***FEBRUARY 2010 Gold and Silver Stocks/Options/Futures trading thread***
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New Month, New Thread.
Gold was sucked back up to the 1090 level overnight, yet again. Hard to say if it's going to stick this time in order to start a recovery or just dip right back down again. Still on the sidelines until this resolves more clearly.
Gold was sucked back up to the 1090 level overnight, yet again. Hard to say if it's going to stick this time in order to start a recovery or just dip right back down again. Still on the sidelines until this resolves more clearly.
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Gold's timing since the December 2nd correction has basically been a 13-14 trading cycle of lows and highs. 2 weeks of an up move would be good. The dollar fell short of 80 and probably needs a rest after a 2 month move. 5 legs down were completed on Thursday/Friday from the $1162 swing high. It remains to be seen if that was a complete ABC correction from Dec. 2nd. or just the first 3 legs of an eventual 5 leg decline. It has been 38 trading days from Dec. 2nd which was pretty close to the 31-37 Hoye "band." The Dec 22nd high also occured +1 day outside the projected band. This was the 6th month in a row that gold opened up on a jump. I guess that trend is your friend until it breaks although the December jump only lasted a couple of days.
The flat based triangle that gold has been consolidating in has it's upper boundary at $1126. That same area has been a frequently touched point through this downturn and even during the November rise. A break above that would turn things bullish again. There are a lot of similarities to the chart shape that formed back from Feb-April 2009 including the same number of days (38) to reach the bottom of the initial ABC legs. After 2-1/2 weeks sharply down I think it was just time to bounce, even if it's just temporary. Reflation trade back on?
And of course PM's turned on last week's full moon as well as astrology alignment. Talk about timing......
roadrunner
Stocks up why? Jobs bill, aka, Stimulus 2.
R95
Saville on how gold senior stocks did over the past 50 yrs.
This was surprising to me. I didn't know that the bigger miners went through a massive run up in the 1960's and then basically slithered down through most of the 1970's. Unlike gold, those guys peaked in 1968 around the same time as silver bullion did (a 10 yr bull run). The juniors did much better in the 1970's but it's odd that the seniors tanked hard as gold rose, esp during the 1977-1980 period. Just more reason to stick with the more nimble intermediates and quality producing/near-producing juniors. Or as Saville says, gold stocks are for intermediate trades. The run up from 1958-1968 basically followed 5 waves. Yup, there it is again. Now I can see why that even with the London Gold Pool in effect from 1962-1968 the senior miners flourished.....as it was the only way J6P could play the gold game (no futures market and bullion holding was illegal). So in effect gold really was in a bull market from 1960-1980...basically reflecting the inflation from baby boomers, the space race, Vietnam war, and the Great Society programs. Had the London Gold pool not been around the price of gold would have ballooned in the early 1960's.
roadrunner
Gotta love those full moons. LOL. Good thing the Aussie central bank follows the lunar calendar.
Knowledge is the enemy of fear
<< <i>Drawing a line from the Dec high through the Jan high projects possible resistance at 1125. Gold rallied during the day to the 1:30 futures close but could not advance after slight dollar weakness later in the day. The 50dma is about 1129, so gold probably doesnt go any higher than 1125-1130 for the rest of the week.
Gotta love those full moons. LOL. Good thing the Aussie central bank follows the lunar calendar.
Our Fed/Treasury could learn a lot from the Aussies. Actually our Fed/Treasury could learn a lot from The Count in Sesame Street. MJ
Fellas, leave the tight pants to the ladies. If I can count the coins in your pockets you better use them to call a tailor. Stay thirsty my friends......
There is solid support at 1075, and I expect that to hold up, but I wouldn't rule out another test down to this level before the "big move" resumes. I don't expect the big move to resume until middle to end of March.
In the daily chart we have a nice penant formation forming, although the exact shape of it is still to be determined.
Gold is on a small tear, just hitting 1124.
Hit 1125 tonight. This is a "mini-tear up"! $45 is 3 days!
<< <i>Gold is on a small tear, just hitting 1124. I'm confident this run will hit 1128-1131, but I'm not sure it will go beyond. Mining stocks didn't do that great on Tues, and silver's not really participating. I plan to go short at 1131 - at least expecting a small move back down... Although I do think gold and the stock markets are going to have a positive environment for the rest of this week and next.
There is solid support at 1075, and I expect that to hold up, but I wouldn't rule out another test down to this level before the "big move" resumes. I don't expect the big move to resume until middle to end of March.
In the daily chart we have a nice penant formation forming, although the exact shape of it is still to be determined.
So are you expecting gold to get back into the trend channel that was broken a few ago? What if 1075 is broken?
Knowledge is the enemy of fear
<< <i>So are you expecting gold to get back into the trend channel that was broken a few ago? What if 1075 is broken? >>
No, I probably should have delted the channel, but I left it in there just to see if it comes back into play again some time. I don't expect it to.
1075 is important, but more important is the 200dma, which is lower. The major uptrend will still be intact until/unless that is broken.
USD caught some upward momentum this morning, putting pressure on gold. I guess there's going to be an announcement today about how much debt it going to be issued in the next sale. I expect there will be a small market reaction to the news.
Silver is VERY weak today.
Gold has support at 1103.4, 1111.5, and resistance at 1123.3 and 1131.4.
From what i remember a descending triangle must meet the following criteria:
Lower line formed by a minimum of 2 lows...
Upper line forms a descending trend line of a minimum of two high...
Duration is between 1-3 months
Volume must be decreasing over the period.
What has the volume done? Do you have a chart that shows daily volume as well?
If this is a descending triangle, the target if/when the support is broken is a drop whose distance is the same as the difference between the peak and the support. This would be 1075 - 150 or a target of "around" 925/oz.
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So far it has formed a symmetric flat-bottomed triangle. Volume had decreased over the 2 months and in particular over the last few weeks since the swing high of $1162. Volume this week is about 50% of what it was during the week of December 2nd. It could still be tweeked a bit lower though.
If this is a descending triangle, the target if/when the support is broken is a drop whose distance is the same as the difference between the peak and the support. This would be 1075 - 150 or a target of "around" 925/oz
If this triangle were formed following an extensive downturn in gold such as 1982-1999 I would agree with the above. But the trend since 2001 has been upwards. Gold has formed similar large corrective patterns like this one during the 2004-2007 period. Each one has resolved itself upwards. While that's no guarantee of what this formation will do, it's a worthwhile input. Every major corrective formation this past decade has corrected upwards. So the trend is still our friend until it no longer is. As always though... no guarantees. I count a 5th change in direction now off the double bottom of $1072. I'd say the breakout of the downtrend line will continue following a quick pull back to the $1080-$1105 area...and it may have already occured.
Commerical COT has dropped 60,000 net short contracts the past 2 months which helps to reset the bullishness gold had. Bearish gold sentiment this past weekend was nearing a crescendo. So far the current correction only reached 13%, within the 16% tolerance for a mid-wave. Also to consider is that we still have unfinished business imo to pull off the 2nd half of the upmove to $1300+. That is the MoneyLA projection from the reverse H&S formation/cup n'handle. All major corrective formations this decade preceding this one made their projections following a major mid-wave correction. That's where I think this one is at presently....mid way to the next target...though it still may require going back to touch the $1020-$1065 region. I don't feel that is the highest probability scenario. I'm not placing any bets for more than a week out at a time right now. Next step is hopefully a C leg back up to $1125+ following the current B leg down.
The weakness in the miners surprised me today considering how far out they jumped in the morning. But comparing these past 3 days to the initial move from $1074 last month, they are very similar in candle shape, volume, and overall movement. Not raising the white flag yet. I see a couple of noteworth miners that had strong days today sort of hinting that some bullishness for the others will come shortly (Great Basin, Detour Gold, Novagold, Exeter, Rubicon, Northern Dynasty, San Gold, Paramount, Gabriel Resources, and Kinross to some extent.) Some of these juniors were the last ones to correct during the downturn and have exhibited more strength than their peers most of the time....so hanging on to their gains here is not surprising. The majority of the miners gave back the bulk of their gains this week, esp. the silvers with the GSR now having hit 68+.
The GSR keeps up a volatile pattern though it has only really moved within a simple trend channel since September. It's now been up for 15 days and seems to show a distinct 5 legged pattern, though maybe not yet complete. Over the past few weeks it has once again travelled to the upper end of it's 5 month trend channel. A breakout above the channel would be much worse than when it recently broke above the 200 dma.
Jim Willie dials it up yet another notch on signs of paper gold breakdown coming ever closer to the London gold market....Comex not far behind.
roadrunner
Silver looks much worse. The uptrend line off the Oct 2008 low and the 200dma both broken today. Could easily see 14 in the next few days. A 62% retracement of the move from Oct 08 would target mid 12's. Where's that guy with the truck?
Only gold was able to breech the 2008 highs. Consolidation in PM's should continue for quite some time.
Edited to add:
Upon further review of the gold chart, it too, may have broken the uptrend from the Oct high. If so, 1000-1025 should be reach in days. This will also call into question the validity of last years run. We need the Europeans to get worried about their currency and start buying gold.
Many major currencies are near some sort of support. If they can hold, then the dollar could suffer and gold will shine. Should they break, the dollar will continue upward with renewed vigor.
Knowledge is the enemy of fear
Cohodk's Halloween call of an upcoming gold peak and a continued 12-18 months of down gold seems well on track now. Gold seems to be following the 30 yr trend in prices which is quite different than the 5 and 15 yr trends have shown...basically downtrending or flat until the end of the summer...with weakness throughout February. I don't rule out the possibility of a "2008" type washout in stocks and commodities as liquidity continues to run away rapidly.
The trend is our friend and for the foreseeable future it's apparently down. But that's not to say gold won't provide some back-snapping rebounds that will just about convince any former bull that things are back. In the meantime it will be trying to buck everyone off. Would like to hear MoneyLA's view on this. We just may see most of the bullion gains from the $980-$1000 breakout point washed away. And if bullion gets down to that general area the miners will probably be far below the point where they commenced. I now look forward to the day where Cohodk posts his new chart showing that gold should be trending up yet again for 12-18 months.
One has to wonder what JS was thinking when he said the dollar was cooked in November. Well it was, for about one more month. His forecast of $1650 gold by January 14, 2011 looks to be at serious risk if gold only starts to move back up this fall.
roadrunner
I think the downside in gold will be limited to the 200dma, which is near 1018, or $990-1000, arguably the points where the "big move" really started. This is actually a great place to launch the final phase of the parabolic move.
But gold will struggle through the end of March, at which point the 4 month consolidation will be over.
I plan to remain on the sidelines until then, I probably won't post here much. I plan to hold my physical holdings. I may buy when gold hits $1000, or I may hold off and see how it goes at that level.
Edited to add:
I suppose I could short gold, but I don't feel comfortable doing that, I think the risk is too high of sudden bullish reversals or developments in the world spawning a run on gold. Iran's getting uppity... something about testing a Nuke on Feb 10 was it?
Of course, Congress and the President can suprise us at any time with a new bailout/stimulus/jobs plan. The "boyz" have got to be worried about the strong dollar. You can't double imports when the dollar is increasing like it has been.
Edited again to add:
We must not forget that the current environment is still great for the stock market... low interest rates, lots of liquidity. And generally, if the SM does well, gold will do well.
.......and 2 hours later by the close, the SM was pumped back to 10,000 to break even, gold was higher, silver to $15.17, copper up, oil rising. Liquidity was back in vogue. What will next week's 3/10/30 yr. bond week bring?
roadrunner
Similarly, the doji on the DX (USD) chart today could be marking a reversal.
I'm not prepared to call this "the" bottom, as there's a good possibility that gold will continue down for most of the 3rd and 4th weeks of this month after a brief recovery next week.
A couple day run seems reasonable. The problem with waiting until after the doji day + one up day is that 75-90% of the move is probably done. It just did that last week where 1-2 days was the entire move. And then you could be left holding the bag on the next down draft. The gold bull bucks hard esp. on the miners. The best course of action seems to be the deepest dips and then sell on that rally - maybe one day at the most. The other option seems to be just wait the whole thing out. This abc move in progress (or just completed) could just be the first major wave A....with B & C to follow over several months.
Edited to add COT report:
Gold futures on the commericial side unloaded a fair amount of shorts and longs netting a drop in O/I of 27,000 contracts to 481K. Net short dropped a few thousand to 244,600 with a slightly increased short to long ratio of 3.36.
The dollar commericals continued to pile on the shorts....4,700 of them to bring total O/I to a massive 67,283 contracts. Long to short ratio is now a nose bleed 8.59. Clearly the banks are counting on a dollar turn, though they have been wrong for months at a time in the past.
G7 meeting concluding this weekend in the Canadian arctic. Another bond week begins.
roadrunner
<< <i>Why bother trading the intermidate ups and downs? Why not just buy the dips and hang on? >>
Because that would not be day or swing trading.
roadrunner
Me too.
Today's action at the very end with the strong rebound *could* mark the beginning of a reversal with that dragonfly doji on the charts. It's too early to say for sure, but a nice white candle on Monday would confirm that a bottom is in. The timing is certainly appropriate for a reversal.
Possibly. As I stated on Thursday, many currencies were at some sort of support area. It is typical to stage a bounce from these levels and that may have occured late on Friday. The Euro is very oversold, but as of this writing isnt showing any signs of a bounce. Perhaps in the next 12 hours? Just beware that oversold is a sign of weakness, so any bounce sould be viewed with skepticism in the intermediate term. I suppose some could turn this around and provide the same arguement of the dollars weakness over the past 25 years, but I would counter with that being too long a time frame. Attitudes and philosophies change over ones lifetime. We need to look no further than the philosophies of the boomers during the 70's and compare them with today. The days of will-nilly lifestyles may very well be behind us and a new era of fiscal conservativeness may be dawning. The recent budget announcement would prove otherwise, but it may just be that over-the-top budget that brings the hammer of the populace crashing down upon our elected officials. Time will tell.
As far a trading---I've been in cash almost all week--very little trading, but did buy commodity related equities on Friday. Some names are down 30-35% in the last few weeks. These trades were entered into with the thought of closing on Monday--I hate holding anything over the weekend though. I wouldnt be surprised if there was little volatility in gold and silver on Monday.
Knowledge is the enemy of fear
<< <i>Buying the dips and hanging on would have been a particularly brutal strategy from July-November 2008. Other than Stewart Thomson I'd like to see someone who was buying each of those dips and hanging on in one piece.
roadrunner >>
You could say the same thing about the last few months I suppose. Just seems like you're taking too much risk to make too little money. On top of that you have to pay taxes on gains and pay the commissions for each trade. I don't know one "day or swing" trader who has ever lasted in the market. All the evidence is in....it's a losing proposition to day trade.
<< <i>Why bother trading the intermidate ups and downs? Why not just buy the dips and hang on? >>
A person or firm trades to make money. The more relevant question is why are you on this thread if you aren't interested in short term trading? This is the one consolidated trading thread per month. Almost all the other threads are for the buy and hold, physical only, type of precious metals folks. While buy and hold types are welcome here to chime in with their perspective, arguing on the merits of trading is pointless and a waste of everyone's time. I do not want to argue with folks that have no interest in what I am doing, I'd much rather spend my time and energy doing, rather than arguing.
As for day trading being a losing proposition, yes for the most part this is true. Most that try market timing fail, often in spectacular fashion. That is why I have always said the best course for the average person is to buy or sell at a steady and slow rate, and get an average price over a period of time. The vast majority that try day trading or short term trading lose money. A good percentage of newbie traders lose all their money in a short time period. That said, it is sort of like some other endeavors such as real estate agents, or actors or athletes. In those fields the average participant makes little to nothing, while those that can cut it, can do well, and a few last a long time. I will agree, that those the top earners and long lasting winners are the exceptional cases and not the norm.
I trade options. Options are not for everyone. Some others trade futures, futures are not for everyone. Some others trade individual stocks or ETFs, and that too is not for everyone. If a person has no interest in any of these, and no interesting in learning about trading, go somewhere else, there is no point in pointless arguments.
<< <i>
A person or firm trades to make money. The more relevant question is why are you on this thread if you aren't interested in short term trading?
As for day trading being a losing proposition, yes for the most part this is true. Most that try market timing fail, often in spectacular fashion.
I trade options. Options are not for everyone. Some others trade futures, futures are not for everyone. Some others trade individual stocks or ETFs, and that too is not for everyone. If a person has no interest in any of these, and no interesting in learning about trading, go somewhere else, there is no point in pointless arguments. >>
Sorry, I didn't mean to sound like I'm not interested in everyone's spin of the markets. I guess it's kind of like suggesting to smokers that cigarettes kill...and of course it's a good reminder although the smoker doesn't want to be reminded.
I do like to invest and do some buying and selling...but not on a daily basis. It's more every few months I'll buy something...
Directly to your post, I too do write options against some stock and silver positions. Sometimes I'll buy in the money options instead of stock. So like everyone else here, I like to follow the market. Obviously the silver and gold markets are complex creatures....but I'd be more inclined to buy this pull back than sell into it.
Cheers!!
In an inflationary environment that is a good stragtegy. And I dont mean inflationary in terms of consumer prices. In a deflationary environment such as we've had in equities for the better part of a decade and in real estate for the past 3-4 years, hanging on can be disasterous. At some point there will be considerable deflation in commodity prices. When that point arrives, I dont exactly know--maybe it already has, but my strategy will always be, buy the dips and sell .
Sold most of commodity play between 10 and 11am this morn. FCX, X, XOM, XME, EDC. Averaged just over 5% on those trades. Not bad for a weekend. Now 85% cash, 15% net long.
Knowledge is the enemy of fear
Read a bunch of good articles today, but I didn't have a chance to copy the links here. Here's a good one:
A Stern Reality Check for Gold Naysayers
Some good quotes:
Meanwhile we hear from the bears that Gold is a “crowded trade” and that because there are a few commercials on television, the public is involved. Such anecdotal evidence is easily refuted by facts. First of all, only 0.7% of all global assets are in Gold and gold-related equities and exchange traded funds4 . What does a real Gold bubble look like? That figure was 15% in 1934 and 29% in 1980. While more and more people are buying Gold (that is what happens in a secular bull market, participation rises over time!), it is still extremely under-owned while corporate and government bonds are overowned. The vast majority of the few that own precious metals in their portfolio have a weighting below 10%. While a lot of money poured into Gold in 2008 and 2009, even more money poured into Bond funds. That is the crowded trade.
the public’s view on Gold did not exceed 75% bulls as it did in 2006 and 2008. As Gold broke $1000, the public’s bullish appetite barely increased.
Many gold bears are deflationists. They argue that since all asset classes have trended together and trended against the US$, all fall in a deflationary period. This is the correct view when we look at very short periods of time like July to October 2008. However, in the larger picture Gold performs very well on a relative basis in a deflationary period. It outperforms as other asset classes tumble and more importantly, it is the first asset to recover.
Furthermore, the US dollar doesn’t have to decline for Gold to do well. Did you know that since the very end of 2004, the US$ is flat but Gold is up 143%? Since July 20, 2007, Gold is up 56% while the dollar is flat. Since early September 2008, Gold is up 35%, while the dollar is up 1%. The majority of deflationists have been dead wrong on Gold and will continue to be wrong.
Then some really good discussion on parabolic patterns. I'm not going to copy that here, as it's good to reference the charts in the article:
Take a look again at the Gold chart and you will notice that the parabolic move has already begun. The recognition phase likely will take some time to develop.
Did some reading though...
If some or all of this "hits" Wall Street on Thursday, gold could have a good day.
The bond auctions have not been good this week Not bad, but not good either. A sign of things to come? Thursday's 30yr auction could be bad, as buyers have been favoring short term over long term debt... and if the short term debt didn't go well, there's no way the the long term will do well.
An interesting article that I found, but old, Dec 15.
Hyperinflationary Great Depression Coming this Year
Foreign Central Banks Slowed Purchases of Treasuries 7 weeks ago
Money Supply Data shows double dip ahead
China orders retreat from risky (dollar based) assets
China orders retreat from risky (dollar based) assets --------- retreat to core debt guaranteed by the US government
So China think US debt is safe? Im so confused.
I also have no opinion on the direction of gold in the next few days. Could be up or down $25. Not a good risk adjusted trade. Silver should stall at $16.
Knowledge is the enemy of fear
In looking at the Aroon 10 day trending GDX and HUI have positive crossovers indicating more short term up action to come though things are probably closer to the finish than the start. They've retraced about 40% of the down move. These short GDX/HUI up-legs have only been lasting 3-4 days on this C leg.....at least so far. Gold ran into it's upper channel line today at around $1100 (formed from the past 3 peaks of 1226/1162/1126) and then turned south. Volume on GLD has been downtrending the past week supporting the thought that the downside offers more potential. Copper and oil have helped to pull gold up the past couple of days. Agree that trying to figure out a direction for gold and silver recently has been nearly impossible...though the bounce off $1044/$14+ fit in very nicely with 5 legs down following the brief peak at $1107. Copper and plat counted out the same.
Betts long term, intermediate, and short term gold trends
The above monthly and daily charts on gold are worth a look. Author looks at $750 as key monthly trend support and $924 as the bottom of the intermediate trend support from this past spring. He feels that short term support will at least be revisited ($1048) with $1018 or $999 as potential deeper targets over the next 2-3 weeks.
roadrunner
Remember that there are 3 possible trends--UP, DOWN and SIDEWAYS.
GDX and $XAU have made almost perfect 38% retracements from the Oct 08 low. It was a good spot at which to make a stand. They are still making lower highs and lower lows since Dec and broke the 200dma to the downside. My momo indicator still shows probable weakness, at best stabilization, for another month or so.
Copper made a huge bounce in the last week--JJC rallied from 38 to nearly 43. It has MUCH MORE downside. Just a 38% retrace takes it to 36.50. A 50% retrace is more likely which targets 33. Copper should drop to at least $2.25.
Knowledge is the enemy of fear
Again, selling the way out of the money puts are low risk, low reward trades, with an extremely high percentage of winners if held until to expiration. Though on leverage, on full margin, selling puts can get scary and risky during a smash down.
On the dollar side the long to short commercial futures ratio broke into record territory at 9.02. O/I fell back a hefty 8,300 contracts (12%) as the commercials sold off both 2,100 shorts and 500 longs.
roadrunner
There's been a lot of dollar strength lately... On one hand I think it's appropriate for a little break here - and we may get one with details for the resolution to the Greece situation being announced this week. But that would probably be temporary. For the next several months, I can see the USD being strong... the only wild card I see is when California's (and other states) crisis will hit the news and become a big deal.
Another thing to consider is the stock market. While I agree that stocks are generally over priced, the conditions are still ripe for the market to do well... low interest rates, lots of money sloshing around. Saw this quote, "The time to be a bear is when everyone is a bull. At this juncture there are still too many skeptics. They need to be wiped out. Therefore, it is great to be a bull with so many bears present."
My expectation is still for gold to take off starting in late March or early April... but I'm not convinced this will come due to dollar weakness. Gold and the USD do come uncoupled from time to time, and I'm going to put it out there that the next time could happen due to a currency crisis in another country - like Japan - who is in bad shape right now. Such a crisis would cause a surge into the USD, but it could also cause a few $Billion to flow into physical gold - not necessarily in the US but in Asia. We all know the physical gold market is tight, and it won't take much to make gold move. And once the next frenzy is started - and just like the recent RE and oil frenzies - it will start to feed on itself and complete the parabolic pattern.
Of course, another poor US treasury auction and it could put more (down) pressure on the USD.
Back to the chart... The triangle I drew recently is actually pretty much still intact... still valid (IMO) despite the brief break of the bottom line. We should be seeing a resolution this week. I expect it to be up - to coincide with a small break in the USD move. From a TA POV, I think the triangle is supposed to resolve in the direction of the trend before the consolidation, which would be up... Not the beginning of a huge move, but perhpas a move well into the 1100's again. Of course, we could see a breakdown, but I don't expect it.
220dma now up to $1023.
My OptionsXpress newsletter said the following:
Just as Gold seemed to have lost its luster, traders began buying-up the precious metal when the futures traded down to the 1050 area. The bounce coincides with weakness in equities and a rebound in Crude Oil, indicating that traders still have faith in the metal as a safe haven investment. Over the same period of time, the Dollar Index has been trading sideways, unable to break out to new highs. The uncertainty over European debt given the Greece debacle and traders' lack of enthusiasm with US fixed income instruments suggests that there is a chance that the price of Gold may disassociate itself from its natural inverse Dollar relationship if the currency climbs slowly. In times of global economic turmoil, both the greenback and precious metals are seen as flight to quality investments. However, a strong enough surge in the US currency could eventually dampen the appeal of Gold as an investment and cause traders to flock to fixed income instruments. Equity prices will likely also have an impact on traders' decisions. If equity prices were to continue falling, it would be viewed as a sign that traders expect the economic recovery to cool, thus decreasing the likelihood of runaway inflation. There are plenty of arguments for both Gold bulls and bears at the moment, hinting at erratic market action.
Knowledge is the enemy of fear
With a record amount of debt to be sold in 2010, who is going to buy it all?
Foreign Demand for Treasuries Dips in December
Feb. 16 (Bloomberg) -- International demand for long-term U.S. financial assets grew in December at a slower pace than a month earlier, as China sold U.S. government securities, a U.S. Treasury Department report showed.
Net buying of long-term equities, notes and bonds totaled $63.3 billion for the month, compared with net purchases of $126.4 billion in November, the Treasury said in Washington. Including short-term securities such as bills and stock swaps, foreigners purchased a net $60.9 billion in December, compared with net buying of $30.7 billion the previous month.
(Just think of city streets clogged with a hundred thousand horses each generating 15 lbs of manure every day...)
<< <i>With most shorts finally burned out, gold is finally collapsing. I expect a bounce tonight at 1097 or so; then gold will plummet once more. With the prospect of IMF sales coming, Chinese buying drying up, the Indian CB having completed its purchasing, no further drops in interest rates, a plummeting euro, and zero jewelry demand, what is left to keep gold up? >>
Gold only dropped because of the shock of the interest rate news. This is typically just a fast move to shake out the active traders and shouldn't affect the overall pattern. I don't see this 1/4pt rate change as anything but positive for gold and the markets in this environment of loose monetary policy. The Fed is acknowledging that recession fears are lifting, and a lasting economic recovery is underway (whether or not we believe or see it), and this is bullish for gold, IMO.
And I don't think India and China are the only possible buyers for the IMF gold. Not sure where your other comments came from - have those countries come out and said they are NOT going to buy it? If there is an announcement that a country or countries are going to buy it all, gold is off to the races! And last time, Sri Lanka and Mauritius bought 12 tons. I could easily foresee a bunch of smaller countries (but larger than those countries) buying 10 and 20 ton or larger chunks and before you know it the 191 tons are gone.
So what's left to keep gold up? Demand for physical investment gold from other country's investors and a tight physical supply. Gold is at an all-time high in Euros, and is about to go parabolic (in euros). That article also discusses how gold is increasing when measured in all currencies.
Also keep in mind that the Fed doesn't want a strong dollar. Don't be surprised if we start to see moves to keep the dollar supressed. How will Obama double exports with a stronger dollar? He can't. How can the stock market climb as the USD climbs? It will be difficult. Gold has been showing remarkable strength despite the strong dollar. I see no reason for this to change.
As far as timing models, Friday was supposed to be a short-term peak for gold, but the timing models are often off by a day or two, so we probably did see the peak today or yesterday. Gold will probably head lower from the 1120's to this current point or a bit lower over the next week. A bottom is "scheduled" for anywhere between Feb 24 and Mar 1. The launch point for gold's resumption of the parabolic move is firming up around March 30.
From a TA perspective, and referring to my chart, so far the POG has come down to touch the breakout point from the pennant. This is not unusual and does not mean it's a false breakout (yet). It will be worth watching for a breakdown below this level which could signal more weakness. I actually need to re-draw that with a falling wedge, which overall is a bullish formation.
Why would the well-known IMF sales have any bearing at this time? Any number of nations would love to take that remaining 191 tons in one swift chunk. The IMF at worst can auction off a set number of tons every month until it's gone. The best result would be a one chunk sale to China, India, Germany, etc. It's no surprise this announcement was timed to come out just as the dollar was sputtering and that gold was breaking out to new all time highs against the Euro. The buying by China, India, Russia, Soros, Paulson, and others is usually behind the scenes. When they say they aren't buying, it often means just the opposite. Jewelry demand has been more than offset by increased investment demand in 2009. I suspect that will continue.
Basically, the growing sovereign debt crisis shows exactly how weak/potentially worthless bonds, currencies, debt/derivatives etc. really are. The US (and it's most heavily indebted states) are in no better financial shape than the PIIGS....other than they have access to a monetary printing press. That's why there will continue to be a demand for gold. Worthless paper and promises is more than enough to keep gold (and food) priced up against other assets.
All of the above does not eliminate the possibility of a continuing C leg down in gold to revisit the $990-$1130 area. I would think it's actually the most likely scenario. It could happen in the next two weeks or later on during the May-August time frame. Rising interest rates intially hamper the gold price. But as demonstrated in the late 1970's, interest rates rose from low single digits to around 15% before the price of gold even thought of turning down.
To help further cool gold's potential and boost the dollar the FED announced late today that they are raising their discount window from 0.5% to 0.75% effective Friday. This along with the IMF's recent gold sale announcement certainly hints of desperation to keep the dollar up and gold under wraps. The reflation plays of oil, copper, plat, etc were getting pretty heated up again. Copper back to $3.30 was a pretty big bounce back. The Jan. producer price index showing a 1.3% gain over last month certainly didn't help either. So no surprise it was time for the IMF and FED to do their usual smoke and mirror plays.
roadrunner
(Just think of city streets clogged with a hundred thousand horses each generating 15 lbs of manure every day...)
That pennant is too steep. A new pennant will form which could provide for a sustainable breakout, or it will break below the lows of 2 weeks ago and at a minimum test the 200dma.
Knowledge is the enemy of fear
<< <i>All of the above does not eliminate the possibility of a continuing C leg down in gold to revisit the $990-$1130 area. I would think it's actually the most likely scenario. It could happen in the next two weeks or later on during the May-August time frame. Rising interest rates intially hamper the gold price. But as demonstrated in the late 1970's, interest rates rose from low single digits to around 15% before the price of gold even thought of turning down. >>
I recognize that possibility, but I really don't think it's likely. I sense that the market changed at the end of last week, and IMO, the SM is poised for a good jump here in the next few weeks after completing this correction/consolidation.
Cohodk, thanks for the comments on the pennant. I got rid of it and drew the bullish downward wedge. The wedge is getting narrow, so a breakout is likely to come soon, but I don't think the real move will come until March 30. Until then though, gold could meander back up to upper 1100's.
Edited to add: Look at that 200dma up at 1026, which should be worst-case support. Guess I could have zoomed out a bit to see the wedge in better context, but it's classic.
Any good news for gold? Well it did break the trend of lower highs with the recent bump over $1125. However a number of the gold stocks have demonstrated some hang man candles over the past couple of days. BVN, which likes to lead the pack already appears headed sharply down. Many seniors/intermediates have touched their upper BB's. The 20d BB's on many gold stocks are now tightly compacted and ready for an immediate sharp move. I'd vote for a down move in the miners though I'm not playing it. On the plus side for the miners is that the volume is dropping off pretty fast which is not indicative of an impending strong sell off. The IMF, FED, and others are throwing all they can at gold and so far all they've come up with is around $1100. The fact that Soros doubled his gold holdings in the 4th quarter along with China for the 1st time buying $155 MILL in the ETF GLD adds further long term bullishness for gold.
roadrunner
USD futures (DX) looks like it is in a rising wedge pattern which is bearish and forms in the face of weakening momentum and money flow. We're currently at the 3rd touch of the upper line of the wedge. Chaikin Money Flow has a negative bias but is not negative yet. The Price Osc has negative divergence.
Meanwhile...
Gold futures are in a falling wedge pattern which is bullish. There is postive divergence in the PPO. CMF has a positive bias but is not positive yet. Volume does not confirm a breakout yet. We can't rule out another trip down the bottom support of the wedge, which would be ~1025 in a few days.
Conclusion:
Within the 0-4 weeks or so (maybe even Friday) we should see these patterns confirmed or we can dismiss them. Even if this doesn't turn out to be a rising wedge for the USD, there's a chance that it will be compelled to head down and touch the bottom support again, which will be ~79.5 in a few days.
The gold chart is loaded with energy and ready for a new short term trend, either up or down.
In listening to your analysis over the past year, correct me if I am wrong, you seem to follow the trends. If something is move up you are bullish and if down then bearish. Your view of the dollar and gold seem to contradict that. Are you allowing something other than your pure analysis of the charts to guide your thoughts?
As far as trading. The dollar does have resistance at ~81.20 which was touched today and the Euro is very oversold. I would expect some stabilization (consolidation) in coming weeks, perhaps starting today. It is possible the overbought/oversold moves in the dollar and Euro could be corrected through sideways action. A drop to 79.50--it was there yesterday--is certainly possible. This would not indicate a trend change however.
Knowledge is the enemy of fear
The dollar shows a series of higher highs and higher lows in the macd and RSI going back to September. So no clear momentum divergences yet. I looked back to see when the last 50 dma cross occured. That was Sept. 2008 just prior to the SM meltdown beginning. Identical to back then the $USD has just completed 2 upwaves as the 50/200 dma cross was made. What followed was a sharp retrench to the 50 dma line. These 2 periods are very similar on the charts. Such a pull back would take us back to the 78 range at some point.
The miners are coiling as well waiting to make a strong move. But in which direction? Copper and oil continue to surprise as the reflation trade hangs in there. Copper back to $3.50? GSR falling off a cliff today looks like a leg 3 in progress. Sort of surprised that gold is not stronger but then again the gold stocks aren't exactly responding either.
COT report -----------------
Gold and Silver largely unchanged. Slight rise in the gold commercial ratio from 2.92 to 3.09. Net short position dropped another 8K down to 220K total shorts. The commercials have cashed in some of their dollar shorts the past 2 weeks reducing their net short position from 46K to 41K. Still quite lopsided though.
roadrunner
Cohodk, I think the issue is that I have been unclear about timeframes with my comments. I do discuss short, medium, and long term time frames and I don't think I'm clear about which one I'm talking about. For ST moves, yes I am going to flop from bear to bullish calls quite often, as is the nature of short term moves and consolidations. Long term, I think I've been pretty consistent. I thought the "big move" would last until Feb or Mar but when it became obvious in December that the consolidation was going to happen sooner I had to adjust the call. On this LT timeframe though, I'm still completely bullish. Now I have enough information to make a pretty firm call that Mar 30 (give or take a few days) is going to be the launch of the resumption of the up trend.
Short and medium term, I have to be open to the possibility of a final test to support at 1025. Such a test will be brief and will be over by Mar 30. Barring this new test, I expect gold to establish a new trading range between 1120 and 1190.
My calls come from a mix of TA and input from reading TONS of news and articles. I know it's dangerous to mix TA and news because one shouldn't affect the other, but I think it helps form an understanding and get a better feel for the market.
How is the short copper trade working out? Are you still holding on, adding, or have you abandoned your position?
Effect of IMF Gold Sales on Price