-- Posted Thursday, 8 April 2010 | | Source: GoldSeek.com
Greece continues to dominate news headlines by letting it be known how unhappy they are concerning the interest they have to pay to issue new debt in the open market. As I see it, Greece was hoping that the dialogue that took place at the last EU summit would be enough to keep the debt markets at bay in terms of what the marketplace would command, as compared to the Bund rate, that Greece would have to pay to float new debt. The market has answered and it is not pretty nor is this problem going to quickly go away considering how much near term debt Greece has coming due by the end of May. Greece’s issues look large enough to cause investor dumping of the Euro, buying of gold, crude oil and the Dollar.
While this is going on China appears to be readying its domestic market for a rise in the Yuan’s peg rate to the Dollar. I read some stories today about a possible 2.3% rise in the Yuan. While this rate isn’t yet confirmed, it is being reported that China raising the rate they are paying on new debt. If the central bank raises rates high enough, that rate attracts bank capital which in turn cuts off the availability of funds available by banks to private business. In this way, China can control some of the money flow in its economy.
Secretary Geithner announced a delay in the results of a report the Treasury has completed that could potentially label China as a currency manipulator. But a few days ago, the President of China announced he would be coming to the US to discuss the Iranian nuclear issue. That tabled the label of being a “currency manipulator” that this report would most likely label China with. In return, maybe China is going to change its stance on sanctions against Iran. I think a lot of discussion is taking place concerning give and take on the Iranian issue in trade for China saving face and dealing with the Yuan’s value at a pace they deem acceptable. It seem highly unlikely that the US would do anything to embarrass the Chinese President in the same manner Israel embarrassed Vice President Biden on his visit to Israel. My guess from what I am reading is that China will move to raise the value of its Yuan very soon and that China will avoid being labeled a currency manipulator.
As you will see on the chart below, the trend on the Weekly June Gold Chart has turned up. In fact the next upside objective may be this year’s high of 1164.1.
The current move up in gold has put the Daily and Weekly Gold Charts in synch. Both are now in uptrends.
At you’ll see on the weekly chart below, once 1133.9 was broken the chart pattern changed. The current chart pattern is now one of a “higher high” and a “lower low”. I do not yet deem this a full fledged bull pattern which I define as “higher highs” and “higher lows”. Rather, it is what I term a “megaphone chart pattern” because that what it looks like. Another way to describe the pattern is to say that the market is now looking to see how high it can go before a correction takes place. As long as the corrective break does not break through the most recent low of 1084.8, an uptrend should ensue.
Stochastics are in an oversold condition with the ‘K” reading of the Slow Stochastic having a reading of 71.45.
Below is a Weekly Gold Chart. Each individual bar on the chart represents one week of trading. In “red” I have plotted the 18-Day Moving Average of Closing Prices and in “black”, the Swingline Study.
Let’s analyze this chart.
First, the Swingline Study has a chart pattern of both a higher high and a higher low. This is my definition of a bullish chart pattern. Second prices are trading over the 18-Day Moving Average of Closes, which again I term as bullish. Third the Stochastic reading is overbought.
In my opinion the Daily Gold Chart ended its downtrend when prices rallied over 1109.1, which I’ve labeled with an X on the above chart. From there prices rose and traded against the 18-Day Moving Average of Closes for several days before moving up to the Bollinger Band Top over the past few days.
The Slow Stochastic Study is now overbought with readings of 92.1 and 76.26.
The odds of prices staying over the Top Bollinger Band, which is currently at 1145.00, are not great given that the Bollinger Band algorithm is based on statistics that call for prices to trade within Bollinger Bands 95% of the time. That does not mean you get bearish when prices are over the top band. Getting over this band is not abnormal. Rather, I teach that when prices are over the top band that you use that as a filter that says not to add or buy new positions until prices get back under the top band. Against the top band long positions, according to the way I teach trading, should be lightened up.
Support is down at the 18-Day Moving Average of Closes, 1114.7. This number will move higher given that the last 5 trading sessions have had higher closes than this average. It’s how the mathematics that comprise this moving average of closing prices work.
Dollar versus Gold Prices
For the first time in a while, gold and the Dollar are moving in unison to the upside. I think this is due to investors not wanting to own EU currency. In fact I think this “thinking” is also part of the reason for Crude Oil’s rally.
In my last metal report a couple of weeks ago, I was bearish. The good news is that due to Dollar risk on the chart pattern, I did not recommend a short position in my Twice Daily Update. Now the trend is up and once again you have to consider the Dollar risk, but this time from the purchase side of the market.
I view support as coming in near $1115 an ounce. This number will move up and probably get close to the low $1120’s by my next Weekly Metal Report. Stochastics are overbought but could turn from overbought to embedded. Should that occur, a move up and through $1200 an ounce would not be a surprise. But let’s not get ahead of ourselves.
Since prices are over the Bollinger Band Top, the next target is the most recent high of $1164.1. Risk at this time is down to 1102.3 since that is the most recent low on the Daily June Gold Chart.
I expect to see prices soon correct or at least go sideways. Once that occurs and I see what the Slow Stochastic Study does, I will be prepared to make a recommendation. That recommendation will be issued in my Twice Daily Update.
The key to keeping up with my trade recommendations is through my Twice Daily Written and Oral Updates. That is where I put out specific trade recommendations.
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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, 8 April 2010 | Digg This Article
| Source: GoldSeek.com
