-- Posted Wednesday, 25 November 2009 | | Source: GoldSeek.com
Weekly Gold Overview
I believe the key factor behind this week’s gain in gold is due to the market place coming to terms with the fact that the US Fed has no immediate plan in place to raise US interest rates, at least anytime soon.
In reading yesterday’s release of the Feds Notes from the Fed’s November 3-4th meeting, it seems that the Fed is comfortable with the orderly decline taking place in the Dollar. Our trade partners are not complaining about the decline in the Dollar, which implies to me that the Dollar’s fate is sealed in the near term. Unless the fundamental situation changes, I look for a test of lower prices, possibly a test of all time lows in the Dollar Index over time.
Seasonal Story
Let’s take a look at where prices are in relation to gold’s 35 and 15-Year Seasonal Chart. The chart below is provided by The Moore Research Center. On the chart I will label where I think prices currently are.
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/
Keep in mind that seasonal charts are but a roadmap. They provide an idea of what markets have done over different time frames. They have limitations in that the past does not guarantee what will happen in the future. In addition, different factors affect the same market over different time frames.
The Moore Research Center displays gold’s seasonal trend in two ways. They do it in over a longer term, 35-year period and a shorter term, 15-year period.
Here’s what I said last week; “the 15-year period is displayed in red and is the pattern I think gold is following, which means I don’t expect as deep a setback in momentum as that seen over the 35-year period, but I do expect a setback.”.
As it turned out, the “pullback”, if you could even call it that lasted no more than three days, November 18th through November 20th. On November 23rd prices made a new all time high and haven’t looked back.
Dollar Index versus Gold
The Dollar Index continues to slip lower. In fact in the Fed Notes of the FOMC Meeting that took place over November 3rd and 4th, the Fed reported that they had taken notice of the falling Dollar and that as long as the Dollar break remains orderly it appears that the Fed is going to stand pat for the time being.
Read the news. I don’t see much in the way of complaints surfacing about the decline in the Dollar. Do you? This is in part is due to no one in this economic environment having a reasonable way to force the US to prop up the Dollar. This will change once the market believes our economy is on better footing.
The inverse relationship between the Dollar and gold continues. To see this relationship, simply look at the chart below.
As the Dollar Index falls, gold prices are rallying. Recently I’ve seen charts of other currencies versus gold. Most of those charts look similar to this one.
Daily Gold Chart
As readers of this report and my “Twice Daily Market Updates” know, I had been hoping for a pull back in prices into mid November to purchase gold. My idea was to recommend a purchase in a February Vertical Call Spread. I am still making recommendations in a Vertical Call Spread, but this past Friday, in my Twice Daily Written Recommendation Report, I recommended purchasing February Mini Gold Futures at the market. Needless to say this has turned into a great trade given that gold is now $45 higher than where it was when I said to buy it at the market.
Let’s take a look at the February Daily Gold Chart.
Each break low, shown in red, is higher than the previous break low. Each rally high, shown in blue, is higher than the previous rally high. Higher highs and higher lows make a Bull Market.
The Slow Stochastic Study reading is embedded. To me this implies more strength ahead. It is not uncommon for the Stochastic Study to turn down before prices do, so keep a close eye on it. As long as the red line stays over 80, this study says prices are strong and getting stronger.
An important warning sign is coming from prices hitting the Bollinger Band Top today at 1188.6. As you can see, prices historically haven’t traded over the Bollinger Top for long periods of time. Prices either correct or go sideways a bit. Yes, prices can and do run along the top band. My point is they do not stay over this band for long period of times.
Summary
I continue to like the idea of purchasing Vertical Call Spreads due to the limited risk inherent in them. I have not been able to get filled at prices even remotely close to what I considered favorable, but intend on modifying my recommendations to get involved in them on some form of a price correction in gold.
In the meantime, via my Twice Daily Updates, customers who followed my Twice Daily Recommendation should be long from last Friday’s recommendation to buy gold at the market, when it was trading near $1145.50. It’s important to move stops up on this position and/or to lighten up on this current rally. Customers who follow my update should have already done so.
A lot of people will be talking in December about “banking” profits this year. This is a factor that should be paid attention to given gold’s recent vertical move up. However, I would not try to pick a top. Rather I’d use a trailing stop order on futures to take you out.
On the first “hard” break in gold, I think the use of Call Spreads should be considered. The key is going to be price and time. I have been recommending the February Gold 1200 versus 1200 Call Spread at $3.50 down to $2.50. I will be modifying this recommendation soon and will do it in my Twice Daily Update.
Twice Daily Updates
The key to keeping up with my trade recommendations are through my Twice Daily Updates. This Weekly Metal Report is designed to provide you with my current trade idea. However, what happens when my ideas change before I write my next report? That’s where my Daily Updates come into play.
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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 Wednesday, 25 November 2009 | Digg This Article
| Source: GoldSeek.com
