-- Posted Thursday, 16 April 2009 | | Source: GoldSeek.com
Going Nowhere Fast
There comes a time where markets “mark time”. “Marking time” means that a market spends time trading without trading in a direction. This appears to be one of those times in gold.
My last Metal Report was not bullish and I’m still not over the short term.
Gold needs a story that it can grab hold of in order to run up. Seasonally speaking, gold is entering a time frame that does not typically support higher prices. I say this by looking at the Seasonal Gold Chart supplied by The Moore Research Institute.
As you can see, during the spring gold has a history of going sideways to lower. It has acted like this over the past 30 odd years. That doesn’t mean that some rallies can’t occur. They can and do as you can see. However, the likelihood of a rally gaining serious traction between now and the end of summer does not have a strong historical basis.
Inflation
Markets move in “steps”, often these “steps” have both a strong fundamental and psychological basis.
I believe that the next big story that will drive gold prices higher will come from inflation. We’ve already seen gold gain from deflation. Yes deflation since that produced gains in gold as a “safe haven” investment. However, to keep markets moving in a direction, the market requires information to do so. Information that reinforces and influences the market trend.
Simply put, the influences that put gold up and over $1000 an ounce have run their course. Think about it. We’ve already braced ourselves for a GM bankruptcy. We’re being “prepped” for news on bank stress tests. North Korea has said it will not stop producing a Nuclear Weapon Missile. Same with Iran. As much as you’d think that these news events would be bullish for gold, they aren’t and haven’t moved prices higher.
Therefore, barring a financial melt down, the next important news event that will lead gold higher and most importantly be able to sustain a lasting uptrend will come from inflationary concerns. In order for inflation to sustain itself, ours and that of our trading partner’s economies have to turn around. Slowing down the pace of the declines these economics are experiencing is not the same as turning our economies around.
Before inflation takes place some rallies may occur as markets function by anticipating market turns and those turns can create rallies when the trend is down. However, I don’t believe that at this time a sustainable rally can occur without fundamentals to back up that anticipation. So, the key as I see it is to be long when our economy turns.
Daily Chart
The Daily June Gold Chart is in a clear cut uptrend, but is in an overbought status.
As I see it, the yellow Swingline Study is pointing up. That means that until 876 is taken out the bias is up in terms of price but that is completely offset by prices trading under the 18-Day Moving Average of Closes.
Couple this action with a Stochastic Reading, the SSTO graph on the bottom of the chart and it is evident that prices are oversold. There simply isn’t much to do yet from either the long or short side of this market.
Conclusion and Recommendation
My bias is to the downside in Gold. The seasonal study shows that upside momentum that gains real traction often takes place at the end of the summer, due in large part to demand for Christmas Jewelry.
The question is when all this money being poured into world economies begins to move through it. You’ll soon start hearing a lot about M1, M2 and M3 in terms of money supply and movement within our economy.
Once we see the economy begin to turn up, not slow its decline as we are now seeing, will be the “food’ that the gold bulls will jump on. Until than I think it safer to play the short side of Gold. How deep a break will set things up for when the next sustainable rally takes place.
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-- Posted Thursday, 16 April 2009 | Digg This Article
| Source: GoldSeek.com
