1-22-2009
The Inauguration..Stock prices break
President Obama was sworn in. As he was being sworn economic issues surfaced concerning bank values both abroad and here in America. Citigroup, Bank of America and State Street Bank have all been in the news and have been under what I term a “bear raid”. This “raid” has had an interesting impact on the Dollar, Treasuries and Gold.
The British Pound is now down to a 23-year low against the US Dollar. The Royal Bank of Scotland is in the process of being nationalized due to the amount of funds the British Government has to inject into this bank. Many fear the same is taking place with a series of US banks. More funds are needed to keep them healthy.
President Obama’s team has to find a way to shore up banks, create financial stimulus and deal with a swelling massive US deficit. It appears that we are going to spend whatever it takes to stabilize our economy.
As such, how the second part of the TARF is used, the details of the new stimulus package and controls Congress wants in place all take center stage.
The Second Quarter
As I see it little good news can be expected this quarter. Unemployment claims are swelling. More bankruptcies are taking place. Microsoft today announced a 4000 job layoff. E-Bay’s earning fell apart.
The first quarter is going to be bad in terms of economic reporting. It is also the quarter in which President Obama puts forth his plans. Expecting them to work in the first quarter seems unrealistic to me. Therefore, more bad news is ahead.
How Gold responds to the “bad news” assuming my assumptions prove correct will be key in trading Gold. Gold has rallied as an alternative investment, a “safe haven” as Treasury and stock prices fall. There’s almost nowhere else to go. However, unless the economy takes another shock, I simply question without inflation if “safe haven” buying is going to be enough to carry the day. I have my doubts.
Inflation
A rising Dollar along with falling commodity and energy prices is not inflationary. This combination on its own should hold back gold. Safe haven buying of Gold is what is taking place and that is an emotional event that can change on a moment’s notice.
What won’t change on a moment’s notice is inflationary buying, once and when inflation sets in. Inflation is not a worry today as deflation is what is taking place. When the US and other world economies flatten out and stop deflating, the markets will have to deal with inflation. Until that time, the issue is one as I see it of “safe haven” buying.
Daily Chart
The Daily April Gold Chart is going sideways.
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. This is the newest Seasonal Chart which includes 2008 pricing.
Conclusion and Recommendation
What to do?
Last week in this report I said you should look to sell rallies at the $850 level, purchasing 800 Put Options instead of selling a futures contract. I also said that 870.5 would have to be taken to cause me to reverse my thinking and pointed out that at that time Stochastics were oversold.
I summed things up by saying to keep up with my Twice Daily Updates as that was were I would make a formal recommendation when a rally ensues. So far no recommendation has been made.
If prices get over 868.3 I will look to buy Calls on a pullback. If prices get under 844.7 I intend on buying Puts. Something is about to happen, so stay tuned.
