Ira Epstein's Weekly Metal Report

Germany is about to announce that it is repatriating some of the gold held on Germany’s behalf in the US, London and Paris. This might cause other countries to do the same given that Venezuela did the same thing last year.

The reason Germany had gold in America goes back to the “Cold War” times having to do with East and West Germany when West Germany was fearful of an invasion by East Germany. To protect it gold holding’s, West Germany moved its gold assets abroad. Today that reasoning doesn’t make sense so they are taking most of their gold back.

I think there is a bit more behind this than meets the eye since it leaves me wondering why they’re asking for their gold back now.

What’s been working against gold is lack of worry about the Euro and Iran. What’s been working for gold is the “drama” of American politics. We have debt ceiling and mandatory spending cut issues that have taken center stage. If current history is an indicator, which in politics I think it is, there will most likely not be a solution to this until the 12^th hour. Look for declaration of potential disaster by the President, the Secretary of the Treasury and the Federal Reserve over lack of movement on compromise in weeks ahead. This should act as a prop for gold prices.

Seeing South African gold production down year on year 32% only enhances the bullish case for the supply issue of gold as unrest remains between miners and mine owners as seen in via the recent surge in platinum prices. Further threats to supply should be supportive to gold.

The problem gold faces is that economic growth, though at times sputtering, doesn’t look to be shrinking on a worldwide basis. If anything expansion is taking place and as it does so, investors move into stocks, not precious metals.

I expect that some of these dates will move around a bit, by I doubt by very much. Treasury Secretary Geithner has said that the US will run out of funds in late February or March, which means to me that the March 27, 2013 date above will likely move forward in time a bit.

Financial turmoil is often perceived by the markets as a prop for gold prices. Given that the market expects more turmoil as Congress and the President butt heads on spending cut issues it logical to assume that the Republicans are using the debt ceiling issue as a lever to try to get President Obama to agree to more spending cuts than the President’s proposal calls for.

Politics and politicians are messy. No matter how hard you work at figuring them out, you’ll often find politicians cleverer than you think. The Republicans let the economy go over the so called “financial cliff” on purpose so that they could vote to lower taxes, not raise them. Had they voted prior to the US going over the cliff, they would have been voting for a tax increase. Once higher taxes became law, they voted to lower them. Clever? Yes, it was a smart political move as the Republicans knew they had lost a number of tax issues but by stalling, and ultimately letting the economy go over the financial cliff, they were able to vote to lower taxes for the good of the mass. Of course we the public were the losers as we shouldn’t have ever been put in a position to go through this political nonsense, but hey, we voted these guys in.

I expect within the next few weeks at most to see more headlines about the US not being able to pay its bills in late March and for rating agencies to continue threats to US credit ratings as the battle over spending cuts drags on.

I also expect to see downside pressure on the Dollar, which normally acts as another prop to hold gold prices up, as I don’t see the US abandoning bond purchases anytime soon.

The 5 and 15 year historical pattern shown on the Seaonal Chart above points to more upside pressure. This chart uses the chart pattern for April Gold, which will be very close to performance of the February Gold contract and offers us a bit more time to study the chart pattern.

If gold prices were to follow its historica pattern, there should be an upside bias. I cannot tell you the exact reason why, but historically that’s what occurred. Given the politics at work in the US, it’s likely going to deal with spending cuts and debt ceiling issues.

The current trend is up, as you’ll soon see, the trend is getting a bit overbought on the Daily Chart. The Weekly Chart remains in a downtrend, with the Monthly Chart being in an uptrend. Both are displayed later in this report.

The chart pattern on the Monthly Chart above remains in an overall bullish mode. What you’re seeing is a chart pattern of higher highs and higher lows. I’ve labeled the lows, not the highs with arrows in order to keep the chart picture simple. The highs and lows are determined by the Swingline Study, the black line connecting each months “bar” with the next. In my December 6^th report I said that the 18-Month Moving Average of Closes comes in is at 1680.8, which is where I thought support might come in. As you can see, the Monthly Moving Average has since moved up to 1682.5 with prices trading for the past two months on either side of this number, but not far from it.

As long as 1554.4, the most recent Swingline Low is not broken, prices remain overall bullish. I’d like to see prices close over the 18-Month Moving Average of Closes, but whether or not they do, as long as prices stay close to this average, I think the trend stays up.

If prices in February can exceed whatever January’s high turns out to be, the Swingline low would move up to January’s low. This would become a very important number going forward as the chart setup could later in February or March setup an important top if prices were to drop under January’s low, assuming the low doesn’t get under 1554.4 now.

The chart picture on the Weekly Chart is very different than that of the Monthly Chart. It is in the bear camp.

Momentum as displayed by the Swingline Study which labels previous highs and lows, is one of a lower highs but higher lower lows. I’ve labeled the Lower Highs with a red arrow on the charts. This is the opposite of what is seen on the Monthly Chart.

Another negative on the Weekly Chart is that prices are trading well under the 18-Week Moving Average of Closes, 1711.4.

Prices are correcting from an oversold condition according to the Slow Stochastic Study. The “D” number remains at 26.21 which is under 30. A reading under 30 is what I call being oversold.

I’ve drawn some chart lines shown as dashed lines on the chart. You can see that support comes in near 1650 and prices are now trading against the downtrend line.

This chart needs to get over 1695.4 in order to give me hope further gains are forthcoming…soon.

Those who get my Twice Daily Updates know that I told my subscribers to take some profit on the gold long positions I recently recommended, Part of the reason for this had to do with resistance seen on this chart as well as where the Slow Stochastic reading comes in on the Daily Chart.

The overall above chart pattern is bullsi8h, but quickly approaching overbought territory, which occurs when the “K” line get over 70, which occurred today. An overbought condition can resolve itself in one of two ways. Market prices either breakdown, which often turns the Slow Stochastic reading down or…prices embed. Embedding occurs when both the K and D lines, the red or brown lines go over and stay over a reading under 30 for several days. Since only the K line has a reading of over 30 at this point, this condition is called overbought. If both were to get and stay over 30 for several days, the situation would change and become a condition I call “embedded”. If this occurs I get very Bullish until this reading is lost.

Current support is down at 1665.2, the 18-Day Moving Average of Closes. It would take a move under 1631.1, the most recent Swingline Low on this chart to negate the current chart pattern of higher highs and higher lows.

I read a report by Thomson Reuters today concerning their analyst’s ideas on gold prices. The following quote pretty well summed up what I think is near term important. "Although there is now growing speculation around the structure and longevity of the Fed's QE program, policies of ultra-low interest rates across the western economies will persist in 2013. This will continue to support investor interest in gold in the absence of low risk investments that can offer acceptable yields".

My thoughts are similar, except I remain bullish stock indices and don’t expect stock indices to exert a lot of downside pressure unless the US government gets to a point where it doesn’t act to reach a compromise between Democrats and Republicans, leaving our economy held hostage.

I’ve recently read a number of gold reports concerning predictions on what 2013 holds for gold prices. The vast number of the reports I’ve read don’t expect sharply higher gold prices in 2013. Most of the predictions seem to be centering on prices trading no higher than the mid to high 1800’s. I keep seeing an average price guesses centering on $1750 for 2013.

While this is all nice as far as the academics of price predictions go, as a trader you have to take the market either a day or week at a time. Beyond that you’re probably not trading, you’re investing.

Until prices take out 1653.3, the uptrend looks intact but overbought. Support is down at 1667.1.

Subscribers to my Twice Daily Updates remain 50% long, having reduced their long position against the 1680 level for a profit. To become as subscriber, simply clicking below or copying this link:

http://www.iraepstein.com/client-non-client.html

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.


	LIVE Gold Prices $ \| E-Mail Subscriptions \| Update GoldSeek \| GoldSeek Radio