-- Posted Thursday, 24 October 2013 | | Disqus
Trying to figure out gold at times is easy. Gold rallied this week as traders “woke up” and realized that the odds of the Federal Reserve raising interest rates at its upcoming FOMC meeting are to be polite, slim at best. In fact, one factor that’s probably spurring prices higher is that the odds of the Fed doing anything in the way of tapering have moved to the first quarter of 2014, if then.
We still need Ms. Yellen to take over the post as Fed Chairperson. I doubt the Fed wants to raise interest rates going into our largest retail season, Christmas. As has been the case for a longtime, the labor pool continues to shrink as the unemployment rate drops. This hasn’t fooled the Fed and no one seems at this point to be making mention that the US is getting closer to 7% unemployment.
Iranian, Egyptian, Libyan and Syrian issues did not spur gold prices on this year. If anything, gold has been and continues to be in a longer term bear market. Even strong prices being paid in India for gold, aren’t offering much of a backdrop for the world stage to take notice of due to new Indian import rules, where less supply creates higher prices.
Even threat of default by the US did not move gold higher. In fact, energy prices seemed to take on gold’s role as Congress duked it out over Obamacare, the US budget and the debt ceiling. As you know the Republican Party lost on every issue, but once a settlement on a temporary fix was agreed to, gold came to life. My guess as to why has to do with the break in the US Dollar against a basket of currencies. This story won’t be going away anytime soon as another round of budget and debt ceiling talks begin soon. Congress gave itself limited time to reach agreement, mid-January on the budget and early February to raise the debt ceiling. For now these items are out of the news headlines, but they will return and impact gold prices soon.
The one story that hasn’t played out this year has been the inflation story. As measured by Central Banks, it’s low, especially when banks take out energy prices in their equations. Inflation is one of the missing elements, maybe the most important in today’s environment. The problem for the time being is that inflation is not a headline story at this time.
Moore Reseach Enter, Inc. lists Bear Years as 1976 1994 1998 1991 1989 1990 2008 1995 2000 1992 1988 1981 1996 1983 1997 1984 1975
In looking at how Bear Years have performed in the past, it’s pretty clear that a tendency to rally in gold sets in just prior to mid-September and peters out just before the end of October. After that, an overall price break into early November and from there sideways to lower prices until just prior to year end.
As you can see on the above Monthly Line Chart, prices have been making lower highs and lower lows. Bu design I’ve lightened up is the price line on this chart and made bold the chart study called Swinglines, which are available on my charting products that my customers have access to.
Swinglines portray in a very specific manner previous highs and lows. I’ve displayed the Swingline as a dark brownish green line. As you can see, prices in 2013 have been steadily keeping in place the pattern of lower highs and lower lows.
Why people think gold just recently topped out as something I find myself correcting them on regularly. Gold peaked in 2011. On this chart it floundered around in 2011 and 2012, hitting the 18-Month Moving Average of Closes. In 2013, prices accelerated to the downside, while under this moving average. That is bearish.
The 100-Month Moving Average of Closing Prices comes in near $1081. Unless the Swingline Study changes its pattern, this remains the next downside support level.
Let’s focus on the arrows on the above weekly chart. The placement of each arrow is determined by the Swingline Study, an indicator I created to display previous highs and lows dependent on specific parameters taught in detail in my charting course. The Swingline Study connects tops and bottom in a specific manner so that you can see whether or not a market is trend and what the risk associated in keep the trend running is according to the study. Those using my charting platforms have access to this study
The Swingline Study pattern is bearish since the pattern is one of lower highs and lower lows as you view the recent arrows, right to left on the chart. The most recent week on this chart is on the far right.
When a market trades over is trading over its 18-Week Moving Average of Closes, I teach that you don’t initiate new short positions until prices get back under that moving average’s number. Therefore, this chart has and will continue to negate any new short signals, even with the Swingline in a downtrend until prices drop back under 1317.4, the current 18-Week Moving Average of Closes.
What would be very bearish would be prices trading back under this week’s low next, week, as long as next week’s high is not taken out. This scenario would create a new Sell Signal on the Weekly Chart.
Therefore, we know three important things from this chart. First the prices as they are have negated new short selling. A move over 1350.9, which as I’m writing this report just occurred, negates the bearish Swingline reading
If you’re interest has been tweaked on how I arrived at this, why not consider taking my trading course, Ira Epstein’s Charting Course. (http://www.iraepstein.com/education.html)
This week I am not covering Bollinger Bands on the Daily Gold Chart, since I do that regularly in my several times a week Webinars which subscribers to my research have access to. In addition I cover the Bollinger Bands in my Twice Daily Updates as they come into play.
Let’s follow Swinglines and Slow Stochastic momentum on this chart.
The Slow Stochastic Reading is overbought since the “K” reading is 92 and the “D” reading is 77. Both numbers have to be over 80 for several consecutive days in order to change this reading from overbought to “locked in”, which I refer to as “embedded”. Therefore, if you were to buy right now, you’d be buying into an overbought chart condition.
Another scenario would be for prices to correct now and pull the Slow Stochastic numbers under 70, an area that I deem no longer overbought. I doubt this will happen if gold is going to move higher given its seasonal tendency to rally at this time of year. More on that in a minute.
The Swingline Study is bullish, as the chart pattern is one of higher highs and higher lows. In addition the market is staying in an Up-Channel that I’ve drawn on the chart for you to see. It’s done in bold, blue dashed lines.
December Gold’s Daily Chart also has current gold pricing take place over the 18-Day Moving Average of Closes, which is bullish as well.
Therefore, the only thing missing is getting the Slow Stochastic into a position where it embeds, which could send gold flying to the upside as gold has a seasonal tendency to rally between now and November 10th according to seasonal studies performed and updated by Moore Research Center, Inc., a research firm I use when gathering seasonal data on futures market charts.
There are more reasons in the short term to be bullish than bearish.
The Daily Chart is overbought, but if the Slow Stochastic Study embeds, chart momentum to the upside should drive prices higher until the study loses it’s yet to be seen “embedded” reading.
If the Weekly Gold Chart sees prices get over 1350.9, the Swingline Study would no longer be bearish, which would add to the bullish short term gold case to rally.
The longer term Monthly Chart remains entrenched in a bearish position that I doubt will change anytime soon. Therefore, understand going in that the best to hope for is a short term bounce, not an overall change in the long term trend of gold.
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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.
-- Posted Thursday, 24 October 2013 | Digg This Article | Source: GoldSeek.com