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Ira Epstein's Weekly Metal Report

-- Posted Thursday, 31 January 2013 | | Disqus



Israel kicked up the ante in the Mideast with an attack on Syrian soil Wednesday. In doing so I suspect that Israel calculated that Syria has its hands full at home and that Iran, with upcoming elections will threaten Israel, but not do much else. Israel has made it crystal clear that it will not allow Syria stockpiles of gas and weaponry to move to Israel’s enemies. Some like me think Israel is also looking for way to draw Iran into a conflict whereby Israel will be looked at as defending itself from Iran, not be the Iranian attacker.


The Israeli attack had an impact on gold of hours, not days. Gold moved higher yesterday on the combination of the Israeli attack and the Fed Announcement, but gave back much of those gains by day’s end and is lower this morning.


This brings to light whether gold is a “risk on or risk off” asset play.


At time is seems it is and at other times it isn’t. What it is in my opinion is an alternate asset play. What has recently moved gold the most are the currency wars now taking place. In terms of Yen, gold has soared as the Yen has fallen. My prediction is that Brazil and the UK will join the Japanese and Swiss if finding way to peg or lower the values of their currencies this year. 


In my office I’ve already labeled this year as the year of “Currency Wars”. The good news is that as currencies move lower, it typical for commodity prices to move higher. The “trick” is trying to figure out what commodities versus what currency.


Below is an article I received this morning from the NYSE Liffe US.  I have asked the exchange to provide articles for publication, which I will share with you from time to time.






Gold’s Role in Risk On/Risk Off

Thoughts from Jennifer Ropiak, Senior Vice President, NYSE Liffe US Precious Metals Derivatives, including 33.2 oz. mini Gold Futures (YG) and 1,000 oz. mini Silver Futures (YI)


Risk on/risk off became a widely known concept following the start of the economic crisis in 2008 in the US, when not only correlated but also non-correlated asset prices trended in the same direction based on investor fear levels following breaking news. Risk on/Risk off is a common explanation for price action during the (ongoing) European sovereign debt crisis as well.


Does gold belong in the risk on or the risk off bucket? As a commodity, gold could be categorized as a risk on asset since commodities tend to perform well when the economy is strong. Gold also outperforms in a low interest rate environment like many stocks, junk bonds, and real estate, which are all risk on assets. Yet gold is known for portfolio insurance, providing safe haven benefits, and offering hedges against inflation, currency debasement, and event risk. That, many would say, would put gold squarely into the risk off category that is mainly comprised of high quality government bonds, where many invest when the economy is weak.


What is gold’s role in risk on/risk off? For a particular market movement, gold could take on either a risk on or risk off role. However, based on research done at HSBC and discussed by Jim Steel at the ETF Securities Conference late last year, over the long term, gold is neither a risk on nor a risk off asset. That is to say, although during a particular short or medium term market movement gold could fall into one or the other category, HSBC’s historical analysis shows that over the long haul there is little relationship between gold prices and swings in risk appetite.


Jennifer Ropiak can be reached at and 212-656-5145.


The views expressed in this article do not necessarily represent the views of NYLUS Liffe U.S. and the contents of this article should not be considered investment advice or the results of actual market experience. Neither Jennifer nor NYSE Liffe U.S. make any claims as to the profitability of trading futures and direct interested persons to discuss the relative benefits of futures trading with an appropriately licensed broker or advisor.


Seasonal Charts




If you look at the 5-year pattern above, it seems to me that April Gold is following it. That doesn’t mean it has to continue to do so, but I think it is. An attack by Israel had no lasting impact, as canl be seen on the Daily Chart below. Apart from that, I don’t see reason to get longer term bullish until the end of March, assuming you strictly pay attention to seasonal trends, which is not what I do. I blend a lot of chart action and indicators together, using seasonal trends as one that I watch.


The current break in has in the past lead to upward movement topping out in February and working into a late March low. After that sideway to higher overall action over takes place into early summer.


Whether or not this year follows this price map remains to be seen, but at least you have an idea of how the 5 and 15-year patterns have been playing out. I don’t go back much more in time since the way the markets are traded has changed so greatly during this time period.


Monthly Chart




The Monthly Gold Chart is fighting to maintain its longer term uptrend as it has rallied back to its 18-Month Moving Average of Closes, 1681.4. The moving average is colored in red.


The chart pattern remains one of higher highs and higher lows. I’ve labeled the recent lows as blue arrows pointing up. As long as 1554.4, the most recent Swingline Low is not broken, the chart pattern remains overall bullish. I say remains since a close under the 18-Week Moving Average is a sign of weakness, but not bearishness. Just weakness is a market trying to stay in an uptrend.


If prices in February can exceed whatever January’s high is, which is currently 1697.8, the Swingline low would move up to January’s low, currently 1626.0.


This is an important setup as the Swingline Low would move up $75 an ounce if January’s high is taken out. This event has two consequences. First, it the new low at 1626 were formed and not taken out, it potentially sets up the spring low. On the other hand, if the 1626 low is formed and prices break through it, lower prices would be ahead with resistance forming against the 18-Month Moving Average of Closes.


Therefore, what February pricing does is very important as far as the Monthly Chart is concerned. I think it can set market direction.


Weekly Chart




The chart picture on the Weekly Chart is very different than that of the Monthly Chart as it is without trend.


Momentum as displayed by the Swingline Study which labels previous highs and lows is one of a higher highs and higher lows. Normally this is chart pattern is bullish.  


Another negative on the Weekly Chart is that prices are trading well under the 18-Week Moving Average of Closes, 1699.2. This is not a good sign for those looking to get bullish given how far away it is.


Daily Chart




I see this chart pattern as bearish. The Swingline study, displayed as the Brown Line on the above chart has a pattern of lower highs and lower lows taking place with prices staying under the 18-Day Moving Average of Closes.


The Slow Stochastic reading is not in oversold territory which I define as either the K or D lines that make the study up having at least one of the lines under 30. Therefore, sideways to lower price action is what I am looking for unless and until the most recent high, the 1685 high made just yesterday, is taken out. Therefore until 1685 is taken out, I am in the bear camp and in the Summary section will be putting out a series of trade events you might wish to consider.


Taking out 1685 without taking out 1653.2, would setup a bullish condition. Therefore you have to be fluid in your willingness to approach a trade in gold.




I think a short position is warranted against the 1673 price level. As long as prices don’t get over 1685, where I’d recommend you initially place your stop. I’d stay short looking for prices to get down to 1652-1645.

If prices were to get over 1685 and but not first under 1653.2, I think a long position would be warranted with a stop under 1653.2 and initial price objective of 1702.

In order to get to the buy signal, the sell signal would come in first. I will be keeping an eye on the Slow Stochastic reading to be sure I don’t issue a sell signal into an oversold condition. Therefore, it’s imperative to keep up with my Twice Daily Updates which are available by subscription.


To become as subscriber, simply clicking below or copying this link:



If you’d like more information about trading gold, simply call us at




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, 31 January 2013 | Digg This Article | Source:

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