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Ira Epsteinís Gold Report

 -- Published: Wednesday, 8 October 2014 | Print  | Disqus 

By Ira Epstein

Gold tested the closing price level of 2013 this week and has subsequently seen a nice bounce off the 1183 price level.

Whether this rally is anything more than a simple bounce remains to be seen, but what is important is that prices are running contra seasonal and that my analysis for a return to the close of 2013 has proven accurate. Iíll offer my thoughts...

In prior reports Iíve eluded to the fact that gold hasnít been able to hold any price premium off of geopolitical and economic events. That led me to conclude that the next gold event would come from a rising Dollar due to the likelihood that the Fed was going to raise interest rates sometime around mid-2015 while most of the worldís other developed countries had or were about to embark on some form of quantitative easing to drive their currency values down in order to spur trade and inflation.

The one exception to this is the U.K. whose economy is in a similar place to where the USís economy is. A major unknown at this time for the U.K. is the impact of the Scottish referendum and what it means to the Bank of England (BOE). Once the BOE better understands what the implications of giving more autonomy to Scotland, Northern Ireland and Wales does, expect the bank to begin raising interest rates.

Mr. Draghi, the president of the European Central Bank is getting ready to embark on sovereign debt purchases before year end. The ECB has already accomplished one of several planned tiers of providing low interest loans to banks. The result has been a fall in the value of the Eurocurrency from the 1.40 level down the 1.2500 level while driving the US Dollar sharply higher.  Given that gold is priced in US Dollars, the rise in the Dollar has driven the price of gold lower.

What clearly hasnít occurred, the original reason I thought the Dollar would rally, is a rise in US interest rates. Instead, the Dollar is rallying because of where our trade partners are in their economic cycles. Theyíre in a race to see who can break their currency the most, which still leaves us with a cocked interest rate gun, waiting to be shot when events warrant. This combination is very bullish the Dollar.

For short term dated debt, German Bund yields have gone negative. Longer term instrument yields are more than a full percentage lower than yields paid on similar US instruments. China continues to grow and buy US debt. Yes, the growth in China has slowed but itís still expected to come in near 7.4% which by any standard is good, just not as good as it was.

My point is that due to a combination of comparatively strong yields on debt and strength in our economy, money flows into the US for investment in US debt instruments and stocks are creating strong Dollar demand.  

Inflation is simply not an issue at this time as no G-7 or G-20 country seems to have inflationary issues. If anything the IMF is warning Europe about potential deflationary issues.  

As I wrote in my last letter, starting in mid-September and lasting until late September there was a strong seasonal cycle that often caused gold to rally. That play did not work this year. When markets lock into trends, itís not uncommon for counter trend historical moves to fail. Thatís whatís going on now and was the subject of my last gold report.  

So is there anything left thatís bullish gold other than technical bounces that occur when prices may have dropped this far? I donít think so.

Until the chart action provides you with a reason to be bullish, stay bearish or neutral.

Seasonal Gold Chart

As you can see on the Seasonal Chart, Iíve labeled where we are as of today. The bottom graph displays how prices act in Bear years.

Iíve labeled this year a bear year because prices have given back all the gains made in the first quarter of the year and have just reached down to where prices closed in 2013.  If prices close higher on the year, I could make the argument that 2014 wasnít a Bear year, but rather a Neutral year. Should prices close sharply higher this year, which I donít see occurring, it would be a bullish year.

The odds favor another decline from this point until at least October 23rd in terms of seasonality.  After the 23rd, prices have had a history of bouncing in 13 of the past 15 years according to Moore Research, Inc. 

The most recent seasonal upswing did not work. My experience has been one where when a downtrend year is taking place, rallies, if they take place act muted.

Weekly Chart

The Weekly Chart remains in a downtrend according to where itís trading in terms of Moving Averages and the Swingline Study.

As you can see, prices are trading both under the current 18-Week Moving Average of Closes, 1276.4 and the Swingline Study has a pattern of lower highs and lower lows.

Until prices breakthrough 1222.2, this chart pattern remains bearish. Letís assume that prices rally and do take out 1222.2, what then? Well that would negate the bearish chart pattern but not start a bullish pattern. A bullish Swingline pattern is one of higher highs and higher lows. Because prices have already taken out last weekís low, all we could if prices this week rallied up through 1222.2 would be a lower low at 1182.8 and higher high over 1222.2. Thatís not a trend. In addition, in order to be bullish, prices according to my chart theory need to be over the 18-Week Moving Average of Closes.

Therefore, this chart remains in the bear camp at this time and the best the bulls could do on a rally would be to nullify the Swinglineís downtrend.

Daily Gold Chart

As you can see, the low made yesterday was 1183.3. On a continuation chart, the closing price of 2013 was hit, which Iíve stated for the past months as being my downside price objective. Now that itís been hit, the question is whether or not that was it or is there more downside. Iím of the opinion thereís more downside ahead, but am not willing to sell breaks just yet.

I still think its right to sell on rallies. The current bounce looks like it has gold setting itself up for a test of resistance at 1219.5, the 18-Day Moving Average of Closes.  Whether or not it occurs weíll see, but if it does and if the Slow Stochastic reading manages to get both of its oscillator lines over a 30 reading, I think a short sale is in order.

You might ask what I use to determine objectives. One toll is our Price Count Indicator which is a proprietary study made available in our Market Center Software.  Prices counts take into account a marketís initial thrust, and from there give a couple of projections based on that. There are rules that you apply to the study to find out when the study is active and deactivated.

Weíve prepared a PDF that explains how to apply the study and offer a free trial to Market Center as well so that you can use the study.

Price Count on Gold Chart

The first downside target was 1190.8, which was hit yesterday.

The second downside target is 1123.9, which is still an active target.


I remain bearish and am looking to have you go short again.

Resistance on the Daily Chart is 1219.6, the 18-Day Moving Average of Closes.  Once the Slow Stochastic reading loses its oversold condition, I will most likely issue a sell signal against whatever value of the 18-Day Moving Average of Closes is at that time..

The stop on the position should be just over the most recent Swingline High, which currently has a value of 1224.0.

The initial downside target in December Gold is 1183.3 the most recent low with an eye toward 1123.9 as long as the Price Count stays active.


If you havenít had the opportunity to obtain our Price Count write up, please click here and include your name, mailing address and phone number. Weíll get this out to you and can also set you up for a Free Trial to Market Center where you can apply the study. Our staff will even setup a Join.Me Meeting to teach you how to apply and use the study in Market Center.

I also hope you like the new look of my gold report. It goes hand-in-hand with the total new look of the Ira Epstein Division of the Linn Group, Inc. Website.

You can call us at 1-866 973 2077 or simply click here and include the information in the e-mail message. Be sure to include your phone number in the e-mail as we need it to setup your Free Trial to Market Center. 

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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