-- Posted Thursday, 17 December 2009 | | Source: GoldSeek.com
De-Link! Yep, that’s what it looks like it’s going to take for gold to resume its uptrend.
The March Dollar Index bottomed out near 74.50 and is currently running up, breaking through the 78.00 level. As the Dollar rallies, gold is losing value.
The relationship between gold and the Dollar Index is pretty evident. It is an inverse relationship. When this relationship de-links, I expect gold to resume its uptrend.
Right now gold is in the process of testing prior support levels. In the process gold has lost approximately 10% of its value. Overall, I still expect the $1075 to $1125 zone to be prove very important to price action.
Take a look at how current price action is fairing in relation to the past price momentum on the 35 and 15-Year Seasonal Chart shown below courtesy of “The Moore Research Center”. I’ve labeled where I think prices currently are in terms of time and momentum.
You can view information about the services of The Moore Research Center by going to their website at: http://www.mrci.com/
Seasonal charts are little more than a roadmap of past price momentum, a way to “see” past price pressures. As such 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.
Today is December 17th, about mid-month and the time frame from where gold prices have historically displayed a low point in terms of lost momentum.
The current washout may be setting the stage for a rally into month’s end. I have serious doubts that new highs can be made, but a recovery of importance may occur if the seasonal momentum gains traction.
As mentioned above, I believe the Dollar and Gold have an inverse relationship. Look below to see the relationship.
It’s pretty clear that right now, the inverse relationship between the Dollar Index and Gold remains intact and has not yet begun to de-link.
Right now the most important indicator I am watching is the Slow Stochastic Study, displayed as SSTO on the bottom of the above gold chart. As you can see, both the K and D lines, shown as red and green lines, make up this indicator. Both have had a reading under 20 for the past three days. This means that Stochastics are “embedded”, which implies that as prices fall, the downtrend is actually getting stronger.
I realize that most investors I speak with want to be buyer, not sellers of gold. For those the key as I see it is for the red line of the Stochastic Study to get back and close over the 20 level. This often takes place after prices either move sideways for a while or via a sharp spike higher in price action. Neither has yet occurred.
I believe that even numbers such as $1100 often tend to act as support or resistance points. Prices tested $1100 an ounce today and have so far, held well.
Another important support price comes from the Bollinger Band Study. The Bollinger Band Study is an algorithm. I have displayed it on the chart below as two black lines, one being the top band and the other being the bottom band.
My interpretation of the use of them is as follows. When prices hit the bottom band, which at the time writing this report is 1090.7 I expect to see short covering or new buying appear. I teach in my trading course that if a trader is short, they are to cover at least part of their short position on the first test of this band.
As you can see on the above chart, tests of the Bollinger Band Bottom since August 2009 have produced price reversals. I’ll be watching very closely to see if this pattern continues or not.
Last week I mentioned that in the short term, damage to gold price action had taken place. It certainly has given the 10% price correction that has taken place since all time highs were made.
Longer term I expect the current price break to eventually being looked upon as a buying opportunity. However, when trading you have to be pragmatic. The current short term, the trend is down.
Last week I wrote that I was expecting gold to form a low around December 15th. Today’s break obviously has put this timing in question, but it would not surprise me to see prices reach an apex low any day now.
I had recommended the buying the February Gold 1200 versus 1200 Call Spread much too soon several weeks ago. The good news is that I recommended establishing only 50% of the normal size position, because I was concerned about an eventual price correction. On the correction I was hopping to recommend buying the rest of the position.
To date I haven’t recommended adding to this position or getting out of what I recommended. I am watching very closely to see where a bottom forms.
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 “take” on the gold market. 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 Thursday, 17 December 2009 | Digg This Article
| Source: GoldSeek.com
