Ira Epstein's Weekly Metal Report

China continues to report growth. In the US we’re quick to point out that China has slowed down, which from double digit growth they have. But do you honestly think that’s the case given these numbers.

The European Summit is taking place today and tomorrow. It’s doubtful that Spain is going to ask for help at this point due to upcoming elections in Spain. That doesn’t mean they won’t do so soon. It’s as I see it a question of when, not “if”, given that over 10% of Spanish debt held by banks is labeled non-performing.

The European Summit will also be listening to a plea by Greece for two more years of time to stretch out the implementation of their austerity measures. I think this request is likely to be given with conditions of oversight and targets that Greece will initially agree to. In this way if Greece misses targets, Greece can go back, explain why and until everyone gets fed up, continue on.

Another major issue is a banking union in Europe. Think of it as something akin to our Federal Reserve in terms of overseeing states in the US. The problem will be independent European States giving up their autonomy and fear by them that this is a veiled move to give Germany more control over their independence.

What few realize is that gold is up approximately 12% for the year. That’s not bad as investments go and in terms of the Euro, it’s up more.

On July 26^th of this year December Gold Futures closed at 1619.8. Last year I wrote about the tendency in past years of gold closing at or above the July 26^th price.

According to a report issued last year by USAGOLD (www.usagold.com) and updated this year by me using their data from the end of July to the end of December, the following gains and losses have been recorded since 2001.

If you average all the years together, you arrive at a past average gain percentage rate of return of 10.17%. This can be interpreted to mean that gold, gaining so far this year approximately 9% is trading very close to its average yearly gain of 10.17%. This could be a factor in explaining why gold is having trouble moving higher from the $1745 level.

Another factor has been that gold really didn’t respond all that well to news headlines as they came out predicting the collapse of the EU and world demonetization of currencies via the numerous quantitative and rescue plans that many government have put in place over the past 9-months. Yes, gold gained on this news but why should it rally further on without a new catalyst.

I don’t see the US Presidential election being the catalyst. The markets know the two candidates and either way it goes, there’s nothing that’s going to take the market by surprise.

The European Union is trying to stabilize things, not destabilize them. If Greece were to be denied the funds it desperately needs before the end of November to avoid declaring bankruptcy or if Spain doesn’t ask for funding and its interest rates were to soar because of that and Spain still didn’t ask for help, it’s probable that these events could send gold sharply higher.

Other catalysts that would be bullish for gold consist of Israel attacking Iran, Iran attacking Israel, or Iran blocking passage through the Straits of Hormuz.

The seasonal time for a bottom is past. Prices have followed the historical trend above and just need to close in the December Gold Futures over 1614.6, close on July 31, 2012 to have a winning year.

In my last Gold Report I wrote; ”I have been looking for the 1775-1800 range to be the first resistance point.” I did go on to say that more gains might be seen by year end. I’m still of that opinion, but not as certain as I was when I first said it. Read the Monthly Chart and especailly the Weekly Chart Comments below to see why.

The above Monthly Chart pattern remains in a solid bullish mode. The chart pattern is one of higher highs and higher lows, taking place about the 18-Month Moving Average of Closing Prices.

Even if prices were to roll down to 1661.6, the 18-Month Moving Average of Closes, I would anticipate that support on the first test of that level would hold. If prices close over this moving average at year-end, the year would end up with a gain from the July 26^th date mentioned above.

I’ve displayed the Swingline Study on the above chart since it shows a classic pattern of a market making higher lows and higher highs. I’ve labeled the lows with a “red” arrow and the highs with a “blue” arrow. Keep in mind that prices are trading over the 18-Month Moving Average of Closing Prices. This formation is the definition of a Bull trend. The definition is broken down into a chart pattern of higher highs and higher lows taking place over the 18-Month Moving Average of Closes, without the Slow Stochastic Study being in an overbought condition.

What I don’t want to see is prices take out the most recent Swingline Low of 1554.4. If that were taken out the chart pattern of higher highs and higher lows would be broken and prices would be under the 18-Month Moving Average of Closes. That would end this bullish chart pattern and setup a potentially bearish one.

Therefore, longer term traders that are bullish have a number that should not be broken if the end of the year seasonal move to the upside is to gain traction. I think this very important.

First, the Swingline Study has turned down, which means the chart pattern has a higher high of 1794.8 and now a lower low of 1729.9. This is no longer a bull pattern at this week’s low the most recent Swingline Low.

Prices are trading over the 18-Week Moving Average of Closes, which is a positive signal.

Second, the Slow Stochastic reading has maintained its bullish embedded Slow Stochastic reading since both the “K” and “D” number that make up the study have stayed over a reading of 80. Until the “K” number, currently at 83.84 closes under 80, the Slow Stochastic indicator remains very bullish and in my opinion, overrides the importance of the Swingline turning down.

If this reading closes under 80, the odds change in favor on this price of seeing prices fall and the moving average rise until the two meet.

The setup on this chart is markedly different from that of the Monthly and Weekly Gold Charts.

The Swingline Study is bearish as the pattern is one of lower highs and lower lows.

Current prices are trading under the 18-Day Moving Average of Closes, which confirms the bearish Swingline reading and implies that rallies until the most recent Swingline high of 1755 is taken out, are likely to be sold.

If the chart is going to neutralize the downtrend, it will start by taking out a previous high, which at this time is 1755.00.

It’s been sometime since I’ve recommended anything new in gold.

While I expect prices to end the year higher than prices were on July 26^th and therefore to end 2012 higher on the year, at this point there’s little reason to do anything because the Daily Chart is bearish, the Weekly Chart is still hanging in a bullish mode that might be lost with a weak weekly close but a bullish Monthly Chart.

Little in the way of the three charts are backing each other up. The Weekly Chart could easily lose its bullish embedded Slow Stochastic reading if prices were to close the week near or at new lows, which if they occur have to occur tomorrow.

Until the picture clears up, neither a long nor short position is warranted.

The Daily Chart is very oversold. If the Slow Stochastic reading were to bearishly embed, which would take nearly a full week to do, I would get bearish. Without this occurring, there’s as much chance for a price reversal up as there is for prices to continue to break.

There’s nothing to do based on this scenario, but when there is I will try my best to alert all on my Daily Reports of it.

You can subscribe to by going to www.iraepstein.com , where you will see on the right hand side, Oral and Written Subscription Page. Simply click on and become a subscriber.

I might consider option positions as well as futures if gold turns up. What I don’t know is the story that will prompt a market turn, but as a market technician, I really don’t care what it is.

I try to do at least two updates a day, sometimes more so entry and exit points can and often do change with market conditions. Trades are also covered in my Webinars which I regularly record. In these Webinars review not only metals, but all the major commodity markets I follow. This means stock indices, currencies, interest rates, livestock, grains, softs and energy markets.

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.


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