There hasn’t been much new to report since my last metal report at the end of April.
We’re now at the point of having to adjust to the eventuality of the Fed stopping its QE programs. Don’t think this won’t happen, it will. The question is when and that’s a very big unknown. Given that one of the Fed’s key guides is unemployment which is running near 7.5% and that the Fed has a target of closer to 6.5% for this number, I don’t think there’s need to be concerned about waking up any morning soon to see that the Fed has changed course.
Inflation is not a factor, so the printing of money isn’t yet producing inflation as measured by the Fed. War scares from the Middle East and North Korea haven’t moved gold up.ETF holdings of gold are shrinking. Major market pundits have publically announced their divestment from their gold holdings. The economy is getting slowly better, but it’s a very slow, uneven process. The stock market has siphoned off funds from markets like gold. Europe has just begun the process of reversing its outlook on austerity, which will probably result in Europe giving more time to countries like Italy, Spain and Greece to get there house’s in order, which takes away some currency fears.
None of the above offers the rationale to think a bull market will develop anytime soon in gold.
At best the Gold market will most likely develop a trading range, one with downside bias. At worst, the market might break down towards the $1000-1200 on ounce level.
Look at long term interest rates. They’re climbing. Some have climbed nearly basis points on this latest move. It appears that the “big boys” are gradually pricing in that long term rates have seen their lows. The Fed does influence interest rates, but they are doing that with short term, not long term yields, which keep a lid on inflation pressures, as inflation is measured on a short term basis.
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.
Seasonal Gold Chart
Monthly Gold Chart
Prices are both oversold as the Slow Stochastic Study (SSTO) shows and are under their Bollinger Band Bottom. Monthly charts are nice to look at but hard to trade off of given that each bar on the chart takes into account one month of time. That month could represent over $100 an ounce when the market it moving. The past April gold had over a $250 an ounce price move from high to low.
Therefore, I recommend using this type of chart as a reference point or filter on your shorter term ideas, not something to trade off.
Daily Chart
The above Daily Chart of June Gold shows a market making lower highs and lower lows. The arrows show the highs and lows as determined by the Swingline Study which is available on our charting software.
In its most simplistic definition, a Bear Trend takes place when lower highs and lower lows are taking place. By that definition we’ve been in a Bear Market since the high of 1487.2.
The idea behind the Bollinger Bands is that prices will trade with them 95% of the time and that they provide theoretical support and resistance points. As you can see from recent price action, prices were under the lower Bollinger Band and have just popped up over it. All this did was put the chart in balance with the Bollinger Band and keep chart action bearish as it relieved the need for prices to try to get back to the right hand side of the band as they’re now over the lower Bollinger Band.
Prices are oversold according to the Slow Stochastic (SSTO) reading, meaning this is not a condition you sell fresh into.
Summary
As you can see from my analysis, I am not in the bull camp. Yes there will be rallies from time to time, but given the seasonality of gold along with current chart action, I have no reason to change my bearish stance.
The hardest thing for investors to do is to step back. Cover the name of the chart you’re looking at because by doing so, you take away what you “think”. Thinking has caused how many people to try to be short the stock market and long gold as the printing presses around the world are running full speed, war threats against us heat up and terrorist action against the US is taking place.
If you pointed out all this and crude oil trading near $100 a barrel, you’d be hard pressed to be bearish. The problem for those that “think” is that’s been the trend for nearly 3-years.
Until the chart action changes, the bear side is the way to play this market. Today’s high is of importance in being bearish, as I don’t think it should be taken out in the near term. If it is taken out, it would probably mark whatever low occurs before it’s taken out as a trading bottom, not a major trend change.
Gold is retesting the area of its last low, 1321.7. How successful this test is remains to be seen, but I doubt that all those people that ran out and caused gold to run out at places that sell gold coins and bars will end up successfully having picked the market bottom. They did cause a point at which we know value was uncovered, so I do respect the $1320 level, but not enough to mean much.
Resistance on rallies should be seen in the June contract at 1394.2. Getting over 1413.3 probably signals a short term low has been seen.
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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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