to a record low.
One month ago, June Gold Futures hit an all time high without events that were this extreme. As of today, Gold prices are approximately 10% lower than they were on March 17th. Gold is down in dollar terms, $130 from where it peaked out on March 17th. On that same day, July Silver Futures hit $21.50 and is now approximately $3 an ounce lower than it peaked out at.
If I had told you 30-days ago that the Dollar Index was going to make a record low of near 71.00 and that Crude Oil prices at the same time were going to challenge $120 a barrel, you most likely would have thought that Gold and Silver prices would be soaring. They haven’t and they’re not, which leads you to ask why not?
I believe the answer has to do with market psychology. Traders don’t live in a vacuum. They try their best to forecast change and place bets, hoping to prosper from their analysis. The change now taking place is both complex and somewhat easy to understand.
A Change in Market Perception
For a very long time we’ve been seeing daily headlines about worldwide inflation, food riots, fuel shortages, banking woes, lack of trust in the economic system and failures of financial institutions. These headlines are not limited to America. They are occurring around the globe.
Bear Sterns is gone. Societe Generale’s loss of $8 billion is history and in looking back at that fiasco, it now seems a small event when compared with the write-downs that have and are taking place in financial institutions around the world. Simply put, the Subprime mess is no longer the headline news it once was. The mentality now seems to be that “we’ve been there and done that”, so what’s new? Recognizing this change in mentality is important, since the same news that once fed market trends, no longer has the impact to move them. My guess is that this is why these types of headlines are no longer impacting Gold and Silver.
My take on the US economy is that it is closer to a bottom than many think. I say this since it looks to me like a major change in interest rates is unfolding. The curve yield is changing and longer-term interest rates look like they are moving higher, even in the face of the Fed cutting the Fed Fund Rate once or twice more before year-end.
I have to assume that the Fed gets it right. In the process of doing so, the US economy will come out of the Recession, on much more solid footing than it had going into it. Once the banks finish writing down their loans, funds will be lent. Homes and condos will at some point soon start selling. Things will get better. Don’t get caught up on believing the world is ending. It isn’t. Changes have already taken place and the impacts of those changes are moving their way through the system. This takes a bit of time, but the changes will be for the better.
As soon as the Fed believes our economy is on solid footing, I expect they will stop cutting interest rates. This event will set in place a major low for the Dollar Index and a major top in Interest Rate Futures. Remember, the marketplace won’t wait for the Fed. It will anticipate the Fed’s action and the market’s expected reaction to the Fed by pricing the Dollar Index and Interest Rate Futures well before the Fed reverses course.
As our economy gets back onto more solid footing, the US will intensify its competition for goods and energy with China, India and Europe. It’s at that point that I expect another wave of inflation to take hold. That’s the wave where I expect Gold and Silver prices to soar to new all time highs. If I am correct, expect the same in energy and food prices. My rationale is that as the US pulls out of the recession, more money, our money, will join into demand for the same goods and resources that other world economies are already competing for. Our added demand will drive prices up for goods we compete for. In essence, we will add “fuel to the inflation fire” at some point.
June Gold
At this moment, June Gold is in a short-term Downtrend. Yes, a Downtrend. One that I think will stay in place until prices reverse and trade through 931.9. I expect to see support unfold at the 893-price level. Should a test of 893 occur and not hold, a retest of 876.3, the low made on April 1st, is my next downside target.
If you look at the 931.9 price displayed on the June Gold Chart below, it’s apparent that it is the most recent high price. Hitting 932.0 would change the chart pattern, making the pattern one of “Higher-Highs”. Until this occurs, a Downtrend of “Lower-Lows and Lower-Highs” is in place. Therefore, trend traders most likely will press the short side, most likely keeping their stop at or above 932.0. The immediate downside target is the Bollinger Band, the White Band on the chart below, which has a current value of 892.7. This value will change daily as the Bollinger Band recalculates itself using current daily data.
Below is a chart of June Gold.
Now let’s look at a Seasonal Chart of Gold provided to you by the Moore Research Center…www.mrci.com
Seasonal Chart of June Gold
I like to show what Gold has done over both a 15 and 34-year time span. The reason for the comparison is simply to view and compare longer historical data versus shorter more recent data. The shorter the data frame the more the data evenly weighs current events. However, too short a time span doesn’t tell a very good story, so we strive for balance by comparing 15 versus 34-year data.
Last week I wrote, “given the high price of Crude Oil, the sagging US Dollar and the strength in outside world economies, I continue to like the prospect of higher gold prices this year”. In the short-term, prices are sagging as the very events I thought would take place have in fact occurred.
Conclusion and Recommendation
I never did issue another Gold Entry Signal this past week. In last week’s report I thought one would most likely unfold. It did not.
In order to get short using the current chart pattern, one would have to sell short at 921.9 and risk that position to 932.0. This is too much risk for me to take, so I am currently sidelined.
I will issue new trade signals in my Twice Daily Updates, which you can find out more about by reading below.
Silver
In terms of seasonality, silver prices often bounce from late April into mid-May.
After that bounce, there is a strong seasonal tendency in which prices often break into mid-June.
What this means to me, is this. Bullish factors such as rising energy prices and a sinking Dollar has NOT provided Silver with an upside push. At some point, energy prices will correct. When they do, they might take Silver down, which would fit into Seasonal Chart action.
What to do now?
Let’s look at a Daily Chart of July Silver.
Unlike Gold, July Silver is oversold, having a Stochastic reading of 27.34. Like Gold, July Silver is in a Downtrend. With 16.995 being the immediate downside objective.
Stochastics will soon either correct their oversold status or embed. If they embed, a move down to 16.50 is likely. In order to correct the oversold condition, the market will have to rally. If it does so, I expect the rally to be contained near the 18-Day Moving Average of Closes, which currently is 17.80.
The current chart pattern requires that 18.075 be hit to reverse the downtrend that is now at work. There are no good risk-reward patterns right now that I would trade off of.
The link to my “Mid-Day Videos” and all our other new videos is below.
http://www.iepstein.com/videos_start.aspx
Many new daily recorded videos are now located on our website. These videos cover:
- Daily Opening Calls
- Intraday Market Commentaries
- Day’s End Wrap Up with Point and Counterpoint Conversations
- Interviews with market technicians, floor traders and industry experts
Video Link: http://www.iepstein.com/videoAds/fa_video_1/fa_video_1.html
Getting started is easy. Simply click here to learn more or to subscribe....
If you haven’t had a FREE 4-Week Trial to our Twice Daily Market Recommendations and access to our nightly videos where we review charts nightly, go to
http://www.iepstein.com and fill out the New Investor Kit Form. We will send the kit and access to our research to you.
As long as you haven’t had access in the past year, you can obtain a Free Subscription to receive access to all of our research, including Nightly Audio/Video Recordings where we cover in detail all the metal markets, when you fill out the New Investor Kit Form on our website.
http://www.iepstein.com/emailout/07Campaign/LowComissions/video/dollar_ad.html
As Exchanges and Vendors raise and/or lower rates, those changes are passed on. The Fees and Commission being quoted are on a per-side basis and are all inclusive!
Volatility is here. That’s what traders thrive on.
Take advantage of trading conditions by using our super low commissions and great trading software which make it feasible to enter trades where commissions aren’t much of a decision factor, placing the burden where it belongs. On being right the market! It’s really that elementary.
To learn more about us or to get started trading through us simply go to our website at http://www.iepstein.com and fill out the New Investor Kit Form. A CD-Rom will be sent to you. At the same time you will instantly begin receiving access to and instructions on how to access our daily market research, trading recommendations, charts and much more.
If phoning us is easier for you our phone number is 1 800 284 3010.
We handle trading accounts from individuals in a number of foreign countries as well.
Disclaimer: This publication is strictly the opinion of its writer and is intended solely for informative purposes and is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade in any commodities or securities herein named. Information is taken from sources believed to be reliable, but is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted. Futures and Options on Futures trading involve risk. In no event should the content of this market letter be construed as an express or implied promise, guarantee or implication by or from Ira Epstein & Company or Shatkin Arbor, Inc. that you will profit or that losses can or will be limited in any manner whatsoever. No such promises, guarantees or implications are given. Past results are no indication of future performance.
