Category Archives: Precious Metals

ONG Focus | Technical | Written by Oil N’ Gold | Mon Jun 04 12 10:06 ETAt this point, gold continues to press mentioned 38.2% retracement of 1792.7 to 1526.7 at 1628.3, as well as 55 days EMA. There is no confirmation of reversal yet and we’ll stay neutral. Sustained trading above 1628.3 fibo level will confirm completion of fall from 1792.7 and pave the way to 61.8% retracement at 1691.1 and above. Though below 1583.6 minor support will turn focus back to 1526.7 support instead.In the bigger picture, price actions form 1923.7 high are seen as a medium term consolidation pattern. There is no indication that such consolidation is finished, and more range bound trading could be seen. In any case, downside of any falling leg should be contained by 1478.3/1577.4 support zone and bring rebound. Meanwhile, break of 1792.7 resistance is needed to be the first signal of up trend resumption. Otherwise, the consolidation would extend further.

Comex Gold Continuous Contract 4 Hours Chart

Comex Gold Continuous Contract Daily Chart

ONG Focus | Technical | Written by Oil N’ Gold | Mon May 21 12 06:13 ETWith 1567.8 minor support intact, rebound from 1526.7 is still in progress and further rise could be seen to 38.2% retracement of 1792.7 to 1526.7 at 1628.3. Sustained break there will indicate that whole fall from 1792.7 has completed and will bring stronger rally back to 1700 psychological level and above. However, before that, another fall is still in favor. Below 1567.8 minor support will flip bias back to the downside for 1526.7 and below.In the bigger picture, price actions form 1923.7 high are viewed as a mid term consolidation pattern. There is no indication that such consolidation is finished, and more range trading could be seen. In any case, downside of any falling leg should be contained by 1478.3/1577.4 support zone and bring rebound. A break of 1792.7 resistance is needed to be the first signal of up trend resumption. Otherwise, the consolidation would extending longer.

Comex Gold Continuous Contract 4 Hours Chart

Comex Gold Continuous Contract Daily Chart

Central bankers want us to believe that monetary policy is about banks, interest rates, and the ability to get a “cheap” loan. The 2002 quote below from Ben Bernanke points to the primary goals of printing money – to boost asset prices and “scare’ people into consuming and investing before prices go up.

Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

If you question the goal of boosting asset prices, watch this 2010 video, which explains how quantitative easing works in the real world. As seen via the price of gold, the markets have been questioning that “a determined government can always generate higher spending and hence positive inflation.”

When you update market models every day, you notice subtle shifts in investors’ perceptions relative to risk and inflation. While it looks flat in the chart below, the slope of gold’s 200-day moving average ticked down on Wednesday.

The 200-day moving average (MA) is commonly used by traders to monitor long-term trends. Gold is now below its 200-day MA and the slope is trying to roll over; both lean bearish for gold. Since the 200-day monitors long-term trends, the analysis here is related to the longer-term outlook.

Gold is commonly used by investors as a hedge against inflation. Inflation can surface after a significant round(s) of money printing from central banks, like the Fed and European Central Bank (ECB). The central bankers are fighting deflationary forces related to the purging of debt, which can occur via writedowns or defaults. Greece recently wrote down their debt, meaning they told bondholders you will get less back than we originally promised when your bond matures. A writedown is deflationary since it destroys wealth and reduces the amount of money in the financial system.

Gold is an excellent way to monitor investors’ perception of how the battle between inflationary forces (money printing) and deflationary forces (purging debt) is playing out. In the chart below, investors were betting on the central bankers and inflation. The black line is the price of gold. The thin colored lines are moving averages, which are used to filter out the noise of day to day volatility. The chart below shows a strong trend and bias toward future inflation.

When Europe’s enormous debt problems became the market’s primary focus in mid-2011, investors began to realize how big, and how deflationary, the problem was. The right side of the chart below looks quite different than the left side. Notice on the left side, price never came back to the 200-day, nor did the “faster” moving averages ever cross the 200-day. The right side of the chart looks different and breaks the pattern of inflationary fears.

The chart below shows the last two times that (a) the price of gold broke below the 200-day MA and (b) some of the “faster” moving averages crossed below the 200-day. In Case A, the slope of gold’s 200-day (pink) never rolled over in a negative manner. In Case A, stocks performed well after gold’s bout of weakness (see bottom of chart in late 2006). In Case B, the slope of gold’s 200-day did roll over in a bearish and deflationary manner. Stocks did not fare well (see red arrow lower right). As a reminder, gold’s 200-day is trying to roll over in the present day, which looks more like Case B.

How can all this help us today? As long as the chart of gold remains in its current state (bearish 200-day/bearish moving average crossovers), we should manage all risk assets with care (from an intermediate-term perspective). If the slope of gold’s 200-day regains a positive bias and buyers flock back to gold, it would send bullish signals for risk/inflation protection assets, including stocks. Looking at things from a bullish perspective, the daily chart of the gold miners ETF (GDX) completed a “bullish engulfing” candlestick pattern on May 9, which can be an early sign of a reversal in price.

If you question the gravity of the problem of too much debt, (a) ask yourself why the economy has remained so weak when interest rates have basically been at zero, and (b) watch this October 2011 video explaining the European debt crisis.

This entry was posted on Thursday, May 10th, 2012 at 10:11 am and is filed under Stocks – U.S.. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

One of the big headlines of today was the sharp decline and breakdown under chart-based support in Gold.

Let’s take a look at what happened, what levels are important here, and what current structure reveals.

First, the intraday 30-min “Structure” Chart of Gold:

When we are assessing “Market Structure” or “Swing Structure,” we simply note the progression of price highs and lows to create a reference.

Take a moment to review a recent “Multi-Timeframe Structure” lesson using Silver to highlight the concept.

We use structure to determine uptrends, downtrends, or – in the case of gold’s intraday chart – sideways trends.

On the chart above, we can see gold “building” a sideways structure (trend) with clear converging ‘Symmetrical Triangle” trendlines.

The immediate levels going into today’s session were $ 1,630 for lower support and $ 1,660 for upper resistance.

Pre-market, Gold broke the ’structure’ and an intraday trend day or sharp sell-off resulted from the initial movement out of the Triangle structure.

With the intraday triangle image in mind, let’s pull-up the perspective to the Daily Chart:

As I’ve been highlighting to Weekly Inter-market Members lately, Gold has been bouncing off the short-term $ 1,620/$ 1,630 level and failing (giving short-term retracement entries) into the overhead 50 day EMA.

Today’s session broke this pattern that developed in March and now the market faces a critical “Make or Break” support test at the $ 1,600 round-number easy reference line.

While $ 1,600 is easy to remember, it’s also an important polarity level, serving as support multiple times as seen with the horizontal yellow highlight above.

Buyers continued to step-in to support (purchase) gold at the $ 1,600 level with the exception of a two-swing breakdown in December 2011.

Keeping it very simple, $ 1,600 is thus the key “Bull/Bear” reference level – gold has a bullish bias while price is above $ 1,600 or else a bearish bias while under it.

A continued sell-off here suggests $ 1,550 or even $ 1,525 would be the next support level (or target price if you are short-selling under $ 1,600).

Gold’s Momentum/Volatility Cycles

I also wanted to highlight the persistent “Momentum Compression” (almost like a triangle pattern) in the 3/10 Momentum Oscillator.

Periods of price expansion or ‘big impulse/trending’ moves tend to emerge from low-volatility or compressed periods in price.

Stated differently, price in general tends to alternate (rotate) between sustained periods of high then low (then high) volatility.

We would call the July to October 2011 period as “high volatility” which gave-way to the recent multi-month compression or reduction in volatility.

One would suspect a future higher volatility period would result, particularly if we see a breakthrough trigger under $ 1,600 (for the bearish side) or alternately above $ 1,700 (to the bullish side).

Nevertheless, while $ 1,600 may seem too simple to be a key level to watch, it’s the important reference level for the immediate future.

Corey Rosenbloom, CMT
Afraid to Trade.com

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Silver has been quick indecisive recently but after all, near term outlook remains bearish with 33.29 resistance intact. Fall from 37.475 is expected to continue lower to 61.8% retracement of 26.145 to 37.48 at 30.513. Sustained trading below 30 psychological level should pave the way to 26.145 and below.

In the bigger picture, price actions from 26.15 should merely be a consolidation pattern only and has completed with three waves to 37.48. Fall from there is tentatively treated as resumption of the medium term decline from 49.82 high and should extend through 26.145 to 61.8% retracement of 8.4 to 49.82 at 24.22 and below. Though, break of 33.29 resistance will dampen this view and turn focus back to 37.48 instead.

In the long term picture, the main question is on whether 49.82 is a medium term or long term top. Current development is favoring the latter case. Though, we’d prefer to see sustained break of 61.8% retracement of 8.4 to 49.82 at 24.22 to confirm. Otherwise, price actions from 49.82 could merely be developing into a sideway pattern.

Comex Silver Continuous Contract 4 Hours Chart

Comex Silver Continuous Contract Daily Chart

Comex Silver Continuous Contract Weekly Chart

Comex Silver Continuous Contract Monthly Chart

Gold’s rebound last week was limited at 1681.3 and retreated. With 4 hours MACD crossed below signal line, initial bias is mildly on the downside this week. Also, note that with 1696.9 resistance intact, near term outlook remains bearish and fall from 1792.7 is expected to resume sooner or later. Break of 1613 will target 1523.9 and possibly below.

In the bigger picture, price actions form 1923.7 high are viewed as medium term consolidation pattern. Fall from 1792.7 is viewed as one of the falling leg inside the pattern and should head back to 1478.3/1577.4 support zone. Nonetheless, we’d still expect strong support from 1478.3/1577.4 support zone to contain downside to finish the consolidation and bring up trend resumption to another high above 1923.7 eventually. On the upside, break of 1696.9 resistance will now argue that fall from 1792.7 is finished and turn focus back to this resistance instead.

In the long term picture, with 1478.3 support intact, there is no change in the long term bullish outlook in gold. While some more medium term consolidation cannot be ruled out, we’d anticipate an eventual break of 2000 psychological level in the long run

Comex Gold Continuous Contract 4 Hours Chart

Comex Gold Continuous Contract Daily Chart

Comex Gold Continuous Contract Weekly Chart

Comex Gold Continuous Contract Monthly Chart

When you listen to the arguments in favor of tying the nation’s monetary policy to gold, the associated claims for why this is reasonable are often presented as airtight. One example that I hear frequently is the claim that the gold standard’s application in U.S. history was virtually flawless in promoting economic growth. The implication: any one who questions a policy that genuflects to a certain shiny, malleable metal is either uninformed, inebriated, or part of some vast big-government monetary conspiracy.

The case for the gold standard is commonly presented as open and shut by its more ardent supporters, but the historical record is slightly more nuanced. At the very least, there are substantive questions that should—must—be addressed in any reasonable discussion about reviving a gold-based monetary system. But don’t hold your breath. Most gold bugs aren’t eager to embrace the awkward bits of history that cast aspersions on their metal’s monetary past.

A recent example that caught my eye is a Forbes column by Brian Domitrovic, a professor in the department of history at Sam Houston State University. The professor’s latest brief asserts that the metal’s influence over the U.S. economy, when the gold standard reigned supreme in the decades following the Civil War, was nothing less than spectacularly productive. Yes, he concedes, there were some minor problems, but these were mere trifles, barely worth mentioning. As Domitrovic explains:

Whatever criticism there is to be leveled at the gold standard during its halcyon days in the late 19th and early 20th centuries, we now know, it is small potatoes. However many panics and bank failures you can point to from 1870 to 1913, the underlying economic reality is that the period saw phenomenal growth year after year, far above the twentieth-century average, and in the context of price oscillations around par that have no like in their modesty in the subsequent century of history.

While we can all agree that economic growth was impressive during the roughly four decades until the creation of the Federal Reserve in 1913, it’s debatable how much of the growth is attributable to gold. The U.S. was an emerging market at the time and so it’s reasonable to ask if the country’s natural growth rate was higher compared with the relatively mature economy that currently prevails. But let’s accept Domitrovic’s premise at face value and give the gold standard the benefit of the doubt. What, then, are we to make of the nasty run of deep and relatively prolonged recessions that harassed this era on a routine basis? Small potatoes? Hardly.

According to NBER data, recessions a century ago were relatively frequent and lengthy by the current standards of the last several generations of macro history. During the 43-year span of 1870-1913, the U.S. endured 11 recessions. By contrast, there have been roughly half as many downturns—six, to be exact—in the 41 years since 1971, when the last vestiges of the gold standard were abandoned. Meantime, the recessions of 1870-1913 lasted longer, running for an average of nearly 24 months (peak to trough) vs. a comparatively short 12-month average from 1971 onward. Keep in mind, too, that the longest U.S. recession on record—a 65-month monster during 1873-1879—surfaced in the era that Domitrovic hails as gold-inspired macro nirvana.

You can, of course, argue that robust economic growth over the broad span of 1870-1913 is a reasonable tradeoff for any short term volatility. Then again, arguing for the wisdom of such a tradeoff may not be all that persuasive if you’re one of the victims of the era’s many downturns. The public may have been a stoic lot in the 19th and early 20th centuries during episodes of macro turmoil, but the tolerance for such events is virtually nil in the 21st century. Dealing with political sentiment in democratically elected governments may be inconvenient, but it’s reality.

Domitrovic also dismisses the various studies over the years that place some if not most of the blame for the Great Depression on the gold standard. For example, he advises that Barry Eichengreen’s book Golden Fetters from 1992 has been superseded by Richard Timberlake’s research. The argument here is that the gold standard really wasn’t operative in the 1930s. Maybe so, but it’s hard to overlook the fact that the economy grew strongly soon after Roosevelt removed the link between the dollar and gold in March 1933. Meanwhile, before we throw out Eichengreen’s research, consider too that he documents that the earlier a country left the gold standard in the 1930s, the sooner its economy began to heal from the deleveraging crisis:

Source: “The origins and nature of the Great Slump revisited,” Economic History Review, May 1992

Gold bugs would have us believe that a monetary system based on the metal relieves us of the burden of maintaining a central bank. But once again, history tells us different. During the The Panic of 1907, before there was a Federal Reserve, and at a time when the U.S. was on a version of the gold standard that professor Domitrovic recognizes as legitimate, a financial crisis forced the country to invent a central bank on the fly (under the leadership of J.P. Morgan) to inject some much-needed liquidity into the system and prevent a meltdown. In fact, similar events had been common in the previous decades. After the 1907 debacle, the country decided that it had had enough and established a formal central bank.

The point of all this is to remind us that the alleged open-and-shut case for returning to a gold standard has a few defects after all. There are tradeoffs in binding a nation’s money supply to gold. You can argue that the tradeoffs, when all is said and done, favor a gold standard. History, in my opinion, suggests otherwise, but, hey, it’s certainly legitimate to have this debate. But that’s the issue here: there are debatable aspects in this conversation. You wouldn’t know it from listening to some of the gold standard people, but history isn’t anywhere as compact and tidy as some claim.

I think the onus of proof should be on those who assert that central planning in money and banking is superior to a system that would emerge from voluntary contractual arrangements. Central planning doesn’t outperform in any other sector of economics.

I suggest reading Lawrence H. White’s works on banking, and consider a wider array of data and time periods.

As for gdp volatility vs growth, there is much to be said for having a financial system evolve as hardy weeds, rather than a bunch of greenhouse flowers protected by government (that occasionally itself crashes down, allowing all to die at once). Volatility breeds resiliance. However, some of US volatility could potentially be attributable to branch banking laws that prevented banks from diversifying exposures.