-- Posted Thursday, 7 May 2009 | | Source: GoldSeek.com
No real movement
In my last report on April 22nd I stated that “gold was marking time. Since March 20th, gold June Gold has been stuck in a trading range of 970 down to 865, about a $100 ounce trading range”. Amazingly, the same trading range remains in place. Even with all that has been going in the world.
The financial markets have an interesting, but recognizable market psyche at work. In the last quarter of 2008 and through the first quarter of 2009 most if not all financial market news, whether bullish, neutral or bearish had “bear spins” in terms of market action applied to them. The news had little market influence. Regardless of the news or what it said, the spin was to make it have a bearish impact.
Today the exact opposite is taking place in stock indices. Jobs are still being lost at the rate of 5 million a year. We’re being told that banks are not adequately capitalized, Chrysler declared bankruptcy and yet, stock Indies rallied up until today. Amazing as it sounds, not actual job increases, was being spun as being bullish.
In my last Gold Report I said that gold lacks a story to sink its teeth into. It’s certainly had opportunity with the bankruptcy of Chrysler, Bank Stress Test results and now fighting spilling into Pakistan, which has nuclear weapons. Yet, gold is going sideways.
Given that stocks, grains and copper soared, coupled with the US Dollar breaking, you have to wonder what it’s going to take to make gold rally. I have an idea and will speak about it below.
Seasonally speaking the historical odds at this time of year strongly favor sideways to lower gold prices into the summer. Rallies of course can and have in the past occurred in this time frame. The chart below points that out, however those rallies have historically not been strong nor have they lasted very long during the summer months. There can be exceptions. However, as the 15 and 30-year chart below shows, the rallies seem to stay within the top set in March or April.
The chart below was supplied by The Moore Research Institute.
Bank Stress Tests
A possible catalyst for gold prices might come from the Bank Stress Test results due to be released starting May 6th as I seriously doubt all the banks that were tested will come out with stellar readings. A few clearly did well, but most did not if the “leaks” over the past 48-hours prove true.
Banks that need to capitalize must present an acceptable plan to the Fed with 30-days and complete that plan within 6-months. This sounds plausible and workable.
The government has handled this with “kid gloves”. They do not want to spook investors nor send out the wrong message. They have prepared the markets for the event, so it could become a non-event within 48-hours. How the markets first react to the report is not something that I want to speculate on.
Inflation
My guess is that once we see world economies turn around, inflation will become the culprit. Slowing the breaking down pace of world economies is not a turn around. It is a slowing of the breakdown process.
Once market technicians believe a turnaround is “in” place, I believe gold will really take off. Given that the ECB today joined other government banks in buying their own debt to shore up their economies, at the first sign of turn around few economies will be left without some impact from rising inflation. That seems to me to be the next big story, barring some calamity out of Pakistan or Afghanistan.
Daily Chart
The Daily Chart of June Gold Chart has established a short term uptrend.
Gold has stayed very much range bound and maintains a bullish bias. The Swingline Study is in a pattern of making higher highs and higher lows. However, the market is now in overbought territory with a Stochastic reading of 77. I consider any Stochastic reading over 70 to be overbought. Overbought conditions either correct themselves by having prices trade sideways for a while, by having a price break or by prices rallying enough to overcome being overbought and become embedded. Gold is not yet even in the first phase of embedding, so it is overbought.
Today the market rallied up to the Bollinger Band Top, the “white band”. I labeled this with an arrow on the above chart. Prices rarely stay over the Bollinger Bank Top while being overbought for very long. This particular pattern often results in a price break. Not necessarily one that turns the trend down, but nonetheless a market correction that often takes prices back down to the 18-Day Moving Average of Closes as shown in red above.
Conclusion and Recommendation
My bias is now bullish. The current trend is up. Getting under 895.4 will negate the current uptrend and turn the trend back down.
As this letter is written but once a week, it’s important that you keep up with my twice daily written updates. Assuming you do, I will be looking to buy long near 896.0 if Stochastics lose their overbought status. I would get out if prices get under 895.4 and consider going short if that occurred. Assuming the uptrend holds and the stop doesn’t get triggered, look for a rally back up to 920.0.
A safer way to play this might be using Calls instead of futures. The 925 Call would be what I would buy on a retracement in the futures down to the 896-900 price level in the June Contract. If futures get under 895.4 get out the option as well and consider reversing to a Put looking for the 880 price level to be hit.
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-- Posted Thursday, 7 May 2009 | Digg This Article
| Source: GoldSeek.com
