GOLD TREND May 14 - 18, 2012

 May 18

3.00 PM GMT

 Support is the 1560-1565 area for the remainder 

of the day but also at 1568-1575.  

Resistance is now 1604-1609 and the potential 

to move there today can’t be eliminated. 

Most gold traders think that gold was lifted sharply yesterday because of fresh assumptions of quantitative easing from the US, while others think the bounce was simply a technical balancing move. Given the magnitude of the rally and the slight upside extension again this morning, the argument that the recovery is technical in nature seems to be full of holes. Some traders are suggesting that gold saw some buying yesterday off a shift in its flight to quality status, as they think the Euro zone crisis might have entered a new and very serious stage and that in turn might be funneling some fresh safe haven buying into gold.

FROM OUR END, the best evidence is that there is a physical shortage of gold and that the last week of the correction was a manipulated event.  We have solid sources in mid east that have just completed tour of Africa, China, Europe and USA who are heavily into mining and physical gold.  They feel that gold has very limited downside under 1530.  These people are very solid people in the industry and GoldTrends is fortunate to have such an inside voice.  We have been waiting for a low to develop---and right now GOLD IS IN TIGHT SUPPLY.

Some economists think that the hang over impact from surging turmoil in the Euro zone is likely to prompt the US Fed to act, even though the Fed would probably prefer to wait for even more evidence of US slowing before acting. In the near term, adverse dollar market action is likely to serve as a slight drag on gold prices IF the dollar continues  to rally, but given that June gold to the lows this week, was down $233 an ounce from the February highs, it is possible that some value hunting buyers are starting to discount the threat of global slowing and deflation and instead are starting to anticipate some forceful action from one or several key central banks.

China shares overnight were mostly weaker with the focus of the anxiety mainly on the threat of debt problems in Spain and Italy. European equity markets were also weaker to start today, with many measures in that region poised to forge the biggest weekly loss in 6 months. A downgrade of Spanish Banks by Moody's and a two notch credit rating downgrade of Greece by Fitch wasn't that surprising, but that action seems to have rekindled speculation of a breakup of the Euro zone again. While US equities were at times trading in positive ground early this morning, an empty US scheduled report slate might leave the market's focus on Europe and the Facebook IPO

Gold Going to the Chart 

The gold snap back was hard and strong and the potential that we’ve made a short term low and potentially more is favored. The move came inside the first day of the short term cycle window.  The window will be open until March 23rd and should set the pace into the first week of June

Support is the 1560-1565 area for the remainder of the day but also at 1568-1575.  Resistance is now 1604-1609 and the potential to move there today can’t be eliminated.  I’m looking to buy on a pullback and Monday seems to be the best candidate.   With Europe closing in 2 hours, gold should remain favored by the upside today.

 9.00 AM GMT

 Long Term=Up (major resistance 1767-1804 needs to be exceeded on a monthly close)

Medium Term=BEARISH (Major Resistance 1767 Monthly Close) Technically in bearish mode.
Intermediate Term= Bearish prices continue to move lower and remain below moving averages
Short Term= Bearish  (It takes a close above 1587 to neutralize the downtrend)
Support and Resistance for Friday
Initial Resistance for 1585-1592 and 2nd tier 1605-1613
Initial Support 1561-1567 and 2nd tier 1540-1547

What Next?

The zoom in chart shows price and the strong move up today which got to the upper downtrend line.  First resistance if we break above the white dotted channel line would be the 1582-1587 area and then the 1604-1613 area. We described the condition last night as severely stretched and so we do have to be careful that this is not just a sharp short cover bounce. The situation in Europe is still very fragile and markets are still under a lot of pressure as reports of bank runs are circulating.  The weekly gold chart broke important support and the move back to 1580 on Thursday was back to the green channel line which means the trends are still down.  The bar on the 8 hour chart was long and that’s the first clue to a short term low. What we need now is follow thru. That follow thru is right where the lower green channel line is on the weekly chart.  So it remains to be seen if we are indeed going to reverse here. Thus we have gold at hourly resistance on the chart below as well as the weekly chart. IF we can slice and close above say 1587-1592 then the potential increases.

BOTTOM LINE

the short term trends are still down but as we discussed there are a lot of cycles due to bottom this week. With the big move up on the first day of the cycle turn window, everything argues for higher.  With price hitting the lower green channel line, we would think that 1582-1587 should be strong resistance. There is one more MAJOR cycle event due on Sunday night and Monday which has greater than usual odds of BRINGING some big moves into play.

 Well, we got our bounce to 1670 and a few bucks more. The way the move transpired looks like a short cover rally and there is key overhead resistance just above 1580. The bullish portion of today’s update is the reports we’ve had of physical shortages and increased premiums on the spot market for gold. The futures markets are now showing backwardation since May 14th and that adds to the bullish clues. Keep in mind that the control boys are always around. We need to see any pullback not show impulsive downside action and we need to support in the 1542-1550 area to keep this bounce alive. Finally, Facebook IPO premiers on Friday and a very important stock market cycle is due this week. With the Presidential cycle favoring an end of may low and our intermediate term chart having reached the first downside target, even stocks are hinting that an important low could be coming into play.

A close above 1587 neutralizes the short term downtrend in gold.  We still have the US dollar which comes into Friday at the important 81.50-82.00 so keep that in mind also. Barring any Euro panics, gold could consolidate its gains and spend the day in the 1560-1587 area. Even a consolidation would be a win for the bulls.

6.00 AM GMT

We got our first clue (a long range bar) that we have a short term low.  While we were looking for 1670, the way we got there with the bar pattern doesn’t favor shorting it especially with the short term cycle turn in play.  RESISTANCE 1584-1592 and 1604-1613.  Support 1557-1562 and 1544-1551.

  TRADERS

The short term cycle window opened on Thursday and it didn’t wait long. The one danger about a long position is that the channel line break was very deep and the risk that this was a short cover rally is still high.  With the physical shortages we’ve been hearing about from the mid east contact, and the backwardation that has shown up in the gold and silver contract and with the cycle turn due, we have to begin to favor the upside. Once we can get close inside the channel and support on a pullback, it will increase the upside odds.  So it’s not like this is a cake walk as the overall trend is still down. We still have the liquidity factor going so while we think we have a short term low, the medium term trend still remains bearish. But all bottoms have to start somewhere.  Everyone will be watching Spain as the crisis is starting to focus there now. Banks in the US sold insurance on European Debt and so let’s keep that in mind.

In summary

There’s still a lot of risk in the market so I’m taking it one day at a time. I’ll look for a pullback to hop on board. The PHYSICAL shortages and the short term cycles has to have us favor higher. THIS PHYSICAL SHORTAGE thing has been going on now for well over a week and has been growing. That's why it was so strange seeing price drop so hard over the past week.

RESISTANCE and SUPPORT
Resistance is the 1584-1592 and 1604-1613 are the two spots to watch on the upside resistance. On the downside support is AT 1557-1562 for Friday and then 1544-1551.
 

 May 17

6.00 AM GMT

 Long Term=Up (major resistance 1767-1804 needs to be exceeded on a monthly close)

Medium Term=BEARISH (Major Resistance 1767 Monthly Close) Technically in bearish mode.
Intermediate Term= Bearish prices continue to move lower and remain below moving averages
Short Term= Bearish  (It takes a close above 1587 to neutralize the downtrend)
Support and Resistance for Thursday
Initial Resistance for 1554-1566 and 2nd tier 1572-1575
Initial Support 1520-1537 and 2nd tier 1480-1507

 Recap

Gold continued its downtrend on Wednesday against escalating Greek uncertainties and a surging dollar. but a bounce in the 2nd half of the day lifted gold off its lows to settle near 1539 and silver near 27.20.  Gold got to within 7 dollars of the 1521 low and turned back up in a real choppy pattern.

The dollars 13-day long advance has now been classified as the longest winning one ever since the trade-weighted index has been created. Quite frankly it has not been a huge rally but one that is breaking above a long term channel. It’s not the break above the channel that counts, it’s what price does after the break that will count. Investors, presented with headlines such as the ECB suspending operations with Greece banks for “incomplete recapitalization,” have opted to sell the Euro, sell European stocks, sell commodities on faltering demand, and seek the sidelines.

Futures stabilized at the hint of additional easing in the April FOMC minutes released on Wednesday afternoon.

What Next?

The zoom in chart shows that price is still under pressure and support is the 1520-1530 area. We did not think that 1520 would hold on a break of 1537 but so far a bounce is underway . We still think it’s in danger of another test.

First resistance on Thursday is the 1550-1555 area.  IF we can’t get above there, another test of the 1530-1540 will most likely develop.  We can’t rule out another down day either but the market is severely stretched on the charts. We’d look for a consolidation day on Thursday in the 1535-1550 area.  A move above 1555 will favor the 1570 area.

It comes down to whether price can get above that area marked pivot just above 1552.  If we get above there, then 1570 comes into play as resistance on Thursday.

BOTTOM LINE

The short term trends are still down.  There are a lot of cycles that are due this week and so a bottom, even if just for a pause is favor to take place. Thursday’s support area’s are – 1532-1542 and then 1507-1521. There are also a lot of cycles pointing to this week as at least a temporary low in the metals and a bounce into early June. Until we see price at least react and start showing some strength, the downside has the advantage.  There is the potential that we bounce towards 1666-1670 if we get above 1555.  In summary, the trend is still down and the market is still dangerous.  Short term cycles are due to bottom this week.  While we can bounce, all markets remain very nervous.

May 16

4.00 PM GMT

 London Gold Fix $1,537.50 $-21.50

The hard down action had June gold seemingly failing at a series of chart points overnight. Ongoing fear of slowing off the turmoil in the Euro zone has remained the primary focus, but fears of slowing growth in China and deceleration in the US economy are also issues prompting many longs to exit gold and other commodity positions. Action in the dollar markets continues to leave the pressure on gold, as a rush out of the Euro and into US Treasuries highlights ongoing interest in a few select safe haven instruments.

The gold market might also be fearful of upcoming World Gold Council demand figures, but given the magnitude of the slide in gold prices since the 1st quarter highs, the gold trade has probably factored in a good measure of slowing gold demand. While some gold bulls might hope for some hints of easing from the US Fed in their meeting minutes release later today, it might be premature to think that the Fed was on the cusp of easing in their last meeting.

While US scheduled data might be of some importance today, it would be a little surprising for US economic information to fully take the world's focus away from the troubles in the Euro zone. In fact, some traders are already looking ahead with concern toward longer term Spanish debt auctions later this week as that could be the next key junction point for the EU situation

Some traders think it will take positive US data just to slow the rate of decline in gold prices today.

The Hong Kong market resumed its downward march last night with the largest daily loss in several months overnight. Shares also weakened on mainland China as investors overnight were disappointed by weaker than expected Chinese loan demand figures for May. Not surprisingly, European equity markets were mixed to weaker again overnight with a fairly negative flow of headlines on Greece keeping investors on edge. With reports of many Greeks pulling deposits from banks, that in turn has fanned talk of a Greece exit from the Euro zone. Early action in the US equity markets was mixed and two sided as the hangover from the Euro zone has kept investors nervous.

Gold Going to the Chart

A potential low might have been achieved last night at 1528.  Price has rallied back to the first resistance of 1550-1555.  A close above 1555 be suggesting that we have a temporary low in place.  It looks like the 1570 and the 1582 area are going to be targets if we get a good FOMC reading.  There are important LOWS that are due this week in markets.  We don’t know if there’s one more test of the downside or not for the remainder of the week at this point.

We think the FOMC minutes will be positive for the markets but just in case of a wide range affair, I’ll probably look for a set up on Thursday of this week.   

RESISTANCE is 1550-1555 and first support is 1533-1535 
but anything can happen once the FOMC minutes come out.

In summary, we think a low is very close and will develop this week  
where a good sized bounce should take place.

 10.00 AM GMT

 The FOMC Statement

 Information received since the Federal Open Market Committee met in March suggests that the economy has been expanding moderately. Labor market conditions have improved in recent months; the unemployment rate has declined but remains elevated. Household spending and business fixed investment have continued to advance. Despite some signs of improvement, the housing sector remains depressed. Inflation has picked up somewhat, mainly reflecting higher prices of crude oil and gasoline. However, longer-term inflation expectations have remained stable.

Previous Statement Reads:
    “the unemployment rate has declined notably…”
    “Inflation has been subdued in recent months, although prices of crude oil and gasoline have increased lately.”

Previous Statement Reads:
    There was no expectation of “then to pick up gradually”
    “Strains in global financial markets have eased, though they continue to pose significant downside risks to the economic outlook”.
These last 3 paragraphs remained unchanged… Therefore, the main changes in the first paragraph are related to slight downgrade of the recent Employment Change, and that inflation is on the rise, primarily because of higher crude prices.
In the next paragraph, the words “…then to pick up gradually” was added to reflect the Fed’s positive view of the economy. Although still cautious in global economic conditions (such as in Europe), I believe the Fed is overall positive… Here’s a quick summary:

    Employment is still a problem…
    Inflation is due to high crude prices…
    Economy will pick up towards the end of the year…
    Europe is still a concern.

If you combine the post analysis of the FOMC Statement and the QA session during the press conference, you’ll see a picture start to emerge, and that’s NO MORE QE by the Feds.

 9.00 AM GMT

Gold reached sensitive areas, which is the support between 1532.00 and 1498.00 per ounce. We can see that gold reached areas around the support for the main descending channel and momentum indicators are within oversold areas. Therefore, we see that gold might start an upside correction move today as far as 1498.00 remains intact . The expected bullish move is only a correction and fails with the breach of 1498.00.

The trading range for today is among the key support at 1475.00 and key resistance now at 1579.00.

The short term trend is to the upside targeting 1945.00 per ounce as far as areas of 1475.00 remain intact with a weekly closing.

Support: 1536.00, 1529.00, 1510.00, 1502.00, 1498.00
Resistance: 1540.00, 1552.00, 1566.00, 1573.00, 1579.00
Recommendation Based on the charts and explanations above, our opinion is buying gold around 1526.00 targeting 1540.00, 1556.00 and 1566.00 and stop loss with four-hour closing below 1498.00 might be appropriate

4.00 AM GMT

 Long Term=Up (major resistance 1767-1804 needs to be exceeded on a monthly close)

Medium Term=BEARISH (Major Resistance 1767 Monthly Close) Technically in bearish mode.
Intermediate Term= Bearish prices continue to move lower and remain below moving averages
Short Term= Bearish  (It takes a close above 1587 to neutralize the downtrend)
Support and Resistance for Wednesday
Initial Resistance for 1554-1566 and 2nd tier 1572-1575
Initial Support 1520-1537 and 2nd tier 1480-1507

 What Next?

The zoom in chart shows that price is still under pressure and there really isn’t much support left that we can rely on until the lows at 1520 if we break 1537.   If we break below 1537 we don’t think that 1520 will hold.  Tuesday was another failure.  Mid week Wednesday favors a low of sorts and perhaps a bounce after the FOMC minutes.

 The 1550 area had shown promise to hold but the new low is now 1541. We are right on the 2011 downtrend line and in an area that should provide a good bounce.  I thought we were getting it today and jumped the gun as we made new lows again after the COMEX close, something that is very unusual but has now happened two days in row.

BOTTOM LINE

The short term trends are still down.  There are a lot of cycles that are due this week and so a bottom, even if just for a pause is favor to take place. Wednesday’s support area’s are – 1535-1542 and then 1513-1525. There are also a lot of cycles pointing to this week as at least a temporary low in the metals and a bounce into early June. Until we see price at least react and start showing some strength, the downside has the advantage.   With mid week Wednesday here, we have the potential to make a pre-FOMC low and then some type of bounce into Thursday.  We favored as much on Tuesday and it didn’t come.  Regardless of the bounce, the trend is still down and thus has the advantage.   A host of short term cycles are due in this time frame.

Minutes from the FOMC will be released on Wednesday.  They will do what they want with the market.  Perhaps a final flush out will take place.

May 15

4.00 PM GMT

CME NEWS

Support is 1549-1553 for the remainder of the day.  Look for a target of 1570 on a bounce into Wednesday.  It takes a move below 1537 to cancel the bounce. 

Greece heading to elections next month.  Anit-bailout party is leading the race. Greece has only 2 billion left.  Will be broke in June. Need 14 billion in June. Today’s payments made via escrow. Uncertainty continues.

After another range down thrust that temporarily sent June gold prices down to levels of December 29th, the gold market managed to bounce away from the initial lows. In addition to a slightly improved macro economic view overnight, the gold market also seems to have found some increased demand talk from both India and Asia overnight. Therefore some traders are suggesting that the $1,550 level in June gold futures contract could be seen as some form of value zone on the charts, but residual fear that Greece might leave the EU and fears of more slowing in China probably makes it difficult to fully throw off the pattern of weakness seen in gold for most of this month.

Talk of some tightening of prompt gold supply has probably discouraged some sellers of gold overnight, but it is unclear if that type of demand can consistently offset rather broad based global slowing fears. Some traders attribute the attempt to bounce from the initial lows this morning to the better than expected German growth/export news and that in turn probably increases the importance of the US retail sales figures later this morning. 

Unfortunately expectations for US retail sales called for only a minimal gain and that might not serve to bolster gold and commodities against the prevailing risk-off vibe--- U.S. retail sales barely inched ahead in April, reflecting cautious consumer spending after a   strong start to the year. Separately, U.S. consumer prices were flat last month, ending three months of price increases as falling gasoline costs   held inflation at bay.

Retail and food service sales increased 0.1%   last month to a seasonally adjusted $408.04 billion, the Commerce Department   reported Tuesday. Sales were up 6.4% year over year.

.While the US is also scheduled to release inflation figures this morning that news isn't expected to have a noted impact on gold prices and they came in practically unchanged.

The Hong Kong market overnight managed a positive session after a long string of recent losses. A decline in foreign direct investment in China also left economic views suspect in the region but it did appear as if somewhat favorable German economic numbers overnight helped the Asian markets find some support. European equity markets were initially mixed overnight with gainers barely out numbering the losers. While news of a +0.5% gain in German GDP wouldn't normally be a big development, expectations for activity in the Euro zone have really been deflated recently and the trade seems to have garnered a small measure of confidence from the positive quarter over quarter performance in Germany. Early action in the US equity markets also showed some strength, but it was unclear whether today's gains were simply short covering or an actual improvement in sentiment. The focus of the trade later today is likely to center on the US retail sales report, which is expected to post a very minimal gain.

 

Gold going to the chart

The London 1545 low and the COMEX 1550 low today support is in and a bounce into Wednesday would be favored towards the 1570 area. There is a low due this week and its certainly possible that equities and commodities are bottoming this morning.  We’re not sure if the “low” is in place – but cycles suggest a KEY LOW DUE THIS WEEK. 

 

5.00 AM GMT

 Gold Might Be Due For A Corrective Rally 

As It Nears Range Support

As risk aversion boosts the USD, XAU/USD or gold has been sliding sharply from a central pivot of 1666.50 to the current 1555 area. As the market falls sharply, we should remember that gold has been trading in a range roughly between 1802 resistance and 1522 support. To the left of the daily chart, we would have seen a support pivot of 1531.72 established in September 2011.

The RSI reading in the daily chart is dipping below 30. Last time the RSI was down here in December, we saw a bullish divergence (lower price low matched with higher RSI low) leading to a rally. The rally ended up developing a bearish divergence (higher price high matched with lower RSI high) before falling. Divergences are clues signs of a slowing trend. When the market is range-bound, it is an even more reliable signal for reversal.

4.00 AM GMT

 Long Term=Up (major resistance 1767-1804 needs to be exceeded on a monthly close)

Medium Term=BEARISH (Major Resistance 1767 Monthly Close) Technically in bearish mode.
Intermediate Term= Bearish prices continue to move lower and remain below moving averages
Short Term= Bearish  (It takes a close above 1606 to neutralize the downtrend)
Support and Resistance for Tuesday
Initial Resistance for 1566-1576 and 2nd tier 1589-1595
Initial Support 1537-1553 and 2nd tier 1507-1527

  

IMPORTANT EVENTS THIS WEEK

Tuesday - Euro Area GDP 1Q2012: According to the previous report, during the fourth quarter of 2011, the Euro Area GDP contracted by 0.3% This news might affect the euro; the current expectations are of another a low growth rate or even another contraction for the first quarter; if there will be another contraction then technically it will mean Euro Area is in a recession;

Wednesday - Minutes of last FOMC Meeting: Following the recent FOMC meeting, in which it was decided to keep the monetary policy unchanged, the market didn't react to this news as bullion only slightly rose.

Thursday - Philly Fed Manufacturing Index: In the previous April survey, the growth rate moderately declined to +8.5. If this trend will continue this index may adversely affect not only USD but also gold

The G8 was scheduled for McCormick Place May 18 and 19 was moved to Camp David.  (Rumor has it that Putin not going---Medvedev going instead. G8 leaders criticized the last election and pro-democracy crackdowns, so this might just be a snub.

The NATO summit is scheduled for May 20 and 21. 

Recap

Commodities and equities were down hard again and the US dollar was up as the ‘liquidity scenario’ played out again on Monday.  This is the one exception we continue to be very concerned about and its potential effect on metals and everything else. Price broke below the 2012 low of 1561 coming in at 1557 and price spent the latter part of the afternoon right at that 1561 area.  We were on the lookout for 1555-1560 and today’s June Gold low on the COMEX was exactly 1555. This does not mean we are out of the woods by any means. This price level can be broken and another onslaught can come at us.  There is no doubt that this area can hold and should be a potential consideration. What we did not like on Monday was there wasn’t any strength into the close and price could not get back above the 1566 – 1571 price zone.  This leaves the downside still open to lower price potentials.

The 10-year treasury rate has just dropped to a new low of 1.78% as the rush into the most liquid of assets (treasuries and dollars) were the leading markets again on Monday.  The dollar closed at 80.64 above the downtrend channel.

Then this just released a bit ago:

Moody’s has just announced a downgrade of count them…26 Italian banks, and left their outlooks negative.

The 26 banks were all cut from 1-4 notches: The ratings were cut by one notch for 10 banks, two notches for eight banks, three notches for six banks, and four notches for two banks.
The December 2011 close was at 1563 and the Jan2 2012 low was 1561 and the high for that first day of 2012 was 1571.  Price got as low as 1555 on Monday.  Tuesday has intra day potential of down to 1537 so the support is wide ---1537-1552.  On the upside, the 1571-1575 area is first resistance and then the 1595-1613 area.

Rob Kirby on the JP Morgan trade gone bad:

When you look at the Office of the Comptroller of the Currency’s breakdown of derivatives held by all U.S. banks – you get a good picture as to the aggregate weightings of broad categories of derivatives – namely, that Credit Default Swaps make up only 6% of ALL OUTSTANDING NOTIONAL at Dec. 31/2011.

Indeed, the vast majority [81 % at Dec. 31/2011] of all outstanding derivatives are U.S. Dollar denominated interest rate products.  The 10 year U.S. government bond yield stands as a very good proxy for what happening in the 81 % portion of outstanding notional.

We have seen the 10 year U.S. bond spike “UP” roughly 25 % [from 1.90 % to 2.40 %] and then precipitously drop 30 % [from 2.40 % to 1.80 %].  Percentage “whip-saw” moves of this magnitude put ENORMOUS STRAIN on 80 Trillion notional derivatives books – which are VERY concentrated in interest rate swaps like J.P. Morgue My best guess is that J.P. Morgue’s announced loss had much more to do with the latest “whip-saw” in 10 year U.S. government bonds than Jamie Dimon wants to [or will ever] admit.

What Next?

The zoom in chart shows that price is still under pressure and there really isn’t much support left that we can rely on until the lows at 1520.  If we break below 1535-1545 we don’t think that 1520 will hold.  For Tuesday, we’d usually favor a bounce into Tuesday but price is so weak it could actually move yet another day lower.

 The 1550 area is showing support to begin the day and then runs down towards 1545 as the day wears on.

A bounce towards the 1572-1577 area can develop at any time.  

But until price changes what it has been doing the advantage is to the downside.

BOTTOM LINE

The short term trends are still down.  There are a lot of cycles that are due this week and so a bottom, even if just for a pause is favor to take place.
Tuesday’s support area’s are – 1537-1542 and then 1552-1555. There’s also a lot of cycles pointing to this week as at least a temporary low in the metals and a bounce into early June. Until we see price at least react and start showing some strength, the downside has the advantage.

May 14

4.00 PM GMT

 London Gold Fix $1,563.00 $-16.25

With a hard range down extension this morning in gold prices, the fear of global slowing and the residual turmoil from Greece has apparently picked up where it left off at the end of last week. Surprisingly news of a 50 point reduction in the Chinese RRR failed to provide any support to global equity markets and to commodity prices and that has to be very discouraging to the bulls in gold. However, residual fear off the situation in Greece has kept panic in place toward the entire Euro zone, which in turn is fostering ongoing uncertainty toward Italy, Spain and Greek debt instruments!

While the current focus of the gold trade is on the threat of slowing demand off ongoing problems in the Euro zone, the gold market also saw evidence of increased gold production overnight from Kazakhstan for the first four months of 2012. Gold prices might have seen some minor cushion from favorable Indian gold festival demand talk, but some players think that news is too little, too late.

 In looking ahead to the US action, the gold bulls are facing DOLLAR market action and noted weakness in US equities and that recently hasn't been a good combination for gold.

Asian equity markets remained weak again last night despite a reserve rate requirement cut by China over the weekend. Apparently investors in Asia are concerned about additional slowing ahead and many press outlooks are now predicting other easing actions from the Chinese government to cushion against further slowing. European equity markets also remained very weak as a political setback in Greece put that country back into the headlines again.

An Italian debt auction posted the highest yields since January early this morning but decent demand for the Italian debt today kept the situation in Italy from becoming a more major and sustained panic event. Early action in the US equity markets showed notably weak action with the S&P falling down to levels equal to March 7th. A thin US economic report slate today, could leave the risk off vibe in place and leave the focus squarely on European affairs.

Note – the MID EAST contract in the gold market is reporting very TIGHT PHYSICAL supply continues. 

Gold Going to the Chart

The key area to watch is the 1555-1560 area.  We want to see at least a  close above that area.  This is one of the last supports until the Dec 29th low at 1521.   The potential to make a LOW here need be watched. The low price on January 2nd 2012 was 1561 ----- so they have taken out the 2012 LOW in New York and erased the total gain.

There was a few large spikes on volume –one coming on the low where we traded 2500 contracts in a three minute span.  Those with the fingers on the trigger can consider this area 1555-1560 – with a tight stop.  If we do hold this area today, I might be speculating.

The yearly price has been penetrated and now a move back above the 1561-1570 area would get my interest in a potential long.

Bottom line – Now that we have taken out the 2012 price at 1561 --- with a 1557 area low  --- we want to see price move back above 1561 and close above 1570.  A lot is going to depend how deep the JPM strory really is and its effect on the markets.  THE TREND REMAINS DOWN IN equities and metals.  The question is whether gold can now move back above the 1561-1571  price low for 2012.  It is a must we get back above this area.  There’s a lot of cycles that are due this week that should provide fodder for at least a temporary bottom and push back up.  

Lets see if we can get back above that 1561-1571 area.  

Watch 1555-1560.

7.00 AM GMT

 Long Term=Up (major resistance 1767-1804 needs to be exceeded on a monthly close)

Medium Term=BEARISH (Major Resistance 1767 Monthly Close) Technically in bearish mode.
Intermediate Term= Bearish (we remain in the chop channel)
Short Term= Bearish  (It takes a close above 1606 to neutralize the downtrend)
Support and Resistance for Monday
Initial Resistance for 1589-1599 and 2nd tier 1609-1613
Initial Support 1566-1576 and 2nd tier 1561-1567

 What Next?

The zoom in chart shows that price is still under pressure and is still at the lower end of the trend. The failure to get back above 1600 last week left the market in vulnerable position. It takes a close above the lower red channel line put the short term trend out of bearish mode and at least neutral.  There is resistance at all the purple lines with the exception of the lower one. That line has support around the 1559-1566 area depending on when price would arrive there and if we move lower.  A close below 1555 would favor lower into Tuesday. For now the trends remain down and we should continue to favor lower until we at least see some kind of bottoming action.

BOTTOM LINE

Price is at key support areas and there are many expectations for a low at 1550-1575. However the short term trends are still down as we arrive at Monday. There are a lot of cycles that are due this week and so a bottom, even if just for a pause is favor to take place.  A lot will depend on how the JP Morgan news is viewed after the weekend and how the situations in Europe play out, especially in Greece and Spain.

Monday’s support area’s are – 1576-1578 and then 1566-1570 and 1555-1559.  There’s also a lot of cycles pointing to this week as at least a temporary low in the metals and a bounce into early June. Until we see price at least react and start showing some strength, the downside has the advantage. Watch 1575-1578 initially. Then 1566 and finally 1555.

  We believe the second half of the year is the critical period for the gold to resume its uptrend, accompanied by a series of events including possible QE3 and reelection in Greece.

Financial markets were gloomy last week. Driven by the highly political uncertain situation in Greece, disappointing economic data in China and reports of JP Morgan's $2B trading loss linked to synthetic credit securities, market sentiment was dampened and investors rushed to dump their risky assets and sought shelter in safe haven, the US dollar. Gold, which had demonstrated its safe haven appeal in 2009 and 2010, traded in sync with the euro. The market speculated the yellow metal's appeal has lost. We disagree. Indeed, we believe the second half of the year is the critical period for the gold to resume its uptrend, accompanied by a series of events including possible QE3 and reelection in Greece.

The gold breaking below 1600 for the first time this year. The recent sharp correction has cast doubt on the yellow metal's status as a safe haven asset. Despite this, we retain the view that gold would strengthen again in the second half of the year as driven by a number of factors. Recent macroeconomic indicators released in the US suggested that the world's biggest economy has resumed slowdown. This has opened the window for the Fed to add further easing. As the operation twist will expire in June. The focus is on whether the Fed would embark a new round of unconventional easing, the QE3 at the FOMC meeting on June 19-20. It's widely anticipated that none of the parties in the Greek parliament will be able to form a government and another election in June is imminent. Should Syriza become the biggest party and succeed in forming a government, it would try to renegotiate with the IMF and the EU regarding financial assistance and abandonment of austerity measures. 

 This would trigger a new round of flight to safe-haven. By that time, gold is expected to outperform the US dollar and the latter would probably be dumped as a result of QE3.  

Meanwhile, the policy change in India would probably resume demand in the country. India's Finance Minister announced on May 7 that an excise tax on precious metal jewelry will be withdrawn. This is expected to stimulate the country's gold purchases later in coming months, especially after a plunge of imports to 30-35 tons in April from 90 tons the same period last year. 

These events are positive catalysts for the yellow metal to reverse the current bearishness and pave the way for uptrend resumption.

It is likely to fall towards 1571.71 - 1561.90

 Supports / Resistances

Res 2    1,604.9900
Ex-High    1,595.1700
Res 1    1,593.2600
Pivot    1,583.4400
Sup 1    1,571.7100
Ex-Low    1,573.6300
Sup 2    1,561.9000

Gold continues to fall trading at 1588.95 down an additional 6.55 in this session. It seems that traders have completely turned their backs on gold. Gold has always been thought of a safe haven and a hedge against inflation, but this week, as investors moved from equities, and commodities they also fled from gold which has fallen from the 1650 level.

The political unrest and confusion in the Eurozone, as well as the uncertainty of the relationship of the two major leaders of the EU, Germany’s Merkel and French President Hollande are still untested. The two come from completely different ideological points. Many think that the two will not fit and will develop new alliances.

Greece continues to be Greece, in the euro, out of the euro, government no government. Every day the same and every day different, at least lately they have been able to let Spain move from center stage.

The main distraction today, was disappointing and worrisome data from China, today, China released a slew of MoM and YoY data and all were below forecast some missing by a large amount,  

Showing that the slowdown might be more than originally estimated.

 

The long term green momentum line is in trouble in gold.  ANY MONTHLY CLOSE BELOW the green channel line or two weekly closes and the 1993 RED line and the white line just above it becomes activated at the 1300-1400 area. That doesn’t mean we will trade there, but the potential will be open and will strongly favor it. And on a long term basis, it would not be out of the ordinary for price to return to the long term moving averages during a correction such as this. With the blue moving average arriving at this long term white line, it sets up a potential magnet to attract price.  It would be a painful correction that would shake out many gold bulls.

But there is even another reason why we might get a test of that long term area. Note how the long term 34 month blue moving average is arriving at the white channel line. That long term price zone is 1400 dollars and is one of the two potential low points we have favored for 2012.

If you’re looking to accumulate gold this year --- these are the two price points to most likely form a low.  Since we don’t know which one will be the low we suggest you consider buying a position at both of these price points this year.  We have only tested the long term average once, since the bull market began and that was at the price lows of the liquidity crisis of 2008.

A panic move to this price point this year WILL BE ACTIVATED IF WE close below the lower green channel line twice on a Friday closing basis or a monthly close also. IF we do, odds will favor a test of this long term price line at 1400.  Thus the 1570-1600 area is where the first price zone low for the year is--- and the 1378-1400 area is where the 2nd price zone is located.   IF the panic escalates, the 1400 area on the chart at the 34 month average will come into play. If price reaches that area, it should provide a major buy opportunity for accumulation.

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YOU SHOULD NOT TAKE ANY MATERIAL posted on this BLOG AS RECOMMENDATIONS TO BUY OR SELL GOLD OR ANY OTHER INVESTMENT VEHICLE LISTED.

Do your own due diligence.   

No one knows tomorrow's price or circumstance.  

I intend to portray my thoughts and ideas on the subject which may s be used as a tool for the reader.  

 I do not accept responsibility for being incorrect in my speculations on market trend. 

King Regards.