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Monday, January 6, 2014

Gold Trend Jan 07/2014

Long Term ~ Neutral - need a monthly close above 1800 to confirm the bull market final phase underway
Medium Term ~ Bearish - Need a close above 1321-1370 to neutralize
Intermediate Term ~ Neutral – neutral on weekly close above 1222 - resistance-1272
Short Term ~ BULLISH – Be careful --- FOMC mins and Jobs data coming up.  The 1244-1254 area is resistance and short term cycle will only finalize on Wednesday.  
Initial Resistance 1244-1254 2nd tier 1264-1267
Initial Support 1230-1234 and 2nd tier 1214-1222
Last update listed resistance at 1244-1251 and the high was 1248.  Support was listed at 1230-1234 and for all but about 2 seconds when 11000 contracts (37 tons) was put for sale at the MARKET the low was 1235   If we count the two seconds ------ then 2nd tier support was listed at 1214-1222 and the low was 1212.60
Gold Overview
Sudden Gold Plunge Has Traders Looking for Answers
By Alex Rosenberg
CNBC, New York
Monday, January 6, 2014
Gold futures plunged more than $30 at 10:14 a.m. EST on Monday morning, before regaining nearly all of that drop within the same minute.
The swift move triggered a 10-second pause in trading, and many market participants said a single trading error was probably to blame.
"What has a tendency to happen if someone does a fat finger trade is that it triggers stops that people leave in," said Matthew Hoverman, senior trader at Grafite Capital. "There is a high likelihood that that's what happened today."
The bottom line is that 11000 contracts were put for sale at the market in an effort to diffuse the buying coming in.  The 1244-1254 area was reached and is our first target resistance point for the week.   The control boyz are trying to hold that area because it won’t take much above that to get more momentum players to start looking and more importantly the SHORT positions in the market are no longer the “BANKS” who were short thru the entire bear market in metal.  They covered their positions to even by the June low and have been accumulating ever since.
What is even more significant is that the crying of disappearing physical supply (which has helped gold by one iota) is now getting some technical evidence from the “control boyz” in PAPER trading markets.  While many argue that the PAPER markets a scourge and should be eliminated are totally wrong.   PAPER markets have been around for 5000 years with the Babylonians creating these “derivatives” for the grain markets.
The reality of the situation is that biggest commodity market sectors by and large have to have futures contracts or else the prices would go become so volatile that 200 dollar days in gold let’s say would not be out of the ordinary.
The truth of the matter is that these markets provide LIQUIDITY for buyers and sellers in the future.
Here is the easiest explanation for the purpose and need of Futures.
A company in March of 2013 stands to get an order to process 1 million silver spoons and has to quote a price for the order.  The delivery of the spoons must be no sooner than September 1st and no later than Oct 15  in order to meet the logistics to have these spoons available for the Christmas shopping season.   In order to ensure a profit will be made by the supplier they check current price of silver delivery for July (when they would need the silver to produce).   They then form a quote to the company that wants the spoons.  The order is agreed upon by both.
In order to ensure a profit the producers of the spoon go in and by SILVER contracts in the paper market  to LOCK in the price and therefore ensure they will make a profit.   If the price of silver explodes higher== the money that is made on the silver contracts covers all the price increase of the silver then will buy because the futures contract will make money and thus offset the higher cost of silver when the spoons were delivered.

But what if silver goes down instead? 
The additional profit that will be made on the spoons because the price of silver was lower than when the purchase order was quoted will be offset by the PAPER contract becoming a loss because price rose.   Thus the producer of the spoons guarantees the profit on the purchase order because they have created a LOCK in price. Thus they will take a loss in the futures contract but that loss will be erased because the loss from the contract is offset by the lower price it took to produce the product.
The bottom line is we have to have futures (paper) in order to do business in the world of commodities.

Gold Short Term
Price has reached the 1st price target range for this week 1244-1254.  The other target is has a few ranges we could use --- so it’s a bit more difficult.  One way of saying it tonight is a close above 1244-1247 leads to 1254 at the upper end of that 10 dollar range.  A close above 1254 then goes to somewhere near 1272 plus or minus 5 bucks on either side. There are two chart patterns to look for in order to help determine whether the move is WITH the trend or against it.  The first is CHOPPY --- and it’s been choppy since we closed above the weekly NUMBER we been using of 1222.  The part that is missing is the OVERLAPPING of these waves.  Does today’s plunge to 1212.60 begs the question of whether we are now introducing the OVERLAP portion?  It was such an obvious manipulation event to CLEAR the stops for the longs that I don’t know if we can call it overlap.  Thus the uptrend is strong and steep from the last manipulation event on New Year’s eve.  As you can see the control boys have sold off gold with each attempt to move above that upper blue line resistance.  We even have a double top and reversal down on the hourly charts.  A close above the double tops favors higher to the 1272.  Support is 1212-1222.  Resistance 1244-1254 and then 1272 --- plus or minus five bucks.  The 1267 high of December offers minor resistance, then 1198-1203.
Gold hourly price chart  
What Next?
Last week’s close above 1222 favors 1244-1254 testing and then we’ll see.  It’s a jobs reporting week so keep that in mind.  Perhaps a peak here at 1244-1248 and a pullback to Wednesday for the ADP portion of the report.
Finally --- THE FOMC MINUTES GET RELEASED ALSO on Wednesday.  Usually jobs and FOMC would 99% favor a gold peak and sideways to lower into the reports.  Since it’s the new year --- will it act in the same manner?    Watch 1244-1248.
The thing we’re going to have to watch is now that a new year has begun, we have to be alert for CHANGES in market reaction to what we were used to last year.  If gold is entering a medium term move higher in Jan/Feb then expect surprise reactions to the stuff we see.  Once the trend becomes BULLISH it’s not going to matter what the news is.  There will be a few days setbacks and it will reverse and move higher…just like we’ve been seeing on the downside only opposite.
Bottom Line
IF WE BREAK ABOVE 1244-1248 then 1254-1258 would become the next target and potentially into the 1260-1272 range.

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