Monday, June 2, 2014

Gold Trend June 3, 2014

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What You Waiting For?
Long Term ~ Bearish - Need a monthly close above 1800 to confirm the bull market final phase underway.
Medium Term ~ Neutral – We need to close above 1272 on the last day of May to avoid a bearish reading. BUT IT IS ALSO POSSIBLE FOR JUNE TO PROVIDE THE LOW FOR THE YEAR IN GOLD. Keep that in mind and don’t become too discouraged if we do close below 1272.
Intermediate Term ~ bearish– NEED two closes above 1277 in order to go back to neutral. Need close above 1312 and 1312-1322 for bullish.

Initial Resistance 1254-1264 2nd tier 1272-1277
Initial Support 1234-1244 and 2nd tier 1222-1226

Gold overview
How often have you heard us discuss that “liquidity” is a growing problem that can lead to a deflationary spiral as a squeeze takes place? I’m sure that many would laugh at the idea that a sovereign country would put up its gold in order to get liquidity relief.

Ecuador Transfers Half Its Gold Reserves To Goldman Sachs In Exchange For "Liquidity"

This is a great example of how the game works. In a world in which every government on earth needs “liquidity” to survive, and the primary goal of every government is and always has been survival (the retention of arbitrary power at all costs), the provider of liquidity is king. So what is liquidity and who provides it?

Ecuador agreed to transfer more than half its gold reserves to Goldman Sachs Group Inc. for three years to give the government easier access to cash.
The central bank said it will send 466,000 ounces of gold to Goldman Sachs, worth about $580 million at current prices, and get the same amount back three years from now. In return, Ecuador will get “instruments of high security and liquidity” and expects to earn a profit of $16 million to $20 million over the term of the accord. The central bank didn’t detail additional terms of the transactions, such as any fees or financing costs paid to Goldman Sachs.
The deal comes as the South American country’s government, which defaulted on about $3.2 billion of bonds five years ago, seeks to cover a budget deficit forecast by the Finance Ministry to swell to a record $4.94 billion this year. President Rafael Correa said in April he also planned to sell about $700 million of foreign debt this year in the country’s first international bond sale since the 2008 and 2009 default.
“Gold that was not generating any returns in vaults, causing storage costs, now becomes a productive asset that will generate profits,” the central bank said in the statement. “These interventions in the gold market represent the beginning of a new and permanent strategy of active participation by the bank, through purchases, sales and financial operations, that will contribute to the creation of new financial investment opportunities.
 Reserves Drop
Michael DuVally, a spokesman for New York-based Goldman Sachs, declined to comment. Central Bank President Diego Martinez didn’t respond to requests made through the bank’s press office seeking more information on the transaction.
The country’s gold reserves fell by $605 million, or 55 percent, to $493 million in the week ending May 23, according to a separate report on the central bank’s website. The bank, which was stripped of its autonomy in a 2008 constitutional referendum, had about 845,000 troy ounces of gold as of April 14, according to data compiled by Bloomberg.
Last year, Goldman Sachs proposed a swap with Venezuela to provide $1.68 billion in cash to be backed by $1.85 billion of that country’s gold, documents obtained by Bloomberg News showed.
The deal, which wasn’t completed, would have carried an interest rate of 7.5 percent plus the three-month London interbank offered rate. Venezuela would have kept its exposure to gold, with the nation posting the precious metal or cash to a margin account if the price fell and Goldman Sachs posting U.S. dollars if it rose, the documents show.
Ecuador’s deal with Goldman Sachs is a signal the central bank is short on cash, Vicente Albornoz, the dean of the Universidad de las Americas business school in Quito, said in a telephone interview. The funds should help prop up government spending this year needed to drive economic growth.
“About the only thing that’s clear is that they’re converting part of their reserves into some sort of cash equivalent,” Albornoz said. “If the government doesn’t find funds to finance the deficit, it’ll have to cut spending.”
The cycles of war and civil unrest continue to expand. We reported in the weekly the stunning defeats in the EU political elections as the populous of many nations are growing ever tired of the mass corruption and debt loads their governments are putting on them.
Bring Your Own Guillotine: Anti-Monarchy Protests Break Out Across Spain
Submitted by Tyler Durden on 06/02/2014 - 17:34
The news of Spain's King Carlos' abdication this morning warranted barely a headline in the US media. However, once again, the simmering social unrest of nations full of repressed citizens burst into action as widespread anti-monarchy protests erupted across Spain. On the heels of last week's European elections that saw extreme left and extreme right parties, it seems the Spanish monarchy's move has lit the blue touch paper in a nation still suffering from record high unemployment and record high suicide rates. Protesters carried guillotines and chanted "Neither king nor master" and "Long live the struggle of the working class" demanding a referendum.
Treasury Yields Jump Most In 7 Weeks As Stocks Shrug At Fabricated Data
Submitted by Tyler Durden on 06/02/2014 - 16:01
PMI beat, ISM missed (after all fabrications), and construction spending missed big... so sell bonds and buy stocks!! Today saw Treasury yields spike 5-7bps (10Y's biggest 1-day move in over 6 weeks). Stocks were mixed with Trannies surging once again to record-er highs (+0.5%) and Russell (-0.5%) along with Nasdaq modestly red (S&P and Dow also record highs). Of course all the excitement of the day was the post-ISM reaction and re-reaction (which saw the Russell lose 1.2% at its worst). The USD rose 0.3% (best day in a month) to 4-month highs. Gold, silver, and oil all fell 0.4% or so (reflecting USD strength) as Copper surged 1.4% (presumably after China's PMI over the weekend).
End of Articles

After falling almost 1% to a near four month low on Friday, gold extended its losing streak a fifth consecutive day on Monday.
Last week, gold lost about 3.5% for its worst decline since late November 2013. Heavy technical selling throughout the week sent bullion prices below $1,250 for the first time since February 4.
The move lower last week would appear to be technically driven as options expiration and the rollover of June Gold futures combined for its usual downdraft in prices on these type of days. Gold was also weighed down by book squaring ahead of month end and technical selling by commodity funds.
But as we discussed in LENGTH on the intraday, the deflationary forces cannot be denied either.

Gold price points
After six weeks of absolute nothing gold broke to the downside on the last trade day of May. Up until Monday of this week, it was possible that gold would make a low and begin an up cycle and to short gold on a Friday was not what I wanted to do. Since then, I've had a buy order at the 1236 AREA in August mini gold. But the potential for gold to move even lower now into mid-month is a scenario that can take place. That would give gold its 3rd short term cycle inversion in a row and is something I've only seen once over the past 10 years. That inversion created a major low in gold and a subsequent strong rally.

The current issue however is that weare arriving at a slew of long term cycles that targets ideally mid-June to early July and the August 23rd to September 23rd time period. June is the 34th month since the peak and the 144th week takes place this week and next. The ideal time would be mid-June (June 13th - plus or minus 72 hours). However when we deal with longer term cycles, the standard deviations are bigger. So even though we have ideal time points, we can't expect the markets to give precise dates. It is just not within reason to black box a market that tight. Thus any time in June and into July must be considered.
More importantly is the price targets that gold might reach. We have just moved to the August contract and whenever we switch months the trend lines and channels do change. Right now the 1222-1227 area is becoming a price point of interest. However, when looking at cycles of various degrees, and monthly, weekly, daily charts there are a couple of price points of consideration.
Using a daily chart and Gann Angles and Arc's the chart below shows the potential turn points that we can be faced with. Keep in mind they are a combination of Monthly (1172-1187), weekly (1206-1227) and daily (1234-1241). The problem when we arrive at long term points we have to entertain longer windows (June 13th - July 13th) and daily, weekly, and monthly price points. We have given the three best price targets we feel could establish an important June low. The chart in itself is a composite of the daily, weekly and monthly price points most likely to provide a turn point. Even when we consider the medium term cycle due ideally the week of June 23rd (plus or minus 2.5 weeks) it gives us a total of a 6 week window. Granted that the last 4 cycles, 3 were on the exact week, we cannot expect that type of precision in time.
Gold price chart using Gann Analysis

Thus the first price point of 1235-1241 is in play right now as 1241 was reached on Monday. The blue line we are touching at 1241 and the line just under it at 1235 is the 1st point gold can support. Friday was the close of the short term cycle window so any low below 1235 (give or take a couple of dollars) would favor a move to the 1222-1227 area and up to 1206. Any new low would also favor lower prices until at least June 10th and up to June 16th. And while we can usually pinpoint the price turn area's, we can never say WHICH one will hold. It is not reasonable to pick a low within a few dollars when we have moved 700 dollars lower than the peak over the course of 144 weeks.
The degree of increased deflationary scenario's, the increasing cycle of civil revolt in nations, and even the escalation of war between nations is putting extraordinary circumstances of consideration. For gold to begin another sell-off from March of this magnitude in the face of war and the demand equations coming out of China and the Far East speak volumes for the dangers of a deflationary implosion.
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