-- Published: Thursday, 11 September 2014 | Print | Disqus
For a number of months I’ve been telling you that the next catalyst for gold was the combination of a rising US Dollar and rising US interest rates. It’s a fate de complete concerning the rising Dollar against most world currencies. As for US interest rates, very quietly if you’re not watching the markets as I do, they’re slowing beginning to rise. Today there was talk about a report published by the San Francisco Federal Reserve saying that rates will rise sooner than expected due to improved US economic data. A clue if that’s correct will come when the Federal Reserve meets at the next FOMC meeting and changes the wording concerning interest rates staying low for a long period of time.
As you already know the Ukrainian situation and threats of increased sanctions by the US and Europe has done nothing to support gold prices. If anything, gold has plunged to new break lows from this year’s high and looks like last year’s low near $1180 might be challenged.
The next event that might impact gold is the vote in Scotland for independence from the United Kingdom. The vote’s outcome is too close to call according to the latest Scottish polls. All of England’s bigwigs began touring Scotland yesterday trying to convince the Scots to stay within the UK, with the exception of Queen Elizabeth. If the outcome of the vote is yes, to breakaway, that will act as a catalyst for Catalonia to call for a vote for independence from Spain.
What this might do is cause gold to rally as a yes vote not only would not be good for England but it would have ramification in Spain, a Eurozone member. The Eurocurrency is probably headed into the mid 120’s as it is. A yes vote for Scottish independence might be the trigger for the low 120’s in the Euro, which would propel the Dollar even higher.
Therefore, even if gold were to rally off the Scottish vote, the higher Dollar probably dooms gold from going a lot higher at this time.
Let’s revisit the chart below. It compares the Dollar Index to Gold prices.
What I’ve been expecting has already occurred in terms of the Dollar rallying while gold is breaks. Keep in mind this is a weekly chart, not a daily one. I’m presenting it this way to make my point that at this point of the gold cycle; gold isn’t handling a rising Dollar well.
So what do I think of the Dollar? Let’s sum it up by saying I remain bullish well into next year. The ECB is driving down the value of the Eurocurrency in hope of creating inflation. This is not going to be short lived because once a central bank sets course, history shows that course stays in place for a long time. What the ECB is doing is going to cause other central banks to change their policy. Think of Poland, Switzerland and other European countries whose economies have stalled out and are continuing to slow down. I predict they’ll make moves to keep their currencies pegged to what the Eurocurrency does.
By way of example, the Swiss National Bank announced today that they are considering moving to negative interest rates, just like the European Central Bank has already done for deposits left with them overnight. We’re in a race to see who can drive their currency down the quickest to try to gain a trade advantage with the goal of creating pricing inflation. If this doesn’t work deflation will take place similar to what Japan’s gone through for decades now.
As I usually do, let’s take a look at the Historical Gold Chart. I’ll use the past 5 and 15 Year time frames as I think the 30-year time frame is too outdated to be reliable for the analysis I use.
Pay attention to the Bear Year label. The market doesn’t follow this pattern very often. If the market is neutral, the “grey” line is followed and in bull years the “green” line is the trajectory prices follow. Bear years are labeled in “red”.
The upper part of the chart is the price pressure that normally occurs. It means that during certain frames, even if the market is confirmed bearish, you don’t sell breaks, but you can sell rallies. That period is right ahead as we’re now entering the time frame where a number so seasonal trades with a history of rallies is upon us. Mid-September through month end is one of those periods. Another period hits from late October through mid-November.
The mid-August through mid-September time frame did not produce a rally this year.
The initial Price Count of 1254.5 has been met. If prices move lower, the next downside count is to 1223.7.
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Daily Chart with Price Counts
The daily chart is one in which prices are “riding” the lower Bollinger Band show as the black dashed lines on the charts. Combine that with the bearish Slow Stochastic reading and this market is locked into a down trend.
The Slow Stochastic study embedded this week. Embedded means this oscillator converted itself from being oversold to locking in a down trend. A sign this market is ready to hold a bounce would be if the indicator has one of its two lines, the red line in this case since it is most market sensitive to price action. As long as that doesn’t occur, I anticipate lower prices. Should this occur it would mean that prices are going to pay attention to the seasonal time frames I mentioned at the beginning of this report.
Until the bearish embedded Slow Stochastic reading is lost, I think short sales are the order of the day. Resistance right now comes in near 1262. That’s where as of this writing I would look to initiate short positions, but it’s important you have a stop or a method of exit which is going to be published in my Twice Daily Updates which are subscription based.
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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, 11 September 2014 | E-Mail | Print | Source: GoldSeek.com