Gold continues working its way higher off of a number of factors. Rising commodity prices, a continued accommodative United States monetary policy, uncertainty concerning the financial health of peripheral Eurozone countries, an accommodative policy Bank of Japan policy for banks impacted by the earthquake along with continued unrest in the Middle East and Africa. There are more items, but the point is that there is plenty of bullish information that has created a market psychology that remains bullish on almost everything.

The bulls think that in terms of price, the sky is the limit. Until prices reverse, they are right given that prices are at an all-time high and given the world environment, until there are reasons for top, higher prices seem to be in order.

Silver has taken over the role as the precious metal market leader in large part because it provides a less expensive way to play precious metals than gold does. $40 ounce silver is cheaper than $1460 an ounce gold.

If you look at the Commodity Research Bureau Index (CRB) you will see that prices in commodity markets continue to press higher as a group. My belief is that there are simply more people in emerging countries who can now afford commodities and that addition has more people chasing the same amount of product. Grain prices are a good example of this with corn at an all-time high.

I think it proper to assume that the European Central Bank is embarking on a program of gradually raising interest rates over a long period of time. This is not a one-off event. If I am correct, until the US joins the interest rate hike party, the Dollar will remain as a currency, relatively weak to the Eurocurrency. Given that gold is priced in Dollars, one train of thought is that the lower the Dollar goes the stronger the price of gold.

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.

In my last report, on March 16^th, I was disappointed with all that was going on in the Middle East, Africa, Portugal, Greece, Ireland and Spain. I also mentioned that March was typically not a bullish month in terms of gold price history. As it turned out, the most recent low was made the day before I wrote my report and prices are now over March’s high. Therefore, past history wasn’t of use. It wasn’t totally wrong as prices in gold did drop from high to low $60. All that loss has now been regained and the historical pattern favors more upside if you agree as I do that gold is following the 17-year bull pattern on the above chart.

Below is a Daily Chart of the April Gold contract.

Each individual “green” bar on the chart represents one day’s trading session, except the last bar which represents trading through the time I captured the image.

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.

Start off by looking at the bottom, SSTO (Slow Stochastic) reading. It is in overbought territory. If this study is to embed, lock in or whatever you want to term it, the red and brown lines must develop sideways action over an 80 reading for the 3-days in a row. This is either in the process of taking place and needs another two days to complete or the market may correct to the downside preventing this from occurring.

I’ve labeled the Bollinger Band Top and Bottom. As prices are challenging the top, this is a resistance point. The odds of prices staying over this algorithm are but 2.5%. However what is bullish is prices staying just under and tapping the prices regularly.

The Swingline Study is one of making higher highs and higher lows, over the red line, the 18-Day Moving Average of Closing Prices.

This is bullish chart action, that is about to decide if being overbought transitions into a bull trend that embeds and gets stronger or if the overbought condition warrants a pullback in prices.

Let’s assume prices correct. Support looks solid at the 18-Day Moving Average of Closing Prices. Given the historical charts bull year tendencies, I like the idea of buying on breaks, not buying against the Bollinger Top.

In my last report I said; “I see key support coming in at the 18-Week Moving Average of Closing Prices, currently displayed as 1380.1. Clearly the Daily and Weekly Charts are not in synch with each other, as the Weekly Chart is still in an uptrend and the Daily Chart is in a downtrend. The Daily Chart however is oversold and the 1387.7 level is where support at the Bollinger Band Bottom comes in.”

As it turned out this analysis was right on the money. Prices fell to 1380.7, held and have gone on over the past four weeks to make new all-time highs. What’s ever better is that the Daily Chart is in sync with the Weekly Chart. The Slow Stochastic reading is pointing up and is in overbought territory. However, as long as prices continue to challenge the Bollinger Band Top the odds favor further upside movement.

Gold is acting well. It is responding to currency and inflation threats. It wasn’t doing to in March.

I don’t recommend buying against a Bollinger Band Top, but see no reason not to be buying on price breaks. Historically speaking between now and the end of 2011, much higher prices look to be the order of the day.

I will make specific recommendations as to where to enter in my Twice Daily Market Recommendation Report.

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 covering all the markets I cover with twice daily updates to them. I rarely put out specific recommendation in this Gold Report since it’s easier to use my Twice Daily Updates than this report which is limited to but once a week.

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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, 7 April 2011 | Digg This Article