1-15-2009
Gold was winner in 2008!
Yes, Gold turned out to be one of the few markets that held value year on year in 2008. Were the results spectacular? In comparing gold versus the results of the stock indices and practically every commodity market, yes. Gold did what it is suppose to do. It held value.
The Inauguration
This coming week ushers in a new Presidency and with it new hopes and lots of spending. Hope is going to be very crucial in turning the market psychology from one of doom and gloom to one of “hope”. The vote for Obama was a vote for change. That change will NOT take place at the inauguration. It will take change over time. The speed of that time is what in large part will determine 2009’s path.
Congress and TARF
Congress is upset. TARF funds did not have enough controls on them. To the average American it looks like our funds went to help banks merge, buy naming writes to baseball fields, pay bonuses, keep automakers temporarily alive and offered little if any relief to housing prices, mortgage prices, foreclosures or helped to provide bank loans.
In other words Congress is probably angry with their lack of control on how the first $350 Billion of TARF funds was spent and will want to be sure the next set of funds go where and how Congress wants them to go and how to be used. In other words I look for the next $350 Billion to be released, but with much tighter controls on them.
Stimulus Plan
A Stimulus Plan is coming. It will probably exceed a trillion dollars. Maybe by a lot more. My guess is that America unlike the EU is not concerned about inflation. America is rightly concerned about our economy slipping into a depression and to avoid that, will spend and cut tax rates when and where necessary to stimulate the economy.
In terms of Gold, inflation is certainly one of the elements Gold benefits from. However, there is no inflation yet a work for Gold to hang its hat on. The inflationary threat of all the funds the US is going to spend along with the expanding US deficit certainly gets one thinking about inflation, but thinking about inflation is not inflation. It is simply a thought process.
As such, until inflation shows signs of surfacing, Gold has a better chance of holding value off of shocks to world economic woes than inflation for now. The key phrase here is “for now”, as that will change over time and do so sooner rather than later if the Stimulus Package and other moves world governments are initiating take hold. Eventually inflation will return in a very serious way, but that time is not now.
Rising Dollar falling Energy Prices
A rising Dollar coupled with falling energy prices is not inflationary. This combination should hold back gold and in the end if the Dollar gets too strong, should be bearish Gold. The problem is that at $34 a barrel for crude oil and at 85 for the Dollar Index, I am not sure either has a lot left to move. Time will tell.
Daily Chart
The Daily April Gold Chart is currently in a downtrend and is oversold.
Prices are under the 18-Day Moving Average of Closes and the Swingline, the “yellow line” I plot over the daily bars on this chart, which is called the Swingline, is making lower lows and lower highs. A Downtrend can be de defined as a pattern in which each high is lower than a previous high and each low lower than a previous low. Gold is in such a pattern.
Resistance is up at the 18-Day Moving Average of Closes. Support is at the lower Bollinger Band, the lower “white band” on the chart. Bollinger Bands are an algorithm in which the study is meant to have the market trade 95% of the time within the bands. Therefore, when a market rushes up to or down to these bands, I consider that a profit taking, support or resistance point. Gold has done that to the downside.
Gold’s Seasonal Story
To get an idea of the longer term picture, look at the Seasonal Chart below, as provided to us by The Moore Research Center...www.mrci.com. I haven’t yet received the latest updated one that would include 2008, but one year will not change the overall pattern. As such, I don’t expect much until a low forms in mid –March. There may be bounces along the way until than, but historically speaking the second half of the year is where it get interesting.
Conclusion and Recommendation
What to do?
Look to sell rallies, back to the $850 level, purchasing 800 Put Options instead of selling a futures contract.
I like the use of options when trading the Bear side of Gold with as much risk as the current April Gold Chart shows. The last meaning full rally high in April Gold was 870.5. On this chart, that is the number that would have to be taken out using the current chart pattern to make me reverse my thinking. I see no reason to risk nearly $2000 if I don’t have to, so on rallies I will be recommending buying the 800 Put or some combination using it instead of selling futures.
Stochastics are oversold so you have some time.
Just keep up with my Twice Daily Updates as I intend on making a formal recommendation when a rally ensues and it will be there that it is made.
