Tuesday, September 16, 2014

Gold Trend / Sept 17, 2014

Long Term ~ Bearish- Need a monthly close above 1800 to confirm the bull market final phase underway.  Need a monthly close above 1560 to neutralize the trend.
Medium Term ~ Neutral/bearish– The failure on gold’s part to close above the moving averages on a monthly basis (March, April, May, July, August) has left the downside open to lower Price potential.
Intermediate Term ~ Bearish– Need a close back above 1272 for neutral.
Short Term ~ Bearish- Gold cycles due to turn this week. 

Initial Resistance 1240-1250 2nd tier 1265-1272
Initial Support 1218-1225 2nd tier 1195-1205

Last website update listed gold resistance at 1235-1245 and the high was 1242.
Support was listed at 1220-1225 and the low was 1231.

The current FOMC meeting ends Wednesday.

Given the actions of the Fed and the U.S. government, the U.S. dollar is glorified toilet paper that simply has not made it to the sewer yet… or at least, that’s what I’m commonly told. Other countries are leaving the currency behind, turning their backs on the U.S. and its cheating’ ways (see any article on FATCA).

 In fact, the BRICS countries have set up their own organization that mirrors the International Monetary Fund so that they are no longer chained to the U.S. currency and its master. Finally, representatives of China and Russia are busy traveling the globe, making trade agreements in many countries that cut out the need for using U.S. dollars.

All of this means that the days of U.S. dollar supremacy are over. We should start transitioning our wealth to metals and hard assets in preparation for the day of currency judgment.

 There’s only one problem. The U.S. dollar is going the other way.

It’s getting stronger. In the last few weeks, the Japanese yen has topped 107, while the euro dropped below $1.30. The Russian ruble is at historic lows against the dollar, while the Chinese Yuan is pegged to the dollar. This doesn’t mean that the actions of the Fed are good for the U.S. or that other countries are suddenly rushing to buy U.S. dollars because they want to patch up their relationships with us.

 It simply highlights that the other major currencies have worse problems than we do, which is what we’ve been forecasting for a couple of years (especially about Europe).
Over the last few years, we’ve published trends that have caused a lot of anxiety. The U.S. dollar is neutral to bullish and gold neutral to bearish. These are really two sides of the same coin. Our main position is that the dollar keeps strengthening, not fading away, as so many others claim. The point was never that the U.S. would be so well managed that investors and international parties would flock to our currency, it was always about relativity.

There isn’t one major currency in the world backed by, well… anything. All of them are subject to the whims of the issuing country or economic bloc, or at least to its central bank. So everyday investors, merchants, bankers, and anyone else who deals in currency risk has to evaluate all the moving parts to determine how currency issuers stack up to each other.
What are the prevailing interest rates? What are their growth prospects? Are government policies hindering trade or helping it? Are there any capital restrictions? What will happen to this currency in a time of crisis? How likely am I to get my funds back?

 With all of this in mind, it’s not hard to see how the U.S. can, and does, stack up favorably.

While our interest rates are low, they far outstrip what can be had in stable European countries and Japan. In addition, both of these currency issuers have proactively said they intend to weaken their currencies to foment greater trade. How much clearer can a central banker be? “Hold our currency at your own risk, we will devalue it the best we can!”
As for the Chinese Yuan, there aren’t many securities (like government bonds) to be had, so what is an investor to do once he has converted funds? And will the Chinese government continually allow free exchange between its currency and others? Who can be sure?

 Russian rubles are trading near their all-time record lows, so who wants to be holding that currency?

 This is one of those times when we’ve been right so far, but there’s not much joy in it. We agree with many of the arguments against the U.S. dollar. Eventually it will lose its status as the currency of reserve, and there’s no question in our minds that the Fed and the U.S. government are pursuing policies that hold us back, not lead us forward.
But the outcome of a much weaker U.S. dollar is not here yet.  When the trends turn, we will keep you alerted.
One thing to note, the US dollar is approaching important medium and long term resistance level one.
US Dollar weekly price chart with support and resistance channel lines
A significant portion of the market sees a triangle pattern as completed, and us being on our way to lower lows. Most of the technicians are touting how bad the market looks. Even the fundamentalists are now losing "hope," and some have admittedly become "brokenhearted." Sentiment is at multi-year lows according to some that track it. And, hedge funds have huge short positions in place. This is not usually a recipe for a continued strong decline.

Hourly Gold Chart
We’ve got to get back above that lower black channel line.  Note how the last two days have made an attempt to do so.  There will be additional resistance near 1250 where a red resistance line and the green 200 hour moving average comes into play.  Support on Wednesday comes in at 1218-1222.  Resistance 1240-1250.
These are the two most likely channel potentials that exist at the moment.  The Middle Red dotted downtrend line was added last night as I took a parallel from the highest point during this last medium term cycle.  The 1218-1222 area is support and then the 1195-1205 where the parallel lower red channel line resides. 
Gold hourly price chart with support and resistance channel lines
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