5-28-2009

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·         Jake Bernstein of Jake Bernstein’s Weekly Market Letter on market trends

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·         Gordon Linn’s insights on trading

·         And of course me, Ira Epstein

http://iraepstein.linngroup.com/videos.html?rand=0.021

As I write this report, gold is trading about $5 higher than it was a week ago. The Slow Stochastic Chart Study remains embedded and GM has just reached a deal with its bondholders.

The most important news for the week, as far as gold is concerned is not North Korea performing missile and nuclear bomb tests. It is not Iran’s President’s offer to debate President Obama. It is not improved existing home sales. It is not the rise in interest rates this week.

It is that US consumers feel more confident than they have in over 6-months. This is shown by the overwhelming number of economists who predicted this week an end to this recession no latter than the end of this year or the end of the first quarter 2010.

So, its market psychology that has taken center stage. It doesn’t matter that the fundamentals of the market place are not improving. What’s important is that these fundamentals are no longer getting worse at the same pace they were just a few months ago.

Think I’m wrong. Than think about this. Home prices continue to fall. Jobs continue to be lost and jobless claims are still rising. All of this however is taking place at a smaller pace than was previously seen. This has investors looking for an economic reversal to hold and to take hold soon.

The current run up in energy prices is proof of this. Gold following energy prices higher is not unusual...

Inflation

Psychology will lead price change. Not the other way around. Given that this recession is making companies that survive the recession more efficient, I think you’ll find fewer inventories of goods will be available as world economic footing grabs hold. Once demand for goods come in and companies cannot find a way to get more out of their work force, an increase in employment will begin. It’s clear that we the market is not at that point yet given today’s jobless claims are still climbing to record levels. Goods for durable orders minus defense orders fell 1.5%.

Therefore, at this moment in time, inflation is not the story. A weak Dollar and turn in market psychology seems to be behind the current run-up in prices.

Seasonal Story

The Seasonal Gold Chart above displays gold price movement in two ways. It goes back 15-years to get a more current average of prices and back 35-years showing a longer averaged time frame. Historically speaking, prices tend to decline or go sideways in summer months.

Gold Rallies

Part of the reason behind the current gold rally has to do with the falling Dollar. Investors are questioning the US’s ability to pay back all that we are borrowing. Interest rate futures have and are breaking down sharply as investors demand more return for the risk they are being asked to take on. This is a %180 turn from just 6-months ago when investors were paying the government to hold their Dollars.

The GM deal is basically a done deal, with once again the US government taking on majority ownership in yet another industry. The Auto Industry.

Mortgage delinquencies continue to rise as do defaults on credit cards by US holders.

The UK is in danger of losing its AAA credit rating by one credit agency, with questions surfacing what this could mean for the US. The market is answering that by seeing interest rates rise along side gold and silver. That’s the market’s answer.

Daily Chart

In last week’s report I stated that the June Gold Chart had established itself in a short term uptrend. The upside price objective is the Bollinger Band Top, which I have labeled on the chart below.

As I pointed out last week, the Slow Stochastic Study shown on the bottom of the above chart is embedded. Embedded means the K and D Lines have both stayed over “80” for 3 or more consecutive days. When and while this occurs, implied innate strength and higher prices are the norm until the red line, the “K” line of Stochastics turns back under 80. Once the K line closes under 80, a test of the 18-Day Moving Average of Closing prices often takes place.

Right now the chart remains bullish with prices again challenging the Bollinger Band Top.

Study what occurs when Bollinger Band Tops are challenged. The challenges often result in market corrections, which offer a buying opportunity until and unless the Stochastic Study breaks down, at which point a break down to the 18-Day Moving Average of Closes often takes place.

My bias remains bullish. In fact the longer term weekly chart is even more bullish than the Daily Chart. The weekly chart requires a move under $865 to turn the longer term trend down. I don’t see that easily happening, so at this time I remain both short term and longer term bullish.

Near term support on the Daily August Gold Chart above is at $944.

A move under 938.2 would cause me to liquidate longs and look to see how prices hold against the 18-Day Moving Average of Closes, shown on the above chart as a red line.

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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. 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 no indication of future performance.