Advertise | Bookmark | Contact Us | E-Mail List |  | Update Page | UraniumSeek.com 

Commentary : Gold Review : Markets : News Wire : Quotes : Silver : Stocks - Main Page 

 GoldSeek.com >> News >> Story  Disclaimer 
 
Latest Headlines

Gold Seeker Closing Report: Gold and Silver Gain About 1%
By: Chris Mullen, Gold Seeker Report

Northern Vertex Files Preliminary Economic Assessment Report for the Moss Gold Mine in NW Arizona
By: Northern Vertex Mining Corp.

Does The CoT Structure Prohibit A Rally?
By: Craig Hemke

Harry Dent’s Gold Prediction Invalidated
By: Przemyslaw Radomski, CFA

SELLING OUT OF PRECIOUS METALS AND BUYING BITCOIN…. Very Bad Idea
By: Steve St. Angelo

The Bitcoin Bubble Explained in 4 Charts
By: Jake Weber

VXX Sends an Awesome Message from Another Galaxy
By: Rick Ackerman

Geopolitical Risk Highest “In Four Decades” – Gold Demand in Germany and Globally to Remain Robust
By: GoldCore

Asian Metals Market Update: November-22-2017
By: Chintan Karnani, Insignia Consultants

Gold Seeker Closing Report: Gold and Silver Gain With Stocks
By: Chris Mullen, Gold Seeker Report

 
Search

GoldSeek Web

 
That Sinking Feeling….Part Three


 -- Published: Friday, 21 March 2014 | Print  | Disqus 


By: David Chapman

TECHNICAL SCOOP

CHART OF THE WEEK

Charts and commentary by David Chapman

26 Wellington Street East, Suite 900, Toronto, Ontario, M5E 1S2

Phone (416) 604-0533 or (toll free) 1-866-269-7773 , fax (416) 604-0557

david@davidchapman.com

dchapman@mgisecurities.com

www.davidchapman.com

Charts created using Omega TradeStation 2000i.  Chart data supplied by Dial Data

 

Gold is at a crossroads. No the gold chart is not “that sinking feeling” but gold has reached point where it must either break out or fail. That would turn gold into that “sinking feeling”. The bullhorn pattern is rather interesting. I first learned about the bullhorn pattern from Thirdeyeopentrades (Bob Cote). Bob has a public place at www.stockcharts.com. What the pattern is suggesting is that gold has a lot further to rise. Gold has been through a considerable shakeout over the past two plus years. It has shaken the confidence of many and the result has seen many exit the market possibly for good.

 

However, if the pattern is correct gold could rise to $3,000 to $5,000 in the next major wave to the upside. On the other hand, it could fail here and bust through the bottom of the uptrend line currently near $1,200. The 200-week exponential moving average (EMA) acted as major support during the long rise from 2001 to the top in September 2011. It busted down through the 200 WEMA in April 2013. The rise last August failed at the key EMA and this week gold prices approached the EMA once again and then pulled back. The 200-week EMA is currently at $1,389. The recent gold futures high was at $1,382.

 

Bullhorn patterns have busted before. The Dow Jones Industrials (DJI) appeared to form what may have been a bullhorn during its long bull market from 1982 to 2000. The DJI failed to reach the top channel of the bullhorn when it topped in 2000. The top channel was formed by joining the high of 1982 with the top in 1987. The bottom channel was formed connecting the 1982 low with the 1994 low. The 48-month EMA provided support during the long bull market (the 48 MEMA is roughly equivalent to the 200 WEMA). The bottom of the channel first broke down in 2001 and for good in 2002. Since then the DJI has been forming what appears as a huge broadening pattern. Currently the DJI is at the top of the broadening pattern. The bottom of the channel is currently just below 6,000.  

 

Charts created using Omega TradeStation 2000i.  Chart data supplied by Dial Data

 

If one starts with the low of 1987 it does draw a nice channel line along the 1990 low, the 1994 low and catches the 2001 low. Preference was to use the 1982 stock market low as that was the last important low before the bull market of 1982-2000. The rising trendline also marked the top in 2007. Note how the DJI did manage to break above its 48 MEMA for at least a brief period following the 2001 low. Its failure to hold the EMA was a sign that a bear market was to come.

 

Even if one wants to believe all the bearish reports on gold, gold should take out its 200 WEMA for a period similar to the DJI in 2001-2002 following the 2001 low.  A return back under the 200 WEMA would signal that gold could be entering a longer-term bear market.  Gold needs to break above the downtrend line from the 2011 top that connects with the 2012 top in order to make the final confirmation that the bull market has resumed. That point is currently around $1,640.

 

Earlier this week gold and gold stocks sold off while the stock market rebounded back to the upside following the referendum in Crimea over the weekend. Gold sold off and stocks rallied most likely because they were relieved that the sanctions placed on Russia were quite mild and that the Crimea referendum went off without a hitch and the results were as expected. During the week, there were some clashes between Ukrainian and Russian military in Crimea although it appeared to have little impact on the market.

 

The FOMC meeting this week was Janet Yellen’s first as the new Fed Chairman. Her debut was deemed a bit of a disappointment. The Fed “tapered” another $10 billion as was expected but what the market did not expect was a tilt toward potentially higher interest rates for late 2015 early 2016. This caused stocks and gold to fall, and interest rates and the US$ to rise. The week also saw a series of better than expected economic numbers that encouraged the market.

 

But the real issue remains the crisis in Ukraine/Russia. The Ukraine/Russia crisis is one that could destabilize global economies and spark a financial crisis. The likelihood of the crisis being over is probably low. The EU and the IMF are trying to find a way to assist Ukraine. Ukraine is in dire economic straights and is most likely sitting on the edge of default. Offers have been made to Ukraine but they come with strings attached. The EU is meeting with Ukraine officials to try to work out an “Association Agreement”. Loans and closer ties with the EU would come with austerity measures for Ukraine. It has been noted that retirement payments could be cut in half and gas prices could rise sharply. Austerity measures could cause considerable hardship in the country as they most likely could plunge the economy into a deep recession and potentially trigger social unrest.

 

NATO and the US have pledged security assistance to Ukraine. Ukraine is in the process of beefing up their military, which is expected to include members of the “Right Sector”. The Ukraine’s “Right Sector” are well known nationalist organizations with neo fascist views. NATO has beefed up patrols in the Balkan countries and Poland, all NATO members. The head of NATO has stated that the Crimea referendum is illegal and that Russia’s moves in the Ukraine are a “wake up call”.  According to a NY Times story NATO is weighing assistance for Ukraine in order to dissuade Russia from further moves. The US has told eastern European leaders that the missile defense plans remain. The missile defense plan was to put missiles in Poland allegedly meant to deter an attack from Iran but that Russia had believed were meant for them.

 

What all this would appear to imply is that NATO is continuing its encirclement of Russia and NATO’s hope is that Russia might back down. Worse, instead it could provoke a military response from Russia. There has been considerable unrest in Eastern Ukraine where there is a sizable Russian population. According to some polls upwards of three-quarters of the population in Eastern Ukraine, reject the Kiev government. Some fear that Russia might come to their aid. Civil war might also break out in Eastern Ukraine. Already there have been deadly clashes in Eastern Ukraine between pro-Russian and pro-Ukraine supporters.

 

It was well known following the intercept of the telephone conversation between Assistant Secretary Nuland and US Ambassador to Ukraine Pyatt that the US was coordinating and funding the unrest that resulted in the overthrow of former Ukraine Prime Minister Yanukovych. Instead of a military response, Russia could fund unrest in countries where there are sizable ethnic Russian population just as the US funded unrest in Ukraine. Latvia and Estonia come to mind where over 25% of the population are ethnic Russians. Both are NATO members. Russia has already built up a sizable contingent of troops on the borders of the Balkan countries, on the eastern borders of Ukraine and as well, they have troops in Transnistria a province in Eastern Moldova that is on the western border of Ukraine and itself contains a sizable ethnic Russian population.

 

The real danger to the global economy would be the escalation of sanctions. Thus far, the sanctions have only targeted individuals. The US has targeted 20 Russians but in a tit-for-tat Russia is also applying sanctions to a number of US officials including John McCain, Harry Reid and John Boehner. It may be a game and largely symbolic given that many (if any) have assets outside the country that can be seized. Many believe that the Russian officials have already pulled any assets out that the may be holding outside of Russia. The US officials will not be visiting Russia any time soon.  

 

The real danger lies in trade sanctions including sanctions that target the seizure of assets. Germany has considerable trade with Russia. Germany imports some 30% of its energy needs from Russia. Some believe that the west should cut off Russia energy. The EU would pay a high price, as there is no immediate solution to supply the EU its energy needs. There is not a lot of support for that option.

 

Russian/German trade totals some 80 billion. Russian/Italian trade totals roughly 40 billion and Russian/French trade totals at least 20 billion. Major German, Italian and French firms have significant investments in Russia. There are US corporations especially energy firms that also have significant investments in Russia. Any attempt to seize assets by the US and the EU could result in a seizure of western assets in Russia. The Russian Duma has already passed legislation that would allow that. Canada’s trade with Russia is small but there are Canadian firms with investments in Russia including Kinross Mining (K-TSX). US, Canadian and EU corporations have warned that sanctions could cause them serious harm and are asking their governments to move cautiously on sanctions.

 

Western banks have considerable exposure to Russian debt. It is estimated that US banks have at least $75 billion in Russian debt and EU banks upwards of $150 billion. The EU banks in particular that have already had to deal with billions of $ of bad debt in EU countries such as Greece and Spain could ill afford more defaults. It is unknown how much there is outstanding of other bonds including corporates. There is also the fear of contagion as the debt problems could spread to other countries. Just the threat of sanctions has triggered the withdrawal of billions out of western banks particularly in London. $105 billion of Treasury securities have been sold since March 1 out of the Fed’s custody account for foreigners. All the withdrawals are most likely from Russia.

 

Russia has also threatened to end use of the US$ for trade purposes or payment of energy. This could in turn put further downward pressure on the US$. While the west notes that they could put the Russian economy into bankruptcy, a default by Russia could trigger a financial crisis in the west that could be worse than that seen in 2008 at the time of the Lehman Brothers collapse. One is again reminded it was a Russian default that triggered the 1998 financial meltdown that resulted in the bankruptcy of Long Term Capital Management (LTCM) and almost caused a banking collapse. Finally, sanctions against Russia might not be supported by China. So far, China has been quite neutral. If that were the case then Russia might have a way of getting around sanctions.

 

NATO exercises on Russia’s borders, Russian troop buildup in the Balkans and along Ukraine’s border; stringent requirements from the IMF and the EU for the Ukraine to gain access to the west that could result austerity in the Ukraine and escalating social unrest; the potential for further unrest and clashes in Eastern Ukraine and even in adjoin states with sizable ethnic Russian populations; the potential for an escalation in sanctions that in a worst case scenario could result in the seizure of both Russian and Western assets or a Russian default and a financial crisis on the scale of 2008; all of these are negative signs that should give one a sinking feeling. Further, there is the ongoing dispute between China/Japan and clashes between Syria and Israel.

 

The crisis is most likely going to play itself out over a period of months. It will ebb and flow. But one thing the charts of gold and the DJI appear to suggest no matter what might happen in the short term the longer term looks potentially positive for gold and negative for stocks. Gold only looks positive to the extent that it can regain and hold above first $1,400, then $1,430 (the August 2013 high), $1,525 the major break down point in April 2013 and above $1,640. That would give us a silver lining to offset the sinking feeling.

  

                                                                                                           

Copyright 2014 All rights reserved  David Chapman

 

General disclosures

The information and opinions contained in this report were prepared by MGI Securities. MGI Securities is subsidiary of Industrial Alliance Insurance and Financial Services Inc.  Industrial Alliance is a TSX Exchange listed company and as such, MGI Securities is an affiliate of Industrial Alliance. The opinions, estimates and projections contained in this report are those of MGI Securities as of the date of this report and are subject to change without notice. MGI Securities endeavours to ensure that the contents have been compiled or derived from sources that we believe to be reliable and contain information and opinions that are accurate and complete. However, MGI Securities makes no representations or warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions contained herein and accepts no liability whatsoever for any loss arising from any use of, or reliance on, this report or its contents. Information may be available to MGI Securities that is not reflected in this report. This report is not to be construed as an offer or solicitation to buy or sell any security. The reader should not rely solely on this report in evaluating whether or not to buy or sell securities of the subject company.

 

Definitions

“Technical Strategist” means any partner, director, officer, employee or agent of MGI Securities who is held out to the public as a strategist or whose responsibilities to MGI Securities include the preparation of any written technical market report for distribution to clients or prospective clients of MGI Securities which does not include a recommendation with respect to a security.

 

 “Technical Market Report” means any written or electronic communication that MGI Securities has distributed or will distribute to its clients or the general public, which contains a strategist’s comments concerning current market technical indicators.

 

Conflicts of Interest

The technical strategist and or associates who prepared this report are compensated based upon (among other factors) the overall profitability of MGI Securities, which may include the profitability of investment banking and related services. In the normal course of its business, MGI Securities may provide financial advisory services for issuers. MGI Securities will include any further issuer related disclosures as needed.

 

Technical Strategists Certification

Each MGI Securities technical strategist whose name appears on the front page of this technical market report hereby certifies that (i) the opinions expressed in the technical market report accurately reflect the technical strategist’s personal views about the marketplace and are the subject of this report and all strategies mentioned in this report that are covered by such technical strategist and (ii) no part of the technical strategist’s compensation was, is, or will be directly or indirectly, related to the specific views expressed by such technical strategies in this report.

 

Technical Strategists Trading

MGI Securities permits technical strategists to own and trade in the securities and or the derivatives of the sectors discussed herein.

 

Dissemination of Reports

MGI Securities uses its best efforts to disseminate its technical market reports to all clients who are entitled to receive the firm’s technical market reports, contemporaneously on a timely and effective basis in electronic form, via fax or mail. Selected technical market reports may also be posted on the MGI Securities website and davidchapman.com.

 

For Canadian Residents: This report has been approved by MGI Securities which accepts responsibility for this report and its dissemination in Canada. Canadian clients wishing to effect transactions should do so through a qualified salesperson of MGI Securities in their particular jurisdiction where their IA is licensed.

 

For US Residents: This report is not intended for distribution in the United States. 

 

Intellectual Property Notice

The materials contained herein are protected by copyright, trademark and other forms of proprietary rights and are owned or controlled by MGI Securities or the party credited as the provider of the information.

 

Regulatory

MGI SECURIITES is a member of the Canadian Investor Protection Fund (‘CIPF’) and the Investment Industry Regulatory Organization of Canada (‘IIROC’).

 

Copyright

All rights reserved. All material presented in this document may not be reproduced in whole or in part, or further published or distributed or referred to in any manner whatsoever, nor may the information, opinions or conclusions contained in it be referred to without in each case the prior express written consent of MGI Securities Inc.


| Digg This Article
 -- Published: Friday, 21 March 2014 | E-Mail  | Print  | Source: GoldSeek.com

comments powered by Disqus



 



Increase Text SizeDecrease Text SizeE-mail Link of Current PagePrinter Friendly PageReturn to GoldSeek.com

 news.goldseek.com >> Story

E-mail Page  | Print  | Disclaimer 


© 1995 - 2017



GoldSeek.com Supports Kiva.org

© GoldSeek.com, Gold Seek LLC

The content on this site is protected by U.S. and international copyright laws and is the property of GoldSeek.com and/or the providers of the content under license. By "content" we mean any information, mode of expression, or other materials and services found on GoldSeek.com. This includes editorials, news, our writings, graphics, and any and all other features found on the site. Please contact us for any further information.

Live GoldSeek Visitor Map | Disclaimer

The views contained here may not represent the views of GoldSeek.com, its affiliates or advertisers. GoldSeek.com makes no representation, warranty or guarantee as to the accuracy or completeness of the information (including news, editorials, prices, statistics, analyses and the like) provided through its service. Any copying, reproduction and/or redistribution of any of the documents, data, content or materials contained on or within this website, without the express written consent of GoldSeek.com, is strictly prohibited. In no event shall GoldSeek.com or its affiliates be liable to any person for any decision made or action taken in reliance upon the information provided herein.