Gold bulls have gotten beat up, but not due to lack of news that you would have thought would have attracted investors to gold.

We’ve just seen witnessed a sea of change in Europe with a change in the French Presidency to one where a socialist was voted in. The Greek elections have resulted in a change of government this is so fractured that a coalition government hasn’t been yet been able to be formed and if one is, it’s likely to be so weak that it won’t last long.

There “talking heads” are of the opinion once Greece forms a coalition government, that government will renege on what the austerity and budget programs the previous government agreed to. That would likely mean that Greece leaves the EU well before hundreds of billions of Euros are thrown away trying to support a country that doesn’t want measures forced on it.

Just yesterday a round of financing was given to Greece in order for Greece to pay its debts. However, wisely over EUR 1 billion was held back from the amount Greece was to get. The problem the EU faces is that Greece hasn’t reneged on anything yet. But it doesn’t take a genius to realize that the people of Greece don’t want to live up to what the previous government agreed to. It’s very unpopular among the Greeks. My opinion is that they want to go back to how things use to be and are willing to leave the EU and the debt they owe behind them in order to do so.

OPEC has been talking down the price of oil. It’s actually more than talk as Saudi Arabia has made up lost production from Iran.

Spain is nationalizing its fourth largest bank.  Spanish interest rates yesterday went over 6%, the number that many have touted as being too high for Spain to pay without damaging its economy.

So, short of a shooting war with Iran, who is suddenly out of the news and being quiet, gold hasn’t responded by rallying to any of the above news. Therefore you have to wonder what will cause gold to rally.

About the only thing left that hasn’t been recently occurred is a coordinated stimulus. We’ve seen coordinated bank bailouts that caused gold to rally, but things are such that that isn’t needed right now.

The chart below is published with permission of the Moore Research Center, Inc.

For simplicity purposes, I have only published what a Bull Year looks like given that there’s no reason to yet consider a Bear Year in my opinion.

There are numerous seasonal patterns that gold can follow. The 5, 15 and 30-year are the most popular. However, it looks to me like the 30-year is what is being followed right now and that means that even lower prices, after a short covering rally are on the horizon.

The Monthly chart pattern above is neutral to bearish as the Swingline Study continues to make lower highs (red arrows) and lower lows (yellow arrow). My guess is that if the market continues to work lower, it will find initial support against the 18-Month Moving Average of Closes, 1593.7. In my last report I said exactly the same thing but at that time the 18-Month Moving Average of Closes 1580.9. What has occurred is that prices have moved lower and the moving average moved about $13 higher.

Now that the two have met, due to gold dropping nearly from the end of April nearly $67, it would not surprise me to see prices try to hold or bounce a bit. What I don’t see on this chart is a change of trend coming anytime soon since to take out the last Swingline High, prices would have to get over 1790.4.

What is more likely is to get a bounce from this level that ultimately follows the 30-year seasonal pattern and sees even lower prices in the June-July time frame.

The Weekly Chart today hit one of its major downside objectives, the Bollinger Band Bottom of 1579.4. Given the oversold condition of the Slow Stochastic Study I think this is where some shorts will take money off the table and wait for a rally to sell into again.

Prices are in a classic Bear formation, one of lower highs, lower lows with prices under the 18-Week Moving Average of Closes.  However, Slow Stochastics are not embedded, which means to me that prices are oversold and ripe for a short covering rally.

It would take a rally over 1672.3 to negate the current Swingline Pattern. The 18-Week Moving Average of Closes remains higher at 1679.3 than the last rally high, but that number will drop given this week’s range down. Look for strong resistance near the 1670-1680 level based on this chart. Keep in mind that prices don’t have to rally that high. Since the chart pattern is bearish, asking for a $100 an ounce rally seems unlikely so it’s more of a question to me where lower resistance shows up.

When I look at this chart I see two things instantly jump out. First, prices are trading at or slightly under the Bollinger Band Bottom, which I have circled for you to see. The odds of prices staying under the Bollinger Band Bottom are very small. Prices can track the band lower, but its highly doubtful prices will stay under it.

The second thing I notice is that the Slow Stochastic Study reading is oversold. Slow Stochastics are comprised of two numbers. One is called “K” and the other is “D” The K number is 18.54 as seen on the bottom far left corner of this chart. The D number is 27.99. When either number is under 30, I term the chart action as being oversold. When both numbers are under 20 for several consecutive days the momentum of this study locks in or as I call it, it “embeds”. The study is not embedded so therefore it is oversold.

Resistance is back up near the 18-Day Moving Average of Closes, the “red” line on the chart which has a current value of 1639.5. The odds favor that should prices rally to this point, it would find resistance at this level and that the Slow Stochastic Study would probably lose its oversold condition. As long as 1644 were not taken out, I’d stay bearish.

Another possibility is that prices don’t rally very much. Rather, they track the Bollinger Band Bottom lower. If that were to occur the Slow Stochastic Study would most likely embed, with both the K and D lines getting under 20. That would be very bearish.

All of the above charts continue to look bearish.

I think you’d agree that at least so far, news of sovereign debt issues in Europe, change of heads of governments in Europe and no news about Iran have not moved gold higher.

When news that you’d normally consider to be bullish doesn’t create bullish price action, than other factors are obviously at work. In this case, it’s the chart action and choices investors are making. Investors are or have moved into Bonds, Notes, the Dollar, Yen and at times stock indices. They are not driving gold or silver prices up.

I think the 30-year seasonal is now influencing prices more than the 5 or 15-year seasonal studies I often show in this report. If I am right, after a short covering rally, another price break is in store.

I believe in trading the market swings. Ultimately I think gold ends up sharply higher, but not now nor necessarily this summer.  Therefore I think opportunity lies on the short side of the market.

At this time I think short sales are warranted against the 1640 price level. I don’t want to see prices get over 1644. If they did I would recommend not being short. I will cover my trade recommendations in much more detail with specific entry, stop and profit objectives in my twice daily market updates.

You are invited to subscribe to my twice daily updates by going to www.iraepstein.com   You will see on the right hand side, Oral and Written Subscription Page.

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 Thursday, 10 May 2012 | Digg This Article