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-- Posted Thursday, 10 February 2011 | | Source: GoldSeek.com
China surprised the financial markets by raising interest rates on Tuesday. They raised the exchange rate for the Yuan by a fraction today. The rate hike had long been anticipated, but having it occur on the Lunar Holiday seemed to have surprised the market. The net result was that the Dollar broke off this news while the Eurocurrency rallied. Gold surged in early trade on Tuesday and spent most of Wednesday going consolidation those gains. I don’t see gold having a seasonal trend to work off in February. India’s wedding season is close at hand which often create demand. However, as prices are remain within striking distance of gold’s all-time high, wedding demand may be somewhat muted due to high prices. The Egyptian situation probably helped gold hold the $1310 an ounce level. However, the Egyptian situation didn’t provide gold with the impetus to move back to challenge its contract high because oil supplies were not threatened. I see silver as being definitively stronger in terms of chart action than gold, but silver has reached up to my near term objective. The press continues to reminding us that there is talk amongst some dissenting Fed members saying that the QE2 program has worked and that the Fed should start thinking about raising interest rates. In listening to Chairman Bernanke’s question and answer period today, I came away thinking that their calls are falling on deaf ear because net job growth as reported last week came in lower than was forecast. Without job growth, I think the Fed Chairman will hold the course and do whatever is necessary to implement programs to create jobs, at the expense of inflation. As medium to longer term interest rates climb, which they have and continue to do, the cost of borrowing is increasing. Same with mortgage rates which doesn’t bode well for the home building industry. What bodes well for gold is inflation. Food inflation is at hand. Energy inflation is here. In fact most commodities have or are experiencing inflationary pressure. As world economies expand and improve, increased demand for commodity markets at least in theory increases to a point price curtails demand. I think where commodity prices are rallying to search where demand is get somewhat curtailed is going on now. J.P. Morgan announced yesterday that it is officially accepting gold as collateral for loans. Guess this means gold has moved into the mainstream, but in fact it already has a role of being put up as collateral. This announcement simply solidified what many of us have known. Gold is liquid, easy to buy, sell and store. So seeing J.P. Morgan accept gold as collateral, while nice, isn’t earth shattering news to me.
Below is a Seasonal Chart of Gold prices produced and provided by Moore Research Center, Inc., (www.mrci.com). I’ve been writing about gold’s historical tendencies for a long time.
For those of you that wish to learn more about seasonal historical studies, visit the Moore Research Center and sign up for their 14-day free trial. As I wrote in my last Gold Report, the break in “early” January had a history of occurring in years that were deemed “bullish years”. That took place. Since January prices have rallied into early February, but until March, past history hasn’t show much to get excited about concerning upside moves. History doesn’t always repeat or dictate things, but it’s useful to see that January and February don’t often see much in the way of upside.
Below is a Daily Chart of the April Gold contract. Each individual bar on the chart represents one day of trading. In “red” I have plotted the 18-Day Moving Average of Closing Prices, in “dark blue” the Swingline Study and the “black dashed line” is the Bollinger Band Study. The Swingline Study is shown as a “brown” line. The Swingline Study on the daily chart just recently turned bullish, formulating a chart pattern of “higher highs and higher lows”.
While prices have moved up in early February and are trading over the 18-Day Moving Average of Closes, displayed on the above chart as a red line with a value of 1346.3, price momentum has also become overbought. It would not surprise me to see prices top out against the Bollinger Band Top and find support on breaks against the 18-Day Moving Average of Closes. The slope of this moving average is not positive, it is pointing down. I interpret this to mean that support on price breaks is also moving down and will stay that way until the slope turns up.
There are times when I think a Weekly Chart has an advantage over a Daily Chart. In this case, this longer term chart shows prices remaining under the 18-Week Moving Average of Closing Prices. When prices are under this average, rallies up to it are considered by me to be rallies into a resistance point. Therefore, the Weekly Chart is in contrast to the Daily Chart. One is not supporting the other. This is not the ideal way that shorter term and medium term work together. They should be in synch and aren’t. Simply put, I don’t yet see anything yet on this chart that looks or infers that a resumption of the uptrend is at hand. Rather, a testing of the 1368 resistance level seems to be what is taking place and should it give way, lower prices may ensue resulting in a test of 1321, the Bollinger Band Bottom. Momentum via the Slow Stochastic indicator (SSTO) reading is pointing sideways and has not begun to turn up. In my last Gold Report, here’s part of what I wrote. “As I mentioned in past reports I think gold moves in approximate $25 increments. I see no reason to change that thinking. The $1350 level is of key importance to me and should it give way, a move down to $1325 would not surprise me.” In the Weekly Chart section I mentioned that a move down to the $1304 level would not surprise me. Prices did get down to 1307.7, which was pretty close to 1304. This week has seen China raise its benchmark interest rates by .25 basis points and the pegged value of the Yuan. The idea behind the rate increase is to raise borrowing costs enough to curtail demand for goods. I expect this to be somewhat successful, but how much remains to be seen given that economists I follow are still calling for 8% growth of China’s economy this year. Some things like food depend on availability of new supply. Australia has been hit by a series of natural disasters which has impacted wheat exports from Australia. While there are other sources of grain available to China, Egypt and so on, the cost of transportation and the like keeps working to keep commodity prices high. Today the USDA lowered ending stocks of corn which resulted in wheat and corn prices shooting sharply higher. This buys into the inflation argument for gold. Whether the current rally in gold is more than short covering remains to be seen. As a chartist, at this point in time I see the market in the very short term as being back in its uptrend. Prices however are quickly getting into overbought territory. A rally back to the $1375 level is what I hope to see. From there, I would hope for a bit of consolidation and then a resumption of the uptrend in March. If $1307 is broken, I think the chart damage would be very significant to the Bull’s near term bullish case. A pullback to the $1350 level would not surprise me and might be healthy for overall chart action. On Monday evening I recommended purchases of the 10-Ounce Gold Contract, which if you followed that recommendation, you were filled on. Subscribers, be sure to keep up with my recommendation through your twice daily updates. Futures Trading Kit and Twice Daily Updates If you haven’t received our Futures Trading Kit, you should. The Kit contains access to: Live Chart Data, Charts, Quotes, Technical Chart Studies, Videos that talk about trading techniques, money management tools, access to our Daily Market Research along with our proprietary electronic trading booklets and much more. Best of all, it’s FREE to experience Simply call to receive your of our Futures Trading Kit. It’s your FREE Trial to our market information and other trading tools. To receive this kit, discuss markets or open a trading account… Call 1-866-973-2077. We provide both client and non client subscriptions. Prices differ as clients who have a funded trading account with us pay $25 a month for a subscription while non-clients pay $50 a month. You can read more about what the subscription offers by clicking here. 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, 10 February 2011 | Digg This Article | Source: GoldSeek.com
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