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Ira Epstein's Gold Report

 -- Published: Tuesday, 19 January 2016 | Print  | Disqus 

By Ira Epstein

US Federal Reserve embarks on first rate hike in a number of years

Commodity prices continue to fall sharply

Oil prices making new lows off need of OPEC members need for cash, which keeps production at an all-time high

US Dollar reigns supreme

CRB Index in free fall

Will 2016 be Gold’s Bottom?

This question is of course being tossed around given the 40% decline in gold since 2011 Back then, prices hit 1920.7. Without inflation my answer is “maybe” which is a big change for me. I say this because as with other commodities that see prices fall so low as to cause marginal producers to stop producing (oil), gold producers due to low prices continue to cut back on exploration and mining. Global gold production is expected to fall 3% this year, according to a report issued today by Thomson Reuters' GFMS metals research team, which if accurate would end a seven-year streak of rising gold supplies. So far those supplies have reached 3,155 tons in 2015.

I’ve been looking to see when the impact of continued low gold prices would impact forward production of gold and from all I’ reading believe we’re finally found that infliction point. It likely took prolonged low oil prices to convince gold producers that world-wide inflation was not returning anytime soon, but seeing prices fall 40% from gold’s peak with real rebound in years was more likely the real culprit. Low interest rates have helped many producers to continue production, but as in oil, there’s a point where it’s better to leave production in the ground hoping for a better environment in which to produce.

At some point the rout in commodities will end. We’re now starting to  see large names like Glencore and Noble bite the bullet and announce serious cut backs on production of iron ore, copper and other commodities. The gold club is in the same predicament. Finding financing for commodity projects is not easy, especially without immediate prospects for higher base prices.

Therefore, a new argument is surfacing. One that will impact the supply demand chain. That argument is lower supply. Supply is not increased by simply pushing a conveyor button. It requires mine startups, new exploration and better techniques as the easy to mine operations have been running out of low cost areas mining areas for some time.

This does not mean I have suddenly turned bullish. I haven’t. However, given this is the first report of 2016 I wanted to point out what I think will ultimately become an important element in the gold trade later on this year.

Seasonal Chart

In terms of seasonality, it’s not uncommon for gold prices to peak in the current time frame and slip back down into April. In looking over “seasonality”, the 15-year pattern has done the best in terms of holding onto price. Often it saw a bump in prices in March. In the 30 and 5-year patterns, the highs come in by January’s month end and fall into April.

PriceCount Chart

On the Weekly Gold Chart, the first PriceCount at 1239 has been hit with the Second PriceCount still open at 1014.1.

The odds still favor further downside as long as crude oil prices continue under selling pressure. From time to time we’ll witness “safe haven” buying as was seen at the beginning of this year, but once that wears off bearish forces seem to return to pressure prices lower.

What we’ve learned is that the marketplace goes through bouts of adjustment to shockingly lower oil prices. Just recently $30 a barrel scared the markets, so the Japanese Yen and gold became market favorites for a while. Now, as stability has come back, both gold and the Yen are giving back some of the safe haven bids they picked up.

However, the downside on the PriceCount Chart has not been violated which means the second PriceCount is still in play. 

Daily Chart

Current chart action has an upside bias since prices are trading over the 18-Day Moving Average of Closes, which I call the “line in the sand”. I call this moving average that since I believe that by nature there is a point on a chart that is bullish, bearish and neutral. I think this moving average is such a delineation point and as such, I think market prices work around it trying to establish the next wave of momentum.

When prices are over this moving average I have a short term bullish bias and bearish one when under it. If prices are over it and break, a “logical” support point is this moving average. The opposite is true when prices are under it as this moving average becomes a resistance point.

I teach this in my chart course if you wish to learn more about this theory and yes, I apply it daily to my trade recommendations.

At this time the chart pattern is one of lower highs and higher lows. In other words, there is no trend. I’ve connected the points on the chart with a line, which is in the process of forming a “Triangle Pattern”. Until the pattern resolves itself, breakouts to the upside should fail to make higher highs than the most current previous high and fail to make lower lows than the most current previous low.

What this formation leads to is prices narrowing in until a breakout one way or the other occurs.  


As 2016 starts off, it’s clear to me that crude oil prices and China are the events to keep your eye on.

Instead of gold tying itself to to crude oil prices, it’s responding to breaks in oil with rallies in gold as gold traders think that the risk to world economies is quite high if oil prices continue to work lower.

My guess is that crude oil is going to dominate the news for a long time. I expect each $5 break, say from $30 to $25 to get lots of press and to act as a support to gold prices.  The reason is that too low a price in crude oil means certain industries will be under severe strain which leads to a broad unknown. What I don’t expect is to wake up and seen OPEC members cut back to make way for increased Iranian production.

Therefore, things have to play themselves out, which offers a bid to gold in the near term.



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 -- Published: Tuesday, 19 January 2016 | E-Mail  | Print  | Source:

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