-- Published: Thursday, 5 June 2014 | Print | Disqus
A number of Central Banks announced their monetary policies this week.
Bank of England
- Bank of England left their asset purchase program unchanged at 375 billion Pounds
- Bank of England left their key interest unchanged at 0.5%
European Central Bank
- The interest rate on the main refinancing operations of the Euro system will be decreased by 10 basis points to 0.15%, starting from the operation to be settled on June 11, 2014
- The interest rate on the marginal lending facility will be decreased by 35 basis points to 0.40%, effective June 11.2014
- The interest rate on the deposit facility will be decreased by 10 basis points to -0.10%, effective June 11, 2014. A separate press release to be published at 3.30 p.m. CET today will provide details on the implementation of the negative deposit facility rate.
- A new program of long-term refinancing operations, or LTROs, to aid bank lending, with an initial target size of $400 billion.
- Begin preparatory work related to outright purchases of asset-backed securities and a prolongation of fixed rate, full allotment tender procedures.
Going into this morning’s European Central Bank Announcement I warned subscribers to my market information of the adage, “sell the rumor, buy the fact”. Mario Draghi, the European Central Bank President announced a month ago what the board of the bank was about to do in June if economic data didn’t improve. The data didn’t improve, which means Mr. Draghi cornered himself, whether by design or not to make a policy change. Now the question is what it means for gold.
If the goal is to break the Eurocurrency against the value of the Dollar, to a degree that’s already occurred as the Eurocurrency was at 1.3993 on May 8th and hit a low of 1.3502 today. Today’s low looks like it was a blow-off low, as prices went down to the lower Bollinger Band, bounced and have lost the bearish embedded reading on the bounce. This probably means that the June Eurocurrency will churn a bit near its 18-Day Moving Average of Closer, 1.3657 as the Euro works off being oversold. I’d be wrong if today’s low of 1.3502 is taken out soon.
The importance of this is that the gold is priced in Dollars. As the Eurocurrency has declined nearly a month on end, seeing a bounce in it is going hand in hand with the bounce in gold today. Bounces are not watershed events. They are points where the market corrects selling pressures.
I think over time the Eurocurrency has a chance of working even lower, but it will take the next phase of the European Central Banks game plan to entrench another down leg.
In the meantime, world events have become very tranquil. The Ukrainian situation has calmed down. If a gas deal is struck between Gazprom and Ukraine this will get even more tranquil.
Inflation or rather the lack of it as measured by the numerous central banks around the world on an overall basis is lacking.
The US Stock market continues on its overall bullish path, competing against gold and winning that competition. ETF funds continue to see overall declines in holdings as investors put their funds elsewhere.
Investors are still buying and putting funds into fixed income assets.
The above are big negatives for gold. Therefore, the most I see gold doing is bouncing from time to time but unable to mount a lasting uptrend. The best way to explain it is that gold continues finding new lower levels, bounce off those levels to lower resistance points and start the process over again to even lower lows until inflation or some other world event scares investors.
While past performance inherently has limitations and doesn’t always repeat, it’s still an important tool to look at. The chart below shows what gold prices have done over the past 30, 15 and 5-year periods.
It’s hard to get bullish until late June early July based on history. That doesn’t mean that serious bounce can’t and don’t occur. They do if you study the chart, but overall prices tend to work lower into late June. In the entire scenarios portrayed below, prices on an overall basis to work lower into different time frames in July and start to work higher from that point forward.
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QT PriceCounts are a unique study included in our MarketCenter charts. You’re welcome to sign up for a free trial to MarketCenter Charts by clicking on the link below or copying this link it into your web browser and signing up that way.
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QT PriceCounts are a price projection tool. The theory behind QT PriceCounts is not difficult to understand. QT PriceCount objectives are calculated off an initial leg of a new trend, and assume that the initial leg of a new trend by itself can project one or more objectives in the direction of the new trend. There are specific rules that tell you when the objectives are nullified, which we want to send you.
We have a very helpful information sheet on this study. It’s full of chart examples and rules that explain in detail the theory and use of this study. To receive a free copy, simply e-mail us back by clicking on the link below.
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As you can see on the Monthly Chart, the first leg down began on September 11, 2011. The first leg was completed when prices recently dropped to 1241.7, the first downside target. It remains to be seen if other legs will be met, but given that this study resembles Swingline’s, until 1392.6 on this chart is taken out, the remaining PriceCounts remain active.
The Swingline Study pattern remains bearish on the Weekly Chart as it shows that the Swingline Study, which is unique to charting services we offer, is showing a pattern of lower highs and lower lows. This pattern is bearish and will remain so under the current configuration until the most recent high, 1305.7, is taken out.
The slope of the downtrend line calls for resistance in the region of 1270, 1280.
There was a change in the Swingline Study today as the market had an Outside Day Up. An Outside Day Up occurs when the market action takes out the previous day’s low and high and closes higher on the day.
I have a trading rule that I formed over the years that I like. Simply put, when you have an Outside Day Up, the low of that day should not be taken out within the next two trading sessions. If taken out I label that a “bull trap” and expect prices to work lower.
In addition, the low of the Outside Day Up become a new Swingline low, which means that the Swingline Trend, which was down, is no longer down. The Swingline Study defines a Downtrend as having lower highs and lower lows. Today’s action gets plotted by Swingline negating that pattern as it creates a high that was taken out to break the downtrend pattern.
Simply put, the Swingline downtrend pattern was lost today.
That leaves us with what the Slow Stochastic reading is. It has a bearish embedded reading which in terms of a hierarchy is more important than the Swingline. Losing the Swingline downtrend is a major warning signal that a downtrend is in jeopardy of being lost and most of the time the Slow Stochastic Reading is not embedded.
Embedded means that the two lines that make up the Slow Stochastic Oscillator are both over 80 or under 20 and have been for three sessions of you’re using a Daily Chart.
When an embedded Slow Stochastic reading is present, as it is in gold, you wait for that reading to be lost before confirming that a downtrend has been lost.
Gold is not at this point yet, so I consider the downtrend weakened but still intact.
The European Central Bank’s action today caused the Eurocurrency to rally. That rally took some of the upward pressure off the US Dollar. As the Dollar weakened, gold rallied as gold often acts inversely to movement in the Dollar.
If short, you stay short until the embedded reading is lost.
If today’s low is taken out in the next two trading sessions today’s rally should be labeled a “bull trap” and set in place another leg down.
If the Slow Stochastic reading is lost, expect to see a rally up to the 18-Day Moving Average of Closes on the Daily Chart and for a sell signal to form after that. I’m making the assumption here that seasonal influences will stay bearish until later in July.
I will of course update my thoughts daily in my Daily Market commentaries which are part of the market information service I offer.
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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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-- Published: Thursday, 5 June 2014 | E-Mail | Print | Source: GoldSeek.com
