-- Posted Thursday, 18 February 2010 | | Source: GoldSeek.com
The IMF announced yesterday that it was going to sell 191.3 tons of gold in both open and off-market transactions. This was not a total surprise announcement as the IMF has been fairly clear about its desire to rid itself of its gold holdings.
Traders at first put a bearish spin on this announcement, causing gold prices to drop from its current high rather sharply yesterday. The fact that the IMF did not announce sales to a government like it did with India and Sir Lanka was initially taken as a bearish development as no large purchaser has yet stepped forward. However prices today have been stable and that could put a bullish spin to things since once this gold is sold, it will remove 191 tons of supply from the market place.
US economic data released over the past week looked great with one key exception. Jobs! Simply put job creation is very lacking which puts into question the ability of the economic recovery to gain momentum. Yes, the US economic data that’s been released this month has been good for corporations. However, not good enough to translate so far into job growth. Increased productivity has gone to corporate bottom lines, but has helped in keeping corporations from hiring new people. At some point you can only squeeze X amount of productivity out of the market. If demand holds up, eventually job growth will be seen and hopefully, that is what will soon occur.
In terms of chart patterns, gold had a most interesting week as you’ll read below. Both the Weekly and Daily Charts have their respective trends in synch now. The trend is up.
The Seasonal Gold Chart shown above was provided and created by the Moore Research Center, Inc. On the top graph are three lines. The magenta line represents the most recent 30-year pattern. The black line represents the most recent 15-year pattern. The red line represents the most recent 5-year pattern.
The bottom graph represents a smoothed price projection of what prices have looked like in past Bull and Bear Market scenarios.
From a historical perspective, February hasn’t been the best time of year to get bullish.
Most important to me is whether gold is about to shift its pattern from that of following the 30-year pattern to that of tracking its 5 or 15-year pattern. Even more important is whether or not gold is about to leave its Bear Pattern and follow its Bull Pattern.
I don’t have the answer.
What’s changed since last week? It’s this. Instead of gold trading under its 18-Day Moving of Closes, it is now trading over it. Prices have run up to resistance provided by the Bollinger Band Top and the Slow Stochastic Study slope is up.
Therefore, I would define this chart as now being in an uptrend that is overbought. Support is back near the $1092.6 level and what I don’t want to see is prices get back under $1078.1.
Below is a Weekly Gold Chart. Each individual bar on the chart represents one week of trading. In “red” I have plotted the 18-Week Moving Average of Closes and in “black”, the Swingline Study.
Due to this week’s rally over $1124.9, the Swingline Study has in place a higher high. This is the first step in creating an uptrend. It would be nice to see the next break low not take out $1061.6.
Given that prices are over the 18-Week Moving Average of Closes and the Swingline Study is pointing up, when I combine this chart with the Daily Chart of April Gold, I see that a bullish trend has taken hold.
The question seasonal followers of trends as I am are looking at is what trek prices take in terms of the seasonal study and whether or not prices rally enough in March to believe that the market has switched gears and is following on the seasonal chart the Bullish Trend Pattern.
The Slow Stochastic Study on the Daily Chart of April Gold is overbought. Support comes in near $1100.00. The last break low is down to $1078, which implies to me a risk in buying even at $1100 of at least $22 an ounce. Too much risk to take on in my opinion.
I have switched and now have a short term and long term upside bias due to the chart action on the Weekly and Daily Gold Charts.
I will be looking for an opportunity to recommend long positions to you after prices either consolidate their current gains or pullback and trade closer to the $1100 level. If prices were to pull back to the $1100 level quickly, I wouldn’t see much to do as I want to see a bit of consolidation at that price level.
The interesting part will be what the Stochastic Study does. It either corrects and becomes no longer overbought or transforms to an embedded state. Should it transform, that might cause me to issue a buy recommendation at an even higher price level.
Either way, I find myself looking at the bull side of gold now.
The key to keeping up with my trade recommendations is through my Twice Daily Updates and my oral 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. Chart data is courtesy of LGP-IraCharts. 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 not indicative of future performance.
-- Posted Thursday, 18 February 2010 | Digg This Article | Source: GoldSeek.com