To give you an idea of how poorly gold is acting, when was the last time if ever you heard a country capable of launching nuclear weapons declare a state of war, threaten to use their weapons and not see gold blink?

Gold has given up the entire premium it built concerning Cyprus and isn’t even giving the Korean conflict as much as a nod. The gold bulls simply don’t have a story to hang their hat onto other than the market might getting oversold enough to pay attention to the seasonal tendency for prices to often rally at from today into late April. Given the size of the current price break, a bounce is likely, but I don’t see it producing a change in the longer term downtrend.

Inflation in the US and Europe is under 2%. Today Japan threw itself full force into the realm of the “2013 Currency War” by turning on all the spigots it can to increase inflation. “Currency War” is a label for 2013 I started using earlier this year as it’s what I think 2013 will be known by in terms of currency trade.

For the time being, gold is witnessing the movement of funds to the US Dollar. That’s been seen if you look at the rally of the Dollar Index against most other major currencies. The Eurocurrency for all practical purposes damaged its desire to be a desirable option to the Dollar as the world’s leading reserve currency. Japan just announced measure to drive its currency value lower, which leaves the Dollar in place as the world’s key reserve currency. As money moves into the Dollar, the question is where to place it. Ten Year Bonds pay around 1.8% while major stock indices have soared nearly 11% this year. Real estate has gone higher, but it’s hard to quickly get in and out of. So….it seems to me that investors who are moving funds to Dollars are probably putting Dollars to work in the stock market.

I recently wrote in my Twice Daily Report that its defensive stocks, not growth ones have been leading the way up in the stock market. This makes sense if new money in the stock market is worried about an overdue price correction.

The 5 and 15 year historical pattern shown on the Seaonal Chart above points to a rally attempt. This chart uses the chart pattern for June Gold.

Because of the following Monthly, Weekly and Daily Chart patterns, I think the best to hope for is a selling opportunity if prices either rally or simply start trading sideways.

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 Swingline chart pattern on the Monthly Chart once again confirmed that this chart remains locked in a bear trend. Yesterday’s break took prices under the previous break low of 1555.2. This confirmed again a pattern of lower highs and lower lows. I’ve labeled the highs and lows with arrows to help you see them.

Prices are also trading under the 18-Month Moving Average of Closes, adding further confirmation of this being a bearish chart pattern.

Until prices get over 1616.5, the most recent Swingline High, the trend remains down and 1521.4, the Bollinger Band Bottom remains al downside target on this chart.

Two weeks ago, the trading week ending on March 22^nd, we saw gold make a high of 1616.5. That high exceeded the previous high of 1615.2 which at that point changed the chart pattern from bearish to neutral as far as the Swingline pattern goes. I thought at that time that gold might try to challenge its 18-Week Moving Average of Closes, 1649.9. It did not.

One the most important aspects I teach is that when a market is under its 18-“Time Length” of Moving Average of Closes, it is not in a buying condition. I don’t care if you’re dealing with a Tick, Daily, Weekly, Monthly or whatever kind of chart. Its one thing to respect a change in the Swingline chart pattern and lift a short position, but it’s a completely different thing to buy long under this moving average as far as I am concerned. I teach how I arrive at this in my trading course, Ira Epstein’s Charting Course. (http://www.iraepstein.com/education.html)

To me the most important things on this chart are the breakout of prices under the lower Bollinger Band and the Swingline Study confirming a chart pattern of lower highs and lower lows. The Swingline is the dark line that I’ve labeled with arrows showing the highs and lows. As of the time of my writing this report, prices are in their second day of staying under the lower band. In addition, the bands have begun the widening out process. Neither of these events are bullish.

A major tenant of the theory behind Bollinger Bands is that market prices won’t stay under or above the bands more than 5% of the time. However, what I’ve learned is that the narrower the bands initially get, combined with the length of time prices go sideways in a tight band formation,  the stronger the ultimate move when prices ultimately break out of the narrow band formation to widen the bands. That’s what’s going on now.

The Slow Stochastic Reading is oversold at this time. Prices in fact haven’t yet entered what I term a locked in pattern, one of “embedding” this reading which implies to me that a rally off the lows will soon develop, getting prices back over the Bollinger Band Bottom. Depending on where the Slow Stochastic reading is when this occurs will determine for me if the market where the market is a short sale.

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, 4 April 2013 | Digg This Article