Each week Longleaftrading.com will be providing us a chart of the week as analyzed by a member of their team. We hope that you enjoy and learn from this new feature.
There is an old saying in our business that keeps market bulls on edge every year in the late Spring months.
“Sell in May, and go away” has no doubt lived up to its expectations this year and has left traders batteredand bruised in all sectors of the market. While I do not disagree with the overall bearish sentiment, I do believe it is time for the markets to step on the brakes as May draws to a close.
The Gold futures have been on a slide since March of this year after failing to break 1800, and sellers remain vigilant as the US FED stays away from “easing” or “accommodating” the market. Essentially, they are no longer printing US Dollars and devaluing the currency. If you add this to the relentless pressure on the Euro Currency (which typically trades inversely of the US Dollar), you will find the Dollar being the recipient of the currency “flight to safety” bid. The pressure on the precious metals are the result of a stronger US Currency.
As May draws to a close, there are many factors that I think will drive the market higher. First and foremost, I think it is impossible for global leaders to not take notice of the enormous drop in trading volume in the past several weeks. This should expedite an accommodative decision out of the US or Europe, in an effort to calm the nerves of investors. This will have global central banks looking to step back into Gold and Silver. Second, summer months tend to attract stockpiling of precious metals for jewelers ahead of wedding seasons. Just a few weeks ago, India decided not to enforce a higher tax on precious metals imports, which helped prices. Lastly, the Gold futures have now hit technical levels that should look favorable to buyers.
1.) The arrows that are numbered 1 show that Gold bottomed twice in the month of May at the same price we saw in December before rallying to almost 1800. Below the double bottom, is the proverbial “line in the sand” on the continuation chart that Gold Bugs have used to defend their long term bullish stance.
2.) The arrow labeled 2 shows the near term resistance trendline that trumped Gold buyers in March, April and early May. A close above 1600 would be first needed, but ultimately 1630 would be the target.
3.) If the market can break #2, the longer term trend would target #3. Above this price would give Gold bugs the upper hand again.
If you would like to discuss anything mentioned in this piece, please feel free to comment on the page, or call or email my office directly at the information provided. My role with Long Leaf Trading is to advise clients on trading futures and futures options and to provide technical and fundamental data like this piece. I will be happy to hear from you.
****Please be mindful of Thursday’s First Notice Day for June Gold, at which time traders will look to offset and/or roll positions to a further out month.
Brian Booth
Senior Market Strategist
888.272.6926
Think about it - if you could steal 20 trillion $ (that we know about) and you set the price of gold in london every am wouldn't you run it down and silver with it and buy it all at the bottom? Wouldn't you keep those trillions out of circulation and hold interest rates down to create deflation? Until you (not elliot) decided to bottom what you wanted to buy? As gold and silver fall the mfgs stop selling at the low prices, there really is no market as we're used to defining "markets" - mining stocks fall to near zero - at the propicious moment the un (they are in control now you realize) makes gold & silver ownership illegal - the world bank (and their "controllees") buys the whole deal up for a song. That's what I suspect's going on here - it's a reverse hunt brothers - they own and control the markets now -
I humbly think there's some things left unsaid about the currently very bearish downtrend. First, the largest declines in history come from already oversold levels. There is not much buying here after the third test of the agreed upon line in the sand support. Second, so far, there is nothing but a bounce on what appears to me to be an ongoing long term downtrend. There is nothing to suggest that the bounce is any more. The USD is very extended, but also shows no sign of a long term trend change, supported by the extremely bearish euro sentiment, which may easily develop into selling panic(s) ahead. Finally, the Elliott Wave pattern for gold does NOT look complete on the downside, UNLESS, all the lateral movement since its all time high has been within a longer term 4th wave correction with one last speculative rally to new highs remains ahead....This seems the least likely as the fundamentals no longer support a bullish outcome.
Thanks for the input Mitch. I suppose while we are at odds on a direction for the Gold Market from here, we do agree on a few technical levels that have proven to be supportive.
Because I am Series 3 licensed and advise customers on trades, I have guidelines that I must follow when writing about markets. I can not make specific recommendations, but can be biased and point out potential levels if the market were to follow my idea.
So while todays bounce off the lows for the third time this month did not see a $100 bounce, it did suggest that todays low is still a price worth taking note of, especially against a stronger US Currency. In the markets lately, I have been using support and resistance levels to base a trade off of, but have been forced to shorten the expected time frame to hold the trade. Many of my recommendations have been to enter the markets at levels like todays low in the Gold, and when the market gives the trader a chance to trail stops, I recommend they do so. As I am suree you have noticed, the day and night sessions can literally be "day and night" lately!
But I still beleive Gold will recover.
Thanks again Mitch and good luck to you.
As a novice trader / investor, I appreciate the very clear explanation of what appears to be the market psychology, as it relates to gold, silver, precious metals, US$ and the Euro. Obviously, there are many factors that affect the market, but this presentation was very helpful in understanding what is probably the major drivers: clear, concise.
Thank you for the reply Larry. I am happy to hear you enjoyed the ideas presented. I try to keep things as simple as possible, but there will always be moves that take place in the Gold market that we won't hear about until the next days news is printed........that's the way trading goes sometimes.
While Gold is on the front burner among all of the commodities for my book of business, I do advise traders on all other futures as well. If you would like to discuss any other markets, please do not hesitate to reach out to me. I wilol be happy to hear from you.
Thank you all for the replies and the additional material. Aside from a few technical levels, I beleive that most of us agree that the these mid-to-lower 1500 prices in Gold are worth noting. Any trader would agree that the "move" they are trying to capture rarely happens at the exact price or time they had planned, but scaling into the market near the target is hardly a bad idea......as long as the risk is identified.
It is true that things are less than favorable in Europe and some argue, here in the US as well. I expect that the US government and the leaders in Europe will be forced to provide some news in the near term to bring volume back to the market. Hopefully they feel the same sense or urgency.
Please feel free to contact me directly (888) 272-6926 or by email.
bb****@lo*************.com
my strong support is 1520 levels and my psychological resistance is 1590 level...
We are very close in our numbers
I do pick up a 11 month cycle round about i n june 2012
Fingers crossed that we are both rewarded in our idea
Brian,
I hope you have more to offer than, "keep those fingers crossed"
The impression is that there is an entity much greater than us that is
manipulating the mkt. to their own advantage. An issue that really needs
very close scrutiny and exposing this to the rest of us.
Your readers seem to be more informed than relying on finger crossing.
Am I on the right path? How can we possibly compete by "keeping out fingers
crossed?"
Not being harsh, just words of frustration.
Thank you
Rusty
Rusty,
I don't find your reply harsh at all. And I am sure you are not the only one that is frustrated here.....everyone is.
The main concern in the markets right now is the fact that we no longer have the almighty FED steering the global ship. Traders and investors ran markets sky high for a very long time while US Dollars were printed and debt was purchased in the form of Treasuries. Global markets felt ok to buy dips across the board as long as the FED was "watching", "easing", "accomodating" etc. This drop we have seen in the metals is a direct result of less central bank participation in the markets coupled with more and more skepticism surrounding Europe.
My take on the markets is an idea based on current technicals and an idea that Europe or the United States will implement a plan soon that will calm the nerves of investors. If they do not do so, the plan will change. Especially in this market environment, traders have to adjust when the market says so. I am just proposing an idea and fully understand that it will not apply to every traders strategy.
But I do thank you for your input. Good luck to you.
There is another alternative. The US dollar and gold rise together, breaking the inverse correlation for a time. It would later be said that "The flight to safety of the dollar was illusory, once the realities of the fiscal cliff and unresolvable debt situation set in. Investors realized that all currencies were in a race to the bottom, the dollar was never actually rising."
This could very well happen. Quantitative Easing threw a monkey wrench into the usual correlation between the US Dollar and commodities. The question here is whether or not the relationship between the two will ever return to what we consider "normal" without the FED participating.
If China's economy softens, as it looks like it might, and the Eurozone continues its unraveling, I'd say that gold/silver may still have some downward pressure. That and the junior resource companies need to consolidate now that they're at the bottom of their cycle. But at 1500 gold, and <25 silver, I'm all in.
I'm not buying any Silver or Gold ETF these days as it seems that the Euro zone issues are not getting solved. A less valued Euro artificially boots the US$ value. As a result, we get cheaper metals. Also, all the triangles are all red. Looks like the bears are winning. On top of that, there is no talks about any QE on the horizon.
Thanks Daniel. I do not blame traders for waiting for a confirmed bit of news from the US or Europe before really trusting a bounce in the metals. And you're right, it does not look like things are in a hurry to get cleaned up in Europe. What I have taken notice of though, is how a rumor can tamp down a rally lately. I am wondering when a rumor or a suggestion will kickstart a reversal in advance of a final decision. Time will tell.
basically will the Dollar Index show a decline since gold will be expected to regain it's potential as the Safe haven? therefore marking a 'sell' point on the dollar index. I really prefer multiplying my gains eg if the gold strengthens i would expect the USD to weaken hence go short on 1 (USD) and long on the other(gold)
It seems to me that the government is manipulating silver and gold prices along with the Other Bullion Banks in order strengthen the fiat money system. JPM has to exit their naked short of Silver and this gives them the chance. As a side benefit they get
lower oil prices which helps Obama but this temporary agreement could end in November.