-- Published: Wednesday, 19 November 2014 | Print | Disqus
Gold is at a crossroad.
Switzerland is holding a referendum on November 30th as to whether or not the Swiss National Bank should by law , be required to increase its gold reserves.
Unrest continues between Russia, the Ukraine and NATO.
There are no strong seasonal plays left this year in gold.
Gold is at a crossroad in terms of a Switzerland deciding to go back to a gold standard.
In my Tuesday Night Daily Update, subscribers to my research were treated to my take on the upcoming Swiss Referendum vote, scheduled for November 30th. Here’s what I wrote.
“I have an idea on what's causing the rise in gold and the Swiss Franc. As you know from my past writings, there is an upcoming referendum in Switzerland on November 30th. The referendum concerns itself with making the Swiss National Bank increase its gold holdings from its current holdings of 8% of its assets in gold to 20% over the next 3 years. The potential for the passing of this referendum is now being priced in. This also implies that this is behind the current rally taking place in the Swiss Franc. Traders don't wait for the last minute to get themselves positioned for events like this. Besides the time frame of three years to get the gold holding up to 20%, these are the other referendum goals:
- Prohibit the Swiss National Bank from selling any more gold.
- Repatriate all Swiss gold from overseas, particularly from the Anglo-countries of the United Kingdom, United States, and Canada.
- Require that at least 20% of the Swiss National Bank's assets be actual physical gold bullion.
The ultimate goal of the referendum is not about gold. It's about taking away the Swiss National Banks (SNB) ability to print money and expand government. That's a big deal in the currency and metal arena. The Swiss government is against this since passage of the referendum would to a degree tie their hands in terms of monetary control. What we've seen over the past five years is that Central Banks don't like monetary controls on them. They believe they need to be able to act freely when economic events call for it. Opponents argue that no one wants is another depression, but how to avoid one opens a can of worms. Have Central Banks printed so much money already that world economies won't be able to back their currency other than with pledges? Where would the US now be if the Fed hadn't acted as it did over the past 5-years? As I said it's a can of worms that allows prudent people to argue both sides of these questions intelligently. What's different this time is that instead of philosophically arguing about it, the Swiss get to vote on it.
According to Zero Hedge; "What is important to understand here is that if the initiative passes it will be part of the Swiss constitution IMMEDIATELY — not in two years, as many blogs and websites are suggesting. This means that the government and parliament cannot touch it. Only another referendum can change it. This is proper democracy for you." What the Zero Hedge article and other bullish articles don't mention is that there'd still be a lot of wiggle room left for the SNB to work with. For example the bank could impose negative interest rates. It could also use "gold swaps" to window dress its balance sheet. It could just before month-end calculation of its balance sheet borrow gold and sell it back into currency the day after the month ends. There's lots of games so don't think this will be a one way move over time if the referendum passes. However, initially passage would lift gold prices and probably cause the Swiss Franc to rally. The pros might want that to sell into.”
On Wednesday morning a poll was released that showed a swing in support of a “no” vote with 38% of the votes in favor and 47% against the referendum.
The swings are and will continue to be fairly wild unless the polls results widen in favor of the “no” vote. In the meantime there will be a number of traders who’ve been and will continue buying options in hope of seeing a “yes” vote. Are investors throwing they’re money away? That can’t be answered because no one knows what the referendum’s outcome will be, but yes, I think they are. I’m of the opinion it will fail, not because gold isn’t storage of value, but because passage of the referendum would to a degree tie the hands of the Swiss National Bank.
Seasonal Gold Chart
In my last report I pointed out that the market often rallied into early November. That’s now occurred. The question is whether or not the outcome of the referendum props prices or pulls out the prop and prices move down as they have over the past five years as seen the top graph on the above chart.
There are now no further gold seasonal trends to play going into year end. The last seasonal gold signal did carry prices higher from the break low of 1133 but for all purposes that move is past and now the market needs new input.
Price Count Chart
As you can see on the above chart, which I admittedly haven’t updated intentionally since my last report as I think the counts are accurate. The Price Count Indicator is currently projecting a series of lower lows. It’s my opinion that these lows have a very serious chance of being seen if the Swiss Referendum fails as that would remove demand for nearly 1500 ounces of gold by the bank. There’d still be demand from others, but those wanting gold wouldn’t be competing with the Swiss National Bank. .
In my last report I said that “the first projection of 1127.3 should ideally be seen before month end”. I now am not as certain as I was when I wrote my last report, but I am clearly not in the bull camp either.
My problem with gold is that unless this referendum passes, I see no gold price props left. Energy prices are entrenched and moving lower. If Saudi Arabia could get fellow OPEC member to cut production, energy could stabilize. We’ll know more about that on November 27, when OPEC meets. In the meantime, inflation for all practical purposes is non-existent and the threat of wars and economic sanctions are creating deflation in Europe, not inflation.
The Weekly Chart remains in a downtrend according to where it’s trading in terms of Moving Averages and the Swingline Study.
Prices are trading under the current 18-Week Moving Average of Closes, which provides my analysis a downside bias.
The current Swingline Indicator pattern is one of a higher high, 1251 and a lower low, 1133. This means no trend in this indicator. In order for the Swingline to trend, you have to have either a pattern of:
Higher highs and higher lows (an uptrend)
Lower highs and lower lows (a downtrend
Neither of the above pattern conditions is being met, so there’s no trend as far as the important Swingline Study is concerned. A downtrend could set in if prices were to drop under 1133, as that would create a pattern of higher highs, 1251 and a lower low, assuming a new low under 1133 is created. An uptrend on this chart cannot develop this week as there’s no way to create a pattern of higher lows and higher highs.
Momentum as measured by the oscillator called the Slow Stochastic Study is in an oversold condition. The Slow Stochastic Oscillator is made up of two lines that criss cross each other. The red line, the “K line” moves around the blue line, the “D line”. When either of the numbers is under 30, the market is said to be oversold.
Daily Gold Chart
A poll was released this morning about where voters stood at this point going into the November 30th Swiss Referendum as discussed at the beginning of this report. The poll was conducted by the GFS Bern Group. It showed that 38% of respondents were in favor of the referendum which was down from an earlier poll reading of 44%. Now 47% of respondents said they were against the initiative which is up from 39% in the last poll.
When released, the poll result caused an approximate $30 drop in gold from the daily high. At midday today gold recovered nearly everything it lost to settle just slightly lower. However, later in the day, which you won’t see on at settlement since settlement is determined at 1:30 PM EST, prices are really about $14 lower. Increased volatility is going to be the norm going into the referendum unless the polls become lopsided in terms of the “no” vote.
What’s interesting is to look to see where the break held today. It held against its 18-Day Moving Average of Close. I call this moving average “the line in the sand”. When prices are trading over it, it’s not unusual on breaks to find support at this number, as is the case today. The fact that prices are over this moving average offers gold a bullish bias.
The Swingline Study is also bullish, as a pattern of higher lows and higher highs is in place. I’ve labeled the lows with arrows that point up on the above chart. You can see the higher highs easily.
The one negative is that momentum as measured by the Slow Stochastic reading is overbought.
I find it hard to recommend having you take a position when so many technical indicators are contradictory. However, I will have no qualm about being bearish and looking to get my customers short if the Swiss referendum fails to pass, as that would take away a potentially bullish story for gold.
There’s no inflation. Gold needs some in order to find a bottom. Wars, economic slowdowns nor central bank actions have supported gold in the second half of this year. The first part of the year saw gold act well. In fact from the last day of 2013 through the first part of the year, nothing got in gold’s way from rallying as it gained double digits for a while. That’s all changed in the second half of the year.
The Weekly Chart is still maintaining its bearish bias but it’s not trending. Rather, prices have been drifting sideways on that chart. The Daily Chart has seen an upside bias, one that is still in place. That bias changes if prices get under 1146 on the December contract. However, even if it that were to occur now, at least technically speaking, the Daily Chart would not turn bearish. More price action is needed to see how the charts set up.
This means you stay patient and wait for a better chart picture, one where the Daily and Weekly Charts trend in the same direction.
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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: Wednesday, 19 November 2014 | E-Mail | Print | Source: GoldSeek.com