-- Posted Thursday, 29 October 2009 | | Source: GoldSeek.com
Seasonal Story
I’d like to begin this report, as I usually do, by taking a look at where I think prices currently are in relation to gold’s 35 and 15-Year Seasonal Chart. The chart below is provided by The Moore Research Center. The labeling as to where I think prices are is via my own analysis.
You are invited to view information about the many services The Moore Research Center provides by going to their website at: http://www/mrci.com
I use Seasonal Charts to get a “perspective” of where prices are in terms of historical momentum and whether or not current price patterns are following historical ones.
I believe gold’s current price action is in synch with both its 35 and 15-year historical pattern.
Daily Gold Chart
Last week I started this Metal Report by saying: “Gold is consolidating. Because of gold’s seasonal tendency to break in the second half of October, the odds favor that prices will try to probe lower over the next 10 days or so. How low prices go is the question. Because I remain bearish the Dollar and bullish gold, I have decided to use current market weakness to put on some Gold Call Spreads.”
Not a bad call given the break in gold prices. Yes, the Dollar is rallying, but longer term I don’t think the rally to be more than short covering. It’s possible that the rally has created a trading bottom, but so far I don’t see evidence of it on the longer term charts. The shorter term Daily Chart has seen the trend turn up. Not the Weekly or Monthly charts…yet in my opinion.
Gold is experiencing a controlled price break. There hasn’t been panic liquidation. At the time of this writing, prices are down approximately $38 per ounce from the December Contracts all time high of $1072. This represents about a 3.5% decline. Small in overall terms.
Prices appear headed down to the $1025 price level, which is currently where the Bollinger Band Bottom support comes in. Tonight this level will move up once prices open the for Thursday evening trade. This price level is also the top of a previous consolidation zone, which I’ve labeled using “aqua lines” on the chart below to make seeing what I mean easier for you.
Those that have been following me know that I believe that gold is moving in price increments of $25. These increments can expand if the market doesn’t pause on breaks or rallies, but I am comfortable with this approximation.
Whether or not gold stays tied to Dollar movements as keenly as it recently has remains to be seen. This relationship can change. In fact over a short time it would not be a surprise to grab onto a number of themes other than the value of the Dollar. We’ve already seen the influence of stock market swings on gold. Coming is inflation, how other commodity prices are doing and a stumbling real estate market. At its core, gold is considered a “safe haven” investment and as such, its value moves with the “mood” of the day.
Last week I pointed out that I was bothered by seeing the Stochastic Study stay embedded without seeing a price advance. In looking back, this observation was a good one and provided a warning sign. As Stochastics lost their “embedded” status, a break in prices followed. With the $38 break in prices that has taken place, the Stochastic Study has become oversold, which I interpret to mean that prices are or have entered a value area.
Below is a Line Chart of the Dollar Index versus Gold made using LGP-IraCharts. Gold’s scale is on the right side of the chart and the Dollar Index’s on the left side.
The relationship between Gold and Silver seems pretty evident. Look at where prices intersected on the above chart. The intersection was in early September. Since that time the Dollar and Gold have been in what I term a stronger than normal, inverse relationship.
When will this end? I have no idea. What’s important is recognizing that this is gong on and being on the lookout for when it eventually ends. Until it ends, the relationship remains in play and bears paying attention to it.
Trade Recommendations
Last week I made a trade recommendation that in hindsight, proved to be early. My recommendation was to buy a Call Spread which involved the simultaneous purchase of the December Gold 1090 Call with the sale of the December Gold 1100 Call. The recommendation was to enter the trade a difference of $2.00.
Those who followed this recommendation should have been filled. Your risk is the cost of the spread, $200, plus commissions.
Because I think gold is approaching its support zone and because there are still 26 days left to option expiration, I prefer you wait and see how gold reacts at the top of the $1025 price zone level. Keep in mind that gold has displayed a strong seasonal tendency to bounce in the past 13 of 15 years at the beginning of November.
This Call Spread closed today at $1.00.
I will update what I want you to do in my Twice Daily Updates. As of right now I am content in recommending you stay with this position.
Ira’s Twice Daily Updates
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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, 29 October 2009 | Digg This Article
| Source: GoldSeek.com
