Gold Trend July 16/2013

Long Term ~ Neutral – Need a monthly close above 1800 to confirm the bull market final phase underway
Medium Term ~ Bearish - Need a close above 1525-1580 to neutralize.
Intermediate Term ~ Bearish – Need a close above 1330 to neutralize the downtrend.
Short Term ~ Neutral/Bullish – The short term trend has gone neutral with potential for a rise above 1300-1310 -- which would be bullish to 1340-1360. A daily close below 1254 favors lower into the 22nd of July. As long as we remain above 1262-1267 it is still possible to move higher to the 22nd (plus or minus 72 hours)

Support and Resistance
Initial Resistance 1291-1305 and 2nd tier 1315-1325
Initial Support 1256-1269 and 2nd tier 1222-1232

Gold Overview

The most important thing in order for gold to regain the bull market phase is that the global economy must revive. No QE is going to do it because for the simple fact that QE3 doesn’t go into the economy.

When the Fed engages in QE, it takes away something on the asset side of the bank’s balance sheet (government securities or mortgage-backed securities) and replaces it with electronically-generated dollars. These dollars are held in the banks’ reserve accounts at the Fed. They are “excess reserves,” which cannot be spent or lent into the economy by the banks. They can only be lent to other banks that need reserves, or used to obtain other assets (new loans, bonds, etc.).

Quantitative easing has had beneficial effects on the stock market, but these have been temporary and are evidently psychological: people THINK the money supply will inflate, providing more money to invest, inflating stock prices, so investors jump in and buy. The psychological effect eventually wears off, requiring a new round of QE to keep the game going.

That is what happened with QE1 and QE2. They did not reduce unemployment, the alleged target; but they also did not drive up the overall price level. The rate of price inflation has actually been lower after QE than before the program began.

There are times when hot money will also go into commodities and did so when the first round of QE began. But it didn’t do anything on QE3. In fact gold and commodities peaked within 10 days of the announcement and have been moving lower ever since.

The crux of the problem is as we’ve described since February and that is the debt super cycle is running its course and a liquidity squeeze continues to develop. Consider the following from ZeroHedge;

When it comes to economic data, in China whatever the Politburo's Goalseek.xls model says is what goes, and credibility - especially in the context of a historic CNY1 trillion deleveraging - is irrelevant. But one reason why today's GDP print is even more irrelevant than ever, is because as Xia Bin, an economist with the State Council's Development Research Center and government advisor, said "Arguments about whether China will grow at 7% or 7.5% are "pointless" because the economy is already in a financial crisis which may only worsen if the government doesn't address the country's crippling debt problem."

There you have it. The leading force for commodity inflation, China, is also in a financial crisis.

While gold did rally last week, it came on the heels of on a surprise turnaround in policy by the Fed.

Bullion’s drop to a 34-month low in June is spurring demand from buyers of physical metal and jewelry. The cost of borrowing gold reached a 4 1/2-year high in London last week, and may be a “bullish signal,” Standard Chartered Plc said in a report July 10. The Bank said gold may rally above $1,400 by the end of the year. A scarcity of liquidity in leasing can lead to high lease rates and Negative forward rates, according to the London Bullion Market Association.

While Deutsche Bank AG said July 8 that the worst of the sell off may have passed, banks including Goldman Sachs Group Inc. and Credit Suisse Group are forecasting more declines. Money managers’ holdings of short contracts reached 80,147 last week, the highest since the CFTC data begins in 2006. That can also magnify any rally as speculators close out bearish bets by buying contracts. Hedge funds raised bets on higher gold prices for a second week as comments from Federal Reserve Chairman Ben S. Bernanke damped expectations for an imminent tapering of stimulus.

Last week’s rally means gold has now reversed most of the losses made after Bernanke said June 19 that the central bank may start paring the pace of bond buying this year and end the purchases around the middle of next year if the economy improves. The metal is still down 24 percent for the year.

On the other side of the fence, “Gold may have gotten oversold and was due for a bounce, but a bounce doesn’t a bull market make,” said Goldsmith, whose company manages C$5.50 billion ($5.28 billion) of assets. “There’s upward pressure on rates and on the dollar.”

Money managers withdrew $1.42 billion from gold funds in the week ended July 10, according to Cameron Brandt, the director of research for Cambridge, Massachusetts-based EPFR Global, which tracks money flows. Total outflows from commodity funds were $1.68 billion, according to EPFR.

The key development at the moment for gold is the GoFo rates and the fact that US Banks have covered their massive short position in gold. These are intermediate and medium term bullish for gold, but it doesn't mean a rally starts right away directly from here.

Gold at the moment got its good rally last week and so far this week, it’s consolidating its gains and is holding short term support points. A close above 1304-1310 would open the door for short term cycles to rally into the 22nd (plus or minus 72 hours) and price targets of 1340-1360 could come in play. If gold can’t exceed the 1304-1310 area, then a pullback into the 22nd will be favored to take place.

KEY RESISTANCE POINT for the WEEK

R1 and R2 are 1 and 2 standard deviations of resistance to the pivot point and S1 and S2 are supports of 1 and 2 standard deviation.

This week's number to watch 1299-1315 and 1347-1360

Tuesday has lots of numbers to watch and I’ve circled them. Traders will look at these points of resistance and support.

Gold Hourly Chart

The key now is whether we break above the 3 resistance lines just above 1300-1310. Pullbacks to 1265-1272 area important to hold undefined especially on a closing basis because a close below 1252 but more importantly 1240 means we favor going lower into the 22nd.

The short term trend is still up but MUST GET ABOVE 1304-1310 and fast. Watch the yellow line for support and then the green 200 hour moving average. The key as we said is now we need to get above those resistance lines above 1300-1310 to keep things going higher and confirm the short term cycle has inverted and higher prices into the 22nd (plus or minus 72 hours) would be favored. Otherwise gold is going to turn down here and cycle lower into the 22nd. Watch the resistance area’s on the chart. They are a must to exceed. On the downside, if that yellow line at 1260 can’t hold on an hourly basis, odds will increase that the bears are gaining control and the short term cycle will be a down one. Note the high on July 11th was within the 72 hour window for gold to peak and begin a downtrend into the 22nd (plus or minus 72 hours). So far the pullback held and is currently a sideways affair. Overall price remains in the up channel but it must now get above that resistance on the chart.

What Next?

The trade will be watching and the fact that Bernanke is testifying again this week might cause some hesitation. Still, if we get above 1304-1310 the upside should be in play BUT WE HAVE TO WATCH OUT FOR A FAKE OUT AS JULY USUALLY DOES A FEW BEFORE THE REAL MOVE TAKES PLACE. If we hit that area any pullback has to hold the 1280-1290 area.

As long as we're above 1262 the trend is up but it’s still questionable as we need to exceed that 1304 area in order to keep the upside in motion. Watch the yellow trend line on the hourly as support. Getting above those lines above 1304 is the key to higher and for the CLOSE TO BE ABOVE 1304. OTHERWISE, we can still pullback into the 22nd of the month (plus or minus 72 hours) where the short term cycle comes due. That would still be the best setup for gold as far as cycles go.

GOLD keeps going sideways here and perhaps it’s waiting for Bernanke.

Bottom Line

Odds favor a setup is developing for a medium term move higher.  On the shorter term, a move lower into the 22nd can still develop if we don't close above 1304-1310.

Do not underestimate how big GOFO and the fact that the US bankers have covered their short positions. It’s about the strongest news we've seen since the bear market began for a potential bottom. It doesn't mean it has to start right away but a medium term trend up should develop on those indications.

Remember, July can have a lot of head fakes.

The gold bull market is not over.  The correction we're in is in its final phase.  The depth of that final phase is the level of deflationary activity.  All inflation we are seeing now are NOT commodity related, but corporate profits and government taxation is where the hits are coming from.

There is a Gann 60 year commodity cycle that arrives in the Oct/Nov time frame of this year.  

With the Grand Trine cycle of July 17th -23rd and the Martin Armstrong Economic cycle on August 7th, odds favor a MAJOR CHANGE IS ABOUT TO TAKE PLACE IN THE GLOBAL DEBT SUPER CYCLE OUTCOME.  A new interest rate cycle is most likely going to be part of that package.  The last Grand Trine was in 1929 and 1966 and the Armstrong cycles have produced the most significant turns of our lifetime.  

Going forward from here is going to get very interesting.

 

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