Sunday, January 18, 2015

Gold Trend Jan 19, 2015


This week will be a busy week for the financial markets although the markets are closed Monday in USA. That will give the ailing institutions one more day to try to figure out how to avoid a panic. It’s unavoidable, of course, but they haven’t admitted that yet. They will soon enough.
The Swiss National Bank’s decision to unpeg the Franc from the Euro sent shock waves across the financial markets. Banks and hedge funds all over the globe are trying understand how badly they were hurt by the event. The largest retail foreign-exchange broker in the U.S., FXCM, was greatly damaged. So much so, they had to borrow $300 million dollars from Jefferies to continue normal operations – money Jefferies won’t likely ever see again.
Jefferies is owned by NY-based I-bank Leucadia. Leucadia will get $250m in senior notes as part of the deal, according CNBC. So what we have is a situation, as the website Zerohedge.com described it, where a central bank blew up an FX broker and a mid-market junk-bond underwriter bailed them out. That is the crazy world of finance today. The bad news is, it’s going to get crazier.
Everest Capital was forced to close its largest hedge fund. The managers were betting on a decline in Swiss francs. After the surprising decision of the Swiss central bank of the hedge fund lost more than 800 million dollars.
Swiss Franc
The most adept of wordsmiths might be forgiven for struggling to find an adjective strong enough to describe last week’s Swiss Franc price action. A quantitative description is perhaps most apt: realized weekly EURCHF volatility jumped to the highest level since at least 1975, swelling to nearly 2.5 times its previous peak.
The surge was triggered after the Swiss National Bank unexpectedly scrapped its three-year-old Swiss Franc cap of 1.20 against the Euro, saying the “exceptional and temporary measure…is no longer justified.” Appropriately enough, the previous historical peak in weekly EURCHF activity occurred in September 2011 when the Franc cap appeared as suddenly as it vanished. Then too, the SNB acted without warning and sent markets scrambling.
The announcement caught the collective FX space by surprise. Even the world’s top international economic bodies were apparently left in the dark. IMF Managing Director Christine Lagarde quipped that she found it “a bit surprising” that SNB President Thomas Jordan did not inform her of the impending move. “Talking about it would be good,” she added.St. Louis Fed President Jim Bullard hinted the US central bank was not notified either.
The go-to explanation for the SNB’s actions centers around bets that the ECB will unveil a “sovereign QE” program following its policy meeting on January 22. Mario Draghi and company finally secured a green light for large-scale purchases of government debt after the ECJ gave clearance to the similar OMT scheme devised (but never used) to battle the debt crisis in 2012. The SNB presumably scrapped the Franc cap to avoid having to keep pace with the ECB’s efforts.
Another wave of Franc volatility may be ahead next week. While markets seem all the more convinced that an ECB QE announcement is in the cards after the SNB’s about-face maneuver, a delay in the program’s implementation (if not its formulation) is entirely plausible. Securing the acquiescence of anti-QE advocates like Germany to having such an effort in the arsenal is not the same as launching it. The ECB may yet opt to wait through the end of the first quarter as it has hinted previously before pulling the trigger, sending the Euro sharply higher.
Measuring the fallout from the SNB’s actions is likely to be protracted. The full breadth of the various ripple effects will probably emerge over weeks and months, not hours and days. The Franc now looks gravely overvalued against currencies whose central banks are set to tighten policy this year, with the US Dollar standing out as particularly notable. It seems prudent to let the dust settle before taking advantage of such opportunities however.

How big was it?
The Swiss Franc after trading above 1250, plunged under 900 dollar gold wiping out all the longs and then it reversed and moved back to 1085 to match its lowest weekly 2014 close. The total range for the week was over 350 dollars in gold!!
What we are witnessing is the Euro imploding. This is something we have been discussing for quite a while and that the Euro is the next in line of currencies to add to the sovereign debt default that is coming.
What is more important, is it’s very possible that we just saw the “low” in gold regarding Swiss Franc’s. Odds favor its going to take a few weeks of consolidation here to get the market back to normal in gold and Swiss Franc’s.

Gold Vs Swiss Franc

What does the chart below mean?

Gold high right at time Swiss peg introduced

Gold Parabolic
The parabolic chart is bullish for the 7th week, and we’re at the last important resistance important resistance line until 1322-1372. We need to push higher above this last resistance line on the chart for confirmation that the medium term rally can extend much higher. Certainly the most interesting aspect of the selloff in 2014 was from top to bottom was 34 weeks and that is an important Fibonacci number that must be respected and is the 1st clue we have seen that could turn out to be a very important low point.

Whether we have a pullback into the end of January,
 odds favor the rally remains intact as long as we have a weekly close above 1217-1222.
Gold Parabolic Sars Weekly price chart

Conclusion
From technical point of view we has no reasons yet to abandon 1080$ target. Theoretical chances exist that market could reach it. But right now technical factors are not dominating ones. Taking into consideration the way how gold moves, CFTC data that shows different trend in positions we think that major factors are geopolitical and fundamental. They will come on surface probably when they will be totally utilized by institutional investors and become not as important as they stand now. We’ve described our opinion and view on this topic in current Forex weekly research. Shortly speaking we suspect that current action could be not just retracement and indicates global shifts in sentiment of investors who start to feel some tension and growing risk. 
In short-term perspective we expect shy upside continuation in 1290 area and then retracement down. Most probable target of retracement is 1237 area where Yearly Pivot Point stands. 
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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. 
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