-- Posted Friday, 11 December 2009 | | Source: GoldSeek.com
History allows us to look back in time and analyze events. In looking back, I think it evident that something changed on November 27th when Dubai World announced it needed more time to repay its debt. Instead of gold rallying off this news, it fell. In fact intraday it fell $60 an ounce. The “normal” reaction to this announcement should have been a rally, not a price break, which in looking back was a major warning sign that a price correction or trend change was overdue.
February Gold Futures went on to “fool” traders by moving up 4-days later to an all time high of 1227.50, which was approximately $90 an ounce higher than the low of November 27th.
When you look at the charts below, you will see that February Gold Futures topped out on December 3rd at 1227.50. So far gold so far has fallen back to $1117.00, over a hundred Dollars an ounce lower from that top which equates to an approximate 9% correction.
During a similar period of time, the US Dollar has moved higher. The March Dollar Index’s most recent low was made on December 2nd at 74.75. To date this index has seen a high of 76.66, made on December 9th which equates to an approximate 2.5% rally.
As you’ll also see below, Gold and the Dollar Index continue to move inverse to each other. This relationship can change, but right now they’re not.
Take a look at where prices are in relation to the past momentum on the 35 and 15-Year Seasonal Chart, which has been provided by The Moore Research Center. I’ve labeled where I think prices currently are in terms of momentum.
You can 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.
Dollar Index versus Gold
As mentioned above, the Dollar and Gold are having an inverse relationship. Let’s see what this looks like on a chart that displays the March Dollar Index and the February Gold Futures.
It’s evident to me that overall, the inverse relationship between the Dollar Index and Gold remains in place. Yes it sometimes breaks away for brief period of time.
Two weeks ago was when I wrote my last Metal Report. A lot has occurred since than.
Let’s take a look at the February Daily Gold Chart.
The bottom of the Bollinger Band Study currently comes in at 1108.2. It is the bold black line on the above chart. Should gold prices continue down, this is where I would expect to see short covering and possibly aggressive bottom picking emerge.
The most recent rally high as measured by my Swingline Study was 1170.2.
I interpret the current chart pattern this way. In order for the uptrend to resume, gold needs to close over 1170.2. If the Swingline Study chart pattern, displayed as the “brown” line above has its apex moves down from 1170.2 to a lower number, that new number even if taken out may not be high enough to turn the short term trend back up. It might be a sign that the downtrend has been negated, but it probably won’t be enough to turn gold’s trend back up. 1170.2 looks to me like the “key” to this.
Gold has been a disappointment. It did not respond to the downgrading of Greece and Spain’s credit ratings. Once disappointment sets in it doesn’t change in an instant. Nor is the impact of gold losing $100 an ounce immediately forgotten.
Gold is clearly no longer on a “one-way street”. After weeks of rallying, it lost its luster.
Before much more occurs in terms of gold coming “alive” I think it needs to do some base building. In other words it needs to see swings up and down, which it really hasn’t been doing since this price break set in.
From a longer term point of view, I don’t see anything serious having taken place to alter gold from ultimately going much higher. In the short term however, damage has been done.
As I wrote two weeks ago, I like the February Gold 1200 versus 1200 Call Spread. I recommended entering it too soon, but did say to only put on 50% of the normal size position as I was counting a price break. I did not think prices were going to break down as much as they did, but if I am correct, buying another 50% when the time warrants will result a fairly low overall entry point.
I expect a low to form in gold around the 15th of December.
Whether I’m right or not remains to be seen. If it occurs, it most likely will signal a trading bottom is in place…for the short term. If the market closes over $1170.20 I think a test of the all time high is likely.
So….what I will try to do is catch the trading bottom by adding more call spreads. When and where will be in my Twice Daily Update.
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. My Twice Daily Updates are included for 30-Days in The Futures Trading Kit.
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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 Friday, 11 December 2009 | Digg This Article
| Source: GoldSeek.com
