4-2-2009
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G-20 Meeting
For today at least, gold is going to be influenced by the G-20 Meeting being held in London. Protests have been going on with some people rioting, breaking of windows, breaking into banks to stage sit downs and so on. This is the protestor's means of getting their points across to a press core only too eager to report on whatever they do. It is the protestor's best means of getting their points across.
Given that most economies of countries around the world are under strain, I would expect that in some manner or the other increased gold sales in the open market will take place by the IMF with the proceeds going to whatever cause the G-20 comes up with.
This is normal as just recently 35-tons of gold were sold under a similar type arrangement. Much of that gold moved hands to those with ETF holdings. The proof is in the fact that ETF's reached all time inventory holdings.
Seasonally Speaking, Gold is in line to break or go sideways
To get an idea of the longer term picture, look at the Seasonal Chart below, as provided to us by The Moore Research Center...http://www.mrci.com/. This is the newest Seasonal Chart which includes 2008 pricing.
Seasonally speaking, as you can see on the above chart gold often runs into selling pressure between April through July. It now appears that a meaningful rally to new market highs into early April is not likely. It appears from the chart action on the Daily Chart of June Gold that selling pressure on rallies lies ahead. If the G-20 Conference ends with the message that the worse of the financial mess is behind us, I would expect gold to suffer even more as it loses its Safe Haven status.
Today the European Central Bank cut interest rates by .25 basis points. This was less than the market was looking for. This lack of aggressiveness on cutting interest rates caused the Euro to rally and the Dollar to weaken.
Traditionally speaking, a lower Dollar is bullish for Gold as is a rising stock market like the one we are witnessing early this morning. However, the norms are not working.
Safe Haven Investing and Inflation
Last week I wrote, "Right now things seem a bit out of step. Gold is out of step with the Dollar given the break in the Dollar, the accompanying break in Gold and for that matter Silver as well. It seems at this time that unless stock indices begin to again seriously breakdown, gold's "Safe Haven" status for the time being is out of favor."
The same is at work today.
Unless the G-20 says something to upset the markets, which I don't expect to take place, gold looks to be in a downtrend with 890 the next downside target. Technically speaking I would be wrong and would recommend reversing to a bullish stance if gold got back over 935.8.
Daily Chart
Seasonally speaking, as you can see on the above chart gold often runs into selling pressure between April through July. It now appears that a meaningful rally to new market highs into early April is not likely. It appears from the chart action on the Daily Chart of June Gold that selling pressure on rallies lies ahead. If the G-20 Conference ends with the message that the worse of the financial mess is behind us, I would expect gold to suffer even more as it loses its Safe Haven status.
Today the European Central Bank cut interest rates by .25 basis points. This was less than the market was looking for. This lack of aggressiveness on cutting interest rates caused the Euro to rally and the Dollar to weaken.
Traditionally speaking, a lower Dollar is bullish for Gold as is a rising stock market like the one we are witnessing early this morning. However, the norms are not working.
Safe Haven Investing and Inflation
Last week I wrote, "Right now things seem a bit out of step. Gold is out of step with the Dollar given the break in the Dollar, the accompanying break in Gold and for that matter Silver as well. It seems at this time that unless stock indices begin to again seriously breakdown, gold's "Safe Haven" status for the time being is out of favor."
The same is at work today.
Unless the G-20 says something to upset the markets, which I don't expect to take place, gold looks to be in a downtrend with 890 the next downside target. Technically speaking I would be wrong and would recommend reversing to a bullish stance if gold got back over 935.8.
Daily Chart
June Gold has a pattern or lower highs and lower lows. Prices are trading under the 18-Day Moving Average of Closes, the red line on the above chart, which adds to market bearishness.
The bottom graph on the above chart displays the Slow Stochastic Study, which is a measurement of market momentum. Readings are not oversold, but are pointing down which means rallies are short selling opportunities.
Globally speaking, it looks as though the world is ready to take on some risk. As such, "Safe Haven" investments like gold and the Dollar are temporarily out of favor and being sold off as investors more elsewhere.
My expectation is for gold to get back in favor once world economies find financial footing. Eventually stability leads to demand. Demand leads to more "stimulus" Dollars chasing a fewer amount of goods. Until production of those goods in demand catches up with demand, which won't happen until demand warrants a price at which further output is warranted, price increases for what is available occurs. This is in part how inflation grabs hold.
The Seasonal Study shows sideways to lower price action from April through July. After that markets have historically try to move higher.
Last week I pulled my recommendation to buy a Gold Call Spread. This was done because prices were breaking down and got under 918.3, a price trigger point on the charts that I believe reversed the chart pattern.
June Gold looks like a short sale at 927.0 I would not want to see prices get over 935.9. The initial downside target is 889.1.
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