-- Posted Friday, 7 October 2011 | | Disqus
Europe is finally providing the markets with the appearance that they are getting more serious about addressing their sovereign debt issues. More and more it looks like they are following what the US did. If my memory serves me right, Secretary of Treasury Geithner was in Europe a few weeks back and had offered specifics on how the US handled our banking issues. The EU appears to be implementing a plan along the lines he discussed. In essence the plan involves as I understand it that of building a firewall around Greece while injecting funds into banks as/and where needed, well before a public decision on how or whether Greece is going to get its next round of financing. If the EU can show they can contain Greek debt issues without contagion spreading, that would go a long way in changing market psychology towards Spain and Italy. On the other hand, it might open a whole new can of worms.
Today the ECB announced that it has restarted “Buying and Refinancing Programs” which means they’re going back to buying bonds which is meant to stave off a credit crunch in the euro zone. At approximately the same time as this was announced, The Bank of England announced an expanded bond buying program designed to prop up their stagnant U.K. economy. Both of these programs amount to quantitative easing programs that in my opinion should ultimately provide gold with a “bid”, as both debase their respective currency prices in the end. The Eurocurrency did rally off this announcement today, but I suspect it’s more of a relief rally than anything else.
There are scheduled meetings this weekend between EU members. In addition there is a scheduled meeting of euro zone finance ministers reported to take place on Oct. 13, as well as the G-20 finance ministers/central bankers meeting scheduled for Oct. 14-15. Expectations are for these meetings to produce something positive. If not, Greece will not be able to pay its bills.
Yesterday the EU has also announced another round of bank stress tests. So many EU bank stress tests in this short span of time implies to me one thing, the EU wants to be sure that a write down of Greek debt won’t provide economic shocks that the EU isn’t prepared for. In other words, I think the EU, IMF and ECB have come full circle with the ECB being forced to accept that private investors, the banks, are going to have to write down some amount of the Greek debt they are holding. How much of a write down remains the question. I have read about the percentage being between 21% down to 50%. 50% might be too rich, but who knows.
US economic data appears to have flattened out. That isn’t good, but it’s not as bad as if it were getting worse.
Now that the gold market has washed itself out by dropping from $1923 down to $1535, what next? One of the things I look for is what happens in “bull years”. From July 31 to December 31st, cash gold has the following history.
Past history is but a good tool on its own.
· 2001 + 2.8%
· 2002 + 7.9%
· 2003 + 18.0%
· 2004 + 10.1%
· 2005 + 20.0%
· 2006 + 2.8%
· 2007 + 26.2%
· 2008 - 5.0%
· 2009 + 15.7%
I do not preach using past historical performance without use of other fundamental and/or technical analysis. What I found in my research was that from the close of business on July 31st through the close of trading on December 31st, gold often closed higher. I did not look at peaks or valleys trying to take advantage of market swings. I simply looked at close to close and therefore think that the current retracement back to the July 31st close offers an area to get long at.
Those that subscribe to my Twice Daily Updates should have already done so and taken a 50% profit of approximately $1000 on 50% of their position. I have recommended that subscribers hold onto their remaining position, with the intent of having them sell a higher Call Option against the one they one holding.
Past history shows that on a historical basis, gold often rallies into year end.
Each individual “green” bar on the above chart represents one day’s trading session. In “red” I have plotted the 18-Day Moving Average of Closing Prices and in “brown” is the Swingline Study.
The Slow Stochastic Study is displayed on the bottom graph between dashed lines between a ratio of 80 and 20.
The current chart pattern has the Swingline Study pointing up but prices trading under the 18-Day Moving Average of Closing Prices, 1705.4. This creates a neutral market.
The 18-Day Average will fall a bit each day so it will soon drop down near the last Swingline High of 1681.5. If prices can close over both the last Swingline High and this moving average the technical picture would become bullish.
Gold continues to have uncertainty about Europe, continued quantitative easing not only by the USA, but now by the EU and England going in its favor. These elements provide a background for gold as a store of value.
Gold is developing a new price plateau. There’s been a lot of sideways action with volatility coming out of the market.
Prices fell from $1923 down to $1535. That is not going to be the new trading range. My guess is that $1535 will hold up in the near term and that the market is trying to get up to a price level from which prices will set back from and in the process, develop a tighter trading range.
When prices fell and broke to $1535, the 1800 Call was swing by hundreds of Dollars in minutes. That volatility is gone and with it those type of price swings, at least for the time being.
Sooner rather than later a joint announcement by the EU, IMF and ECB concerning Greece is going too released and will impact the market. I don’t think the impact will be bullish, but you just never know. I would be wrong if a “shock and awe” campaign similar to what the US did a while back was unleashed in Europe. That type of strategy might knock gold down, but I don’t see that happening. Rather, I see more of a drawn out melody that is bullish for gold.
Those long the 1800 Gold Call per my recommendation are about even on the position they are holding and have already taken half the original position off for a profit of approximately $1000. I intend on making recommendations again in gold futures very soon as well, so keep up with my Twice Daily
In my Twice Daily Updates, available through subscription you can keep up with my thinking and specific entry, stop and profit objectives.
By clicking here you will be taken to my subscription page or you can go to:
www.iraepstein.com and look on the left hand side of the page for the link.
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 Friday, 7 October 2011 | Digg This Article
| Source: GoldSeek.com
