-- Posted Thursday, 15 October 2009 | | Source: GoldSeek.com
Commentary
Since last week not much has changed in my thought process regarding gold. Gold has moved to all time highs which is in line with the 15-year cycle, which calls for a short term peak in prices now.
Today the Dollar broke to a new yearly low. Stock indices made a new yearly high and energy prices were up sharply. Yet gold couldn’t move forward. We haven’t recently seen gold react this way which has me wondering if today was simply intraday profit taking or if something else is occurring.
My expectation is that gold will find a reason to either pullback or move sideways, if my assumption about it following its 15-pattern proves correct. I could be wrong and the cycle doesn’t place.
You might ask yourself why gold should pullback when stock indices are challenging yearly highs and the Dollar yearly lows. One of the reasons might be that investors are feeling comfortable. Comfortable enough to switch investments out of gold and into riskier investments. Economic stability world wide is much better than it’s been since last March. Earnings reports from large companies continue to grow due to cost cuts, the low Dollar and in some cases demand for more product. Banks are doing much better. In an environment where investors feel safe and don’t see or feel inflation, gold can hit a point where it has priced in its current fundamentals.
In past reports I pointed out that I believe the current “leg” up in gold has been Dollar inspired and that gold’s next catalyst for a further move up should come from inflation. According to current Fed data, inflation is not yet a problem. This will probably change when job data improves to the point where true job growth occurs or is jut around the corner, which in turn should encourage more consumer spending. At that time I expect that inflation will likely become the news headline that spurs gold even higher. We’re clearly not at that point yet, but strong holiday sales may be the trigger that sets off this scenario.
I remain bullish and continue to look for a pullback to establish a bullish position.
Seasonal Story
The Seasonal Chart below is from the Moore Research Institute. I’ve labeled where I think the market is in terms of price momentum and date.
You can view their website by going to: http://www/mrci.com
US Dollar
Last week I wrote: “The Dollar continues to plummet. Prices today hit my near term downside target, the Bollinger Band Low of 75.770.” From that point the Dollar rallied nearly 100-points, up to its 18-Day Moving Average of Closes at 76.77 and has again fallen back to the Bollinger Band Low of 75.79.
Stochastics are once again in oversold territory. To me this means that new short positions need to see Stochastics embed if more immediate downside price action is to be seen and more importantly, for prices to stay down. In this environment, given how out of favor the Dollar is, this can easily occur.
This afternoon the Fed released its notes of the last FOMC Meeting. As expected the Fed Governors have differing opinions as to where the economy is in terms of recovery and growth. They seem unified however in not allowing the economic recovery to stall out. I interpret this to mean that they will now battle internally about what to do about keeping interest rates as low as they are. Expect different “trial balloons” from different Fed Governors to be voiced in the news more and more. It is their way of getting the market ready for eventual belt tightening.
As the Dollar falls, commodities priced in Dollars tend to strengthen. Crude oil and gold are good examples of this practice. The break in the Dollar is also fueling a rally in stock indices. Those abroad can buy US stocks with discounted Dollars. Repatriated funds are also helping to liquefy international corporate balance sheets.
Daily Gold Chart
Today was strange in that the Dollar broke to new lows, stock indices rallied to new yearly highs and crude oil was very strong. Most commodities priced in Dollar garnished support today from the falling Dollar. Gold didn’t.
I’m not sure what this means. A falling Dollar along with strong stock indices and energy prices don’t have to support higher gold prices. They recently have, but today was a bit different and it is worth noting.
Given that gold’s Stochastic Study embedded today, gold remains locked in its bull trend. As long as Stochastics stay embedded, gold may try to hug its Bollinger Band Top.
If and when Gold loses its embedded Stochastics reading, a retreat in prices should occur at the same time. That retreat’s initial objective will be the 18-Day Moving Average of Closes, which is currently at 1023.4. This number will most likely move higher over given the slope of the rally that is taking place.
Trade Recommendations
My expectation hasn’t changed. I still expect a late October buying opportunity. Chasing prices is not something I recommend, regardless of the outcome.
Right now, I am out of the gold market, waiting for an opportunity to get long.
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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 The Ira Epstein Division of The Linn Group, Inc or The Linn Group, 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.
-- Posted Thursday, 15 October 2009 | Digg This Article
| Source: GoldSeek.com
