I have again included in this report charts displayed in terms of the end of July through year end, from 2001 through 2010 in this report. The reason has to do with my belief that after reviewing the FOMC Announcement today, there doesn’t appear to be major change soon forthcoming in terms of the US interest rate policy. QE2 was announced to be ending, but given that the Fed acknowledged that the US economy remains sluggish, the Fed kept the door open to do whatever they need to do, without signaling what that may be. The Fed said that inflation is expected to be at or below their target rate and that the decline in unemployment is not improving at the rate the Fed had hoped for. Given this, why would the Fed soon change the interest rate policy? Housing hasn’t yet improved nor employment. This leaves me with the impression that the last thing the Fed needs to do at this point in time is change its interest rate policy. That puts the US Dollar at a disadvantage compared with foreign economies that have either risen or are about to be raising their interest rates.

Keep in mind that the market is as a whole in “summer doldrums”. That doesn’t mean that volatility won’t continue, it will. However, market participation may change as many Americans are already on or taking their vacations, whether mental or physical. Europeans traditionally take summer vacations in late July and August, which when combined with American vacation time can lead to market spurts, stutters and stops.

As we get a bit further into summer, it’s not uncommon for gold to start picking up in upside momentum. This has been especially true in years that gold had been acting bullish. It’s hard not to define 2011 as a bullish year given that a new all-time has been seen this year and that prices are still trading only $30 an ounce away from that high.

Let’s take a look at the June-July time frame charts as provided by and used with the permission of USAGOLD (www.usagold.com)                                                                                           

Expect for 2008, gold has historically displayed a strong seasonal tendency to move higher once the June-July time frame has passed. This is only late June, so prices could easily setback at any time given gold’s recent spurt higher, especially given where prices are in term of some technical indicators which I discuss in detail below in the Daily Chart Review.  It’s important to keep in mind that no matter how compelling the above charts are, past performance is not necessarily or for that matter always an indicator of future performance. It isn’t. It’s simply another trading tool.

Another near term supportive factor for gold is the upcoming Greek austerity vote which is due to be voted on next week. CDS rates, which are a form of insurance that protects the lender in case of loan default, even after the vote of confidence in Greece’s government remains extremely high. The vote did little to impact this number in a positive manner.  

US interest rates have not rallied in a long time. In fact, they’ve fallen. Interest rates paid on deposits kept in US banks in US Dollars remain well under what most other developed countries pay on deposits that are kept in their banks.

Gold is priced in US Dollars, so a weak Dollar generally speaking provides gold with support. I don’t see the Dollar collapsing or rallying very much right until we get to next week’s Greek vote. A positive outcome of that vote will most likely be a non-event to the financial markets. A failure of that vote, which would mean no funds from the IMF to bailout Greece, would be in my opinion a major market force.   

Below is a Daily Chart of the June 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.

The Slow Stochastic Study is displayed on the bottom graph between dashed lines of 80 and 20.

The Swingline Study, displayed as a brown line on the above chart, is one of the tools I use in defining what I think the current trend is. You can find out much more about this in my Charting Course and you can activate this study in the Subscription area of my IraChart Software.

Today prices hit the Bollinger Band Top, backed off by the close and the Slow Stochastic Study (SST)) has become overbought.

Those that get and follow my Twice Daily Trade Recommendations went long this market near 1538 just recently and per my instructions took 50% profit yesterday, in front of the Greek Confidence Vote. The reason for my instructing my subscribers to not get out today against the Bollinger Band Top was to see how gold reacted to today’s FOMC Announcement and Fed Chairman Bernanke’s live press conference.

My hope was for prices to push the Bollinger Band Top up. It didn’t as prices did back off after the press conference.

It’s too soon to know if the Slow Stochastic Study will convert from being overbought to become embedded.

Therefore, what I end up seeing right now is a chart in a bullish, but overbought chart pattern. Prices could easily pullback, looking for support at the 18-Day Moving Average of Closing Prices, 1537. As long as prices don’t get under 1522, I see the chart pattern as staying bullish, but overbought.

I remain medium and longer-term very bullish. Seeing $1600 an ounce plus is my expectation. Obviously there needs to be a catalyst for this to occur.

Possibly it will be Greece. As I mentioned above, seeing Greek President George Papandreou survive a confidence vote in parliament last night is one thing, but getting a highly unpopular budget cut and asset sale package passed may prove to be quite another thing.

I see support near 1537 and resistance right here. If prices can push the Bollinger Band Top higher and get the Slow Stochastic Study to embed, a test of contract highs could quickly develop.

For those long via my recommendation, look to my Twice Daily Market Recommendations to see how this position is handled. If you’re not a subscriber, you might wish to consider doing so by clicking here.

http://www.iraepstein.com

If you’d like more information about trading gold, simply call us at 1-877-973-2077.

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 Wednesday, 22 June 2011 | Digg This Article