21 Jan – 22 Feb
$500 Contest
Fxprizes
Long Term – Bullish – The key resistance area’s to regain upside momentum and potential new highs are 1792 and 1804.
Medium Term Bullish – We are above moving averages– resistance 1755-1765 – support 1620-1648 and 1570.
Intermediate term –Bullish- A close below 1665 would return to neutral and below 1648 bearish.
Medium term and long term accumulation should be adding 5% to their holdings at around 1660.
Resistance for this week 1695-1702 2nd tier 1710-1722
Support for this week 1666-1676 2nd tier 1648-1655
Prices rallied last week as we’re going thru a cycle inversion on our short term cycles. This is a repeat of what happened in January of 2012 but so far the price has not been as strong this time around. Cycle inversions usually give stronger price moves that what we’ve seen so far on this inversion and the chart pattern since the 1625 low is my biggest concern at the moment. Its structure is choppy and overlapping and that is usually not a sign of the “main” trend. It can continue higher but chop patterns are not usually reliable patterns. The most likely place for a failure of this pattern would be the 1698-1720 area as they usually don’t get very far above the last wave high on a chart. In fact they usually form a double top within about 10 dollars. The last pattern high was 1698 so we’ll have to be careful near the 1700 area.
Prices remain in their downtrends from October but the 1626 low has met correction objectives. We still can't rule out further downside until the 25th of January, but odds favor a rally begins either this week or the week of the 25th and throughout February. Odds favor the 25th of the month more likely than this week, but we won't rule it out. IF we cycle invert and rally this week the move could be strong. A low on the 25th would favor higher into late February and likely into March.
The world's financial and political elite will head this week to the Alps for 2013's gathering of the World Economic Forum in Davos, Switzerland, with the global economy far less plagued by fear than it was last year.
Among the risk factors analysts cite:
undefined The heavy government debt loads in the eurozone, the chief concern from 2012, remain in place. Many worry that European leaders, facing citizen anger over government spending cuts in the midst of recession, will be reluctant to reduce debt and strengthen oversight of their banking system.
undefined A dispute in the United States over raising the government's debt ceiling, and dealing with automatic spending cuts, has only been postponed until early March. Even if the ceiling is raised, Republicans in the U.S. Congress will likely demand deep spending cuts as a price for voting to raise it. If U.S. government spending were slashed in the short run, it could slow the global economy.
undefined A potential conflict in the Middle East between Israel and Iran remains a continuing worry because it could disrupt energy supplies, driving up the price of oil and hurting growth. "That's the thing we just don't have a good handle on," said IHS Global Insight's Behravesh. "People haven't worried about it that much recently, but it's still there."
undefined Though China will likely continue to help drive global growth, its purchases and investments could increasingly favor Chinese companies, and "foreign companies and investors won't benefit," risk consulting company Eurasia Group argues. "We have to stop treating emerging markets as an asset class for outsized growth," the consultant said in its annual risk report.
undefined Some analysts warn that the cheap credit provided by the world's central banks has numbed markets to risk and could inflate the prices of some investments. The danger is that unsustainable bubbles in assets like stocks or real estate could eventually form, potentially leading to a devastating collapse in asset prices.
Rabobank's Foley says she fears that all the cash made available by central banks "has given people a license to turn a blind eye to the macroeconomic news."
Eventually, once economic growth accelerates, central banks will have to signal they're getting ready to withdraw that stimulus. Otherwise, runaway inflation could result from all the excess money pumped into the financial system. Yet that might not be until 2014 or even later.
Executives and finance officials arriving in Davos will have to get a grip on an uncertain economy that could end up causing surprise or disappointment. Now that it has dodged some major risks, Behravesh says the global economy might even outperform expectations.
Recap
The gold market made its lows at the start of trading last week and rallied to the 1685 area. The usual take down for the jobs report got gold back down to 1666 but the reversed and pushed higher to 1698 before topping out and pulling back to 1683 and closing at 1685. The rally was good for the bulls but the pattern on the hourly chart is choppy and overlapping and that is a concern that can't be tossed out just yet. Gold is arriving at the key resistance points 1698 and 1710-1722. Gold still needs to close above that area in order to be solidly in an uptrend. The fundamentals for gold remain in place but the bond market and higher interest rates need to be watched. The government bickering over the fiscal cliff and now the debt ceiling is long term bullish but could bring down markets should there not be agreement in the shorter term when the debate does get going.
The debt ceiling debate has been pushed out for three months and it’s probably a good thing. If the Republicans don't pass a debt ceiling increase, it will have a devastating impact of global proportions. Not only would it down grade USA debt ratings, but it would incite a global market panic. They are playing with fire and holding the nation hostage to paying its bills is probably the worst thing they could ever do. The answer is not holding the debt ceiling down. It’s eliminating deficit spending by slashing budgets and increasing taxes. While the republicans are looked as being more fiscally responsible the truth of the matter is they have accumulated more DEFICITS (not by much as Obama is turning that around) than the democrats have over the past 40 years. Truth is always stranger than fiction but the reason is simple. Republicans always cut taxes to their crony corporations and the very rich but they don’t CUT SPENDING.
We expected bank earnings to be better than what they reported but the outcome was the same---the stock market yawned and moved to a five year high in most of the major indices. Yawning or not, the stock market is nearing a correction that either begins this coming week or when we reach the 1520-1530 area in the S&P's.
Overview
"There have been some very important gold-related events happening over the last few years. A year ago, and more recently, I reported on the repatriation of gold by countries around the world. But now the second largest holder of gold, Germany, is apparently doing the same.
"The revelation came as Germany's budget watchdog demanded an on-site probe of the country's remaining gold reserves in London, Paris, and New York to verify whether the metal really exists.
The country has 3,396 tons of gold worth €143bn (£116bn), the world's second-largest holding after the US. Nearly all of it was shifted to vaults abroad during the Cold War in case of a Soviet attack.
Roughly 66pc is held at the New York Federal Reserve, 21pc at the Bank of England, and 8pc at the Bank of France. The German Court of Auditors told legislators in a redacted report that the gold had "never been verified physically" and ordered the Bundesbank to secure access to the storage sites.
It called for repatriation of 150 tons over the next three years to test the quality and weight of the gold bars. It said Frankfurt has no register of numbered gold bars.
The report also claimed that the Bundesbank had slashed its holdings in London from 1,440 tons to 500 tons in 2000 and 2001, allegedly because storage costs were too high. The metal was flown to Frankfurt by air freight.
The revelation has baffled gold veterans. The shift came as the euro was at its weakest, slumping to $0.84 against the dollar. But it also came as the Bank of England was selling off most of Britain's gold reserves - at market lows - on orders from Gordon Brown.
The watchdog report follows claims by the German civic campaign group "Bring Back our Gold" and its US allies in the Gold Anti-Trust Committee that official data cannot be trusted. They allege central banks have loaned out or "sold short" much of their gold.
The refrain has been picked up by German legislators. "All the gold must come home: it is precisely in this crisis that we need certainty over our gold reserves," said Heinz-Peter Haustein from the Free Democrats (FDP).
The Bundesbank said it had full trust in the "integrity and independence" of its custodians, and is given detailed accounts each year. Yet it hinted at further steps to secure its reserves. "This could also involve relocating part of the holdings," it said.
There's obviously more to this story...and we shall soon see.
This week, news came out that Germany's Bundesbank will indeed repatriate its gold to restore public confidence in the safety of Germany's reserves. It will retrieve all 374 tons of the bullion it currently keeps in Paris and 300 tons currently stored at the New York Federal Reserve Bank.
The process will take 8 years and bring about 19 percent of Germany's gold reserves back to the Fatherland. Germany holds 3,400 tons of gold reserves - the most of any country, second only to the United States.
When the process is complete, Frankfurt will hold half of Germany's gold. New York will retain 37 percent, and London will store 13 percent.
The Bundesbank's announcement indicates that German leaders believe the global economic crisis may soon intensify. In other words, the currency war I talked about in my past letters is heating up.
On January 15, the Telegraph's Ambrose Evans-Prichard said that the move represents "an extraordinary breakdown in trust between leading central banks." He compared Germany's actions to what happened in the 1960s, when the post-war currency system fell apart and France withdrew its gold from the United States.
While the Bundesbank said they have no intention of selling gold, they did say the move is "pre-emptive" in case a "currency crisis" hits the European Monetary Union. The bank's official news release explained the move as follows:
"With this new storage plan, the Bundesbank is focusing on the two primary functions of the gold reserves: to build trust and confidence domestically, and the ability to exchange gold for foreign currencies at gold trading centers abroad within a short space of time."
Germany hasn't sold gold since the 1970s and I doubt they have any intentions to.
Generally, storing so much gold domestically doesn't make sense. If a war were to ever break out and the opposing country takes over Frankfurt, that gold is no longer theirs. So why would Germany want so much of their gold back? Are they losing faith in France? In the Fed?
This move is a clear indication of public loss of confidence on foreign central banks and the integrity of the monetary union. As I mentioned in past letters, other countries such as Venezuela, Libya, and Iran have also begun repatriating their gold holdings. They, along with Germany, are protecting themselves from the currency war at hand.
The Currency War
Japan's Prime Minister Shinzo Abe has once again set the stage for a potential global currency war, announcing plans to create money and buy bonds as the government looks to stimulate their weakening economy.
However, Japan's printing cannot be blamed solely on the country itself. When the Fed prints, other central banks have to print to keep up, or face a major decrease in their exports; thus a major decrease in economic growth. Japan has no natural resources or commodities and it relies solely on their innovation and exports for economic growth. When the Fed prints, so does the world.
Russia's central banker Alexei Ulyukayev said that Japan is acting to weaken its currency and there is a danger that others will follow suit and foster a round of destabilizing devaluations:
"We're on a threshold of very serious, confrontational actions in the sphere that is known...as currency wars."
In a recent article published by the Voice of Russia, it was said that Sergey Glaziev, one of the most influential advisors of the Russian president, sent a report to the Kremlin accusing both the US and EU of "legalized aggression" through unbridled monetary emission:
"As a key point of their anti-crisis policy, they (the US and EU) are refinancing their banks using negative real interest rates" and meanwhile "1.5 trillion dollars, 1.2 trillion euros and comparable amounts of yen and pounds are used to finance debt pyramids and acquire real assets across the world".
Western banks are accused of blocking their debtors in "debt traps", with the ultimate goal of "obtaining political control" and "seizing the real assets" of the debtors.
Sergey Glaziev considers that such a policy is actually a form of legalized aggression and that the world is in a state of financial war. According to the conclusions of this report Russia "cannot win this war" without some major changes in its own economic strategy.
Vedomosti reports that Vladimir Putin assembled a crack team of experts from Russian Academy of Science with a mission to create a brand new economic policy.
According to the Russian media, the report contains a warning regarding the risks of a global military conflict, "The conservation logic of the current financial and political system leads to a further escalation of military and political tensions, including the start of major war".
There are solutions mentioned which serve as recommendations to avoid this outcome. A reform of the global financial system, spearheaded by Russia, is reported to be one of those solutions."
As we are often brainwashed by domestic media, it may be difficult to see the severity and intensity of our current global financial battles. It is imperative to see the world not just from our own perspective, but from the perspective of other countries.
Russia, and many other countries, strongly believe that the continued printing of currency is leading to a worldwide restructuring of the global monetary system.
Russia and China are very big players with strong influence on global markets; Russia controls energy and China controls other commodities. Both of these countries have brilliant minds working behind the scenes to fight the current currency battles. We all need to take notice.
The rest of the world knows that currency is being printed with reckless abandon. As a result, countries around the world have begun to acquire real assets such as gold, silver, and other resource assets. Look for China and Russia to continue the mass purchases of natural resources and commodities assets around the world to spearhead a global currency regime.
If you think the commodities market is over or about to pop, think again.
GOLD COT REPORT --
Smart money has been covering
The huge net short position against gold is being unwound. We're not at the bottom yet but there has been a significant improvement. using the two most important highs as a trend line shows gold is really still in a triangle formation. The key is that the shorts are in a much better condition than gold has been in since September and that's a plus.
Has the trend of gold turned up and is it confirmed?
Our weekly charts have the medium term trend in bullish mode as the blue 34 week average is above our bear 13 RED average and price is above both. What we are addressing here is whether the TURN back up from the low at 1625 has been confirmed.
Once again there is a lot of market fanfare that the trend has resumed higher and while that has a lot of seasonal support and may very well be accurate so far it is a forecast that still needs price confirmation. There are times when it is a lot more difficult to assess whether the trend has indeed turned back up and since price is always in charge there are a few measures to watch.
One indicator that can help us determine where a trend might be ending is the Parabolic SAR (Stop And Reversal). A Parabolic SAR places dots, or points, on a chart that indicate potential reversals in price movement.
The parabolic SAR is a technical indicator that is used by many traders to determine the direction of momentum and the point in time when this momentum has a higher-than-normal probability of switching directions. Thus from a momentum standpoint there is still work to do and the turn back up has not yet confirmed by price. It’s only two weeks since the low so let’s see how the next two weeks pan out (no pun intended.)
The other interesting factor on the chart above is the circled bars where we had an inside, outside and inside week. These types of bars can often be seen near a trend change and to see three of them combined does add to the potential for a trend turn. They also highlight the market players are varied on their outlook with bull and bear forces fighting for control (outside bar) and that also plays with uncertainly (inside bar) going on in the market. In summary, the market is attempting to turn its price trend back up and still has some work to do to increase the odds that the move is sustainable. The 1710-1720 and the 1755-1765 area are the two most important price points of resistance for the market to overcome on a medium term basis and are the next two areas we need to watch. On a long term basis the 1st resistance point is the 1792-1804 level. It will take a weekly/monthly close above 1813-1820 to resume the long term up trend in gold.
Gold trend
The next chart shows on the left gold versus that mini moving average line. That line is a combined bond, Euro, oil, gold, & S&P weighted line. For the moment gold remains those other markets. On the right is a linear regression line that does show that gold is beginning to “trend.” What we don’t like is how deep all the daily retracements are. This is a daily chart but when we look at the hourly chart, it reveals a choppy and overlapping pattern. So we must be cautious for the moment about this recent rally. It can morph and become impulsive but until then “cautious” is the key word.
Put it to you this way, both the stock market and the metals are at important resistance points. The 1698 to 1710 area holds the potential for gold to peak and turn back down. However, since we are in an inversion sequence, it is also possible that we will see gold peak Dec 22nd (plus or minus 48 hours) and pullback into the 27th (plus or minus 72 hours) and then rally into mid February. We’ve been saying all last week that the price pattern on the hourly chart is choppy and overlapping and that is a real concern that cannot be eliminated.
Bottom Line
gold has now reached the 1698 area twice this year and we do have to be on the lookout for a double top and or the next key resistance level of 1710-1720 in gold. In silver, either 32.70 or the 33.50 area is the next key resistance point. As long as gold doesn’t close below 1648 the trend is up. We do remain concerned about the price pattern on the hourly chart as it looks choppy and overlapping. Cycles are in inversion mode (see daily update) and there are two scenarios’ that are due to develop.
The first scenario calls for a top on the 22nd (plus or minus 48 hours) and a low to develop on Jan 27th (plus or minus 48 hours with a rally into the 8th to the 15th of February. The 2nd scenario calls for a rally right up into the 27th (plus or minus 72 hours) and then a potential drop into the 8th thru the 15th of the month. The FIRST scenario is the bullish one. The 2nd scenario if it plays out calls for trouble in gold coming later this quarter or perhaps after March and is a bearish scenario. If it develops it could have effects that would favor a more bearish tone for the 1st half of this year.
The first scenario would make more sense as it would set up for a nice low before the Chinese New Year that begins near the 10th-12th of February.
Watch the 1648 area on a closing basis. As long as we don’t close the week below 1648, then the intermediate term remains up.
Good support for this week is 1661--1666 on a daily basis with additional weekly support at 1649-1653. During last week gold pulled back to the 1666 area where the Fib 23% retrace, and the 200 hour and 200 day moving average reside. A strong bounce off that level took place that drove prices to 1698 on Thursday. The pullback from that high was pretty strong as we gave up 15 dollars to 1683 on Friday. The hourly chart (see daily update) has the upper channel trend line at the 1710 area and that is the LINE that gold needs to close above to add more bullishness to the short and intermediate term trends.
The one level of concern is that choppy look the hourly charts have. I don’t like that at all and it does leave the market vulnerable to a price failure. Perhaps that is why this cycle inversion is not displaying strong solid up moves like we usually see during inversions.
THE BOTTOM LINE – is that 1698 is a possible high and that would favor a pullback to begin this week and into the 27th (plus or minus 72 hours). The other area is the 1710-1722 area where the blue channel line (1710) and the next purple (1720) resistance line resides. One of those two areas is the odds favored high points for this coming week.
21 Jan – 22 Feb
$500 Contest
Fxprizes
$500 Contest
Fxprizes
Long Term – Bullish – The key resistance area’s to regain upside momentum and potential new highs are 1792 and 1804.
Medium Term Bullish – We are above moving averages– resistance 1755-1765 – support 1620-1648 and 1570.
Intermediate term –Bullish- A close below 1665 would return to neutral and below 1648 bearish.
Medium term and long term accumulation should be adding 5% to their holdings at around 1660.
Prices remain in their downtrends from October but the 1626 low has met correction objectives. We still can't rule out further downside until the 25th of January, but odds favor a rally begins either this week or the week of the 25th and throughout February. Odds favor the 25th of the month more likely than this week, but we won't rule it out. IF we cycle invert and rally this week the move could be strong. A low on the 25th would favor higher into late February and likely into March.
The world's financial and political elite will head this week to the Alps for 2013's gathering of the World Economic Forum in Davos, Switzerland, with the global economy far less plagued by fear than it was last year.
undefined A dispute in the United States over raising the government's debt ceiling, and dealing with automatic spending cuts, has only been postponed until early March. Even if the ceiling is raised, Republicans in the U.S. Congress will likely demand deep spending cuts as a price for voting to raise it. If U.S. government spending were slashed in the short run, it could slow the global economy.
undefined A potential conflict in the Middle East between Israel and Iran remains a continuing worry because it could disrupt energy supplies, driving up the price of oil and hurting growth. "That's the thing we just don't have a good handle on," said IHS Global Insight's Behravesh. "People haven't worried about it that much recently, but it's still there."
undefined Though China will likely continue to help drive global growth, its purchases and investments could increasingly favor Chinese companies, and "foreign companies and investors won't benefit," risk consulting company Eurasia Group argues. "We have to stop treating emerging markets as an asset class for outsized growth," the consultant said in its annual risk report.
undefined Some analysts warn that the cheap credit provided by the world's central banks has numbed markets to risk and could inflate the prices of some investments. The danger is that unsustainable bubbles in assets like stocks or real estate could eventually form, potentially leading to a devastating collapse in asset prices.
Rabobank's Foley says she fears that all the cash made available by central banks "has given people a license to turn a blind eye to the macroeconomic news."
Eventually, once economic growth accelerates, central banks will have to signal they're getting ready to withdraw that stimulus. Otherwise, runaway inflation could result from all the excess money pumped into the financial system. Yet that might not be until 2014 or even later.
Executives and finance officials arriving in Davos will have to get a grip on an uncertain economy that could end up causing surprise or disappointment. Now that it has dodged some major risks, Behravesh says the global economy might even outperform expectations.
The debt ceiling debate has been pushed out for three months and it’s probably a good thing. If the Republicans don't pass a debt ceiling increase, it will have a devastating impact of global proportions. Not only would it down grade USA debt ratings, but it would incite a global market panic. They are playing with fire and holding the nation hostage to paying its bills is probably the worst thing they could ever do. The answer is not holding the debt ceiling down. It’s eliminating deficit spending by slashing budgets and increasing taxes. While the republicans are looked as being more fiscally responsible the truth of the matter is they have accumulated more DEFICITS (not by much as Obama is turning that around) than the democrats have over the past 40 years. Truth is always stranger than fiction but the reason is simple. Republicans always cut taxes to their crony corporations and the very rich but they don’t CUT SPENDING.
We expected bank earnings to be better than what they reported but the outcome was the same---the stock market yawned and moved to a five year high in most of the major indices. Yawning or not, the stock market is nearing a correction that either begins this coming week or when we reach the 1520-1530 area in the S&P's.
However, Japan's printing cannot be blamed solely on the country itself. When the Fed prints, other central banks have to print to keep up, or face a major decrease in their exports; thus a major decrease in economic growth. Japan has no natural resources or commodities and it relies solely on their innovation and exports for economic growth. When the Fed prints, so does the world.
Russia's central banker Alexei Ulyukayev said that Japan is acting to weaken its currency and there is a danger that others will follow suit and foster a round of destabilizing devaluations:
"We're on a threshold of very serious, confrontational actions in the sphere that is known...as currency wars."
In a recent article published by the Voice of Russia, it was said that Sergey Glaziev, one of the most influential advisors of the Russian president, sent a report to the Kremlin accusing both the US and EU of "legalized aggression" through unbridled monetary emission:
"As a key point of their anti-crisis policy, they (the US and EU) are refinancing their banks using negative real interest rates" and meanwhile "1.5 trillion dollars, 1.2 trillion euros and comparable amounts of yen and pounds are used to finance debt pyramids and acquire real assets across the world".
Western banks are accused of blocking their debtors in "debt traps", with the ultimate goal of "obtaining political control" and "seizing the real assets" of the debtors.
Sergey Glaziev considers that such a policy is actually a form of legalized aggression and that the world is in a state of financial war. According to the conclusions of this report Russia "cannot win this war" without some major changes in its own economic strategy.
Vedomosti reports that Vladimir Putin assembled a crack team of experts from Russian Academy of Science with a mission to create a brand new economic policy.
According to the Russian media, the report contains a warning regarding the risks of a global military conflict, "The conservation logic of the current financial and political system leads to a further escalation of military and political tensions, including the start of major war".
There are solutions mentioned which serve as recommendations to avoid this outcome. A reform of the global financial system, spearheaded by Russia, is reported to be one of those solutions."
As we are often brainwashed by domestic media, it may be difficult to see the severity and intensity of our current global financial battles. It is imperative to see the world not just from our own perspective, but from the perspective of other countries.
Russia, and many other countries, strongly believe that the continued printing of currency is leading to a worldwide restructuring of the global monetary system.
Russia and China are very big players with strong influence on global markets; Russia controls energy and China controls other commodities. Both of these countries have brilliant minds working behind the scenes to fight the current currency battles. We all need to take notice.
The rest of the world knows that currency is being printed with reckless abandon. As a result, countries around the world have begun to acquire real assets such as gold, silver, and other resource assets. Look for China and Russia to continue the mass purchases of natural resources and commodities assets around the world to spearhead a global currency regime.
Has the trend of gold turned up and is it confirmed?
Our weekly charts have the medium term trend in bullish mode as the blue 34 week average is above our bear 13 RED average and price is above both. What we are addressing here is whether the TURN back up from the low at 1625 has been confirmed.
Once again there is a lot of market fanfare that the trend has resumed higher and while that has a lot of seasonal support and may very well be accurate so far it is a forecast that still needs price confirmation. There are times when it is a lot more difficult to assess whether the trend has indeed turned back up and since price is always in charge there are a few measures to watch.
One indicator that can help us determine where a trend might be ending is the Parabolic SAR (Stop And Reversal). A Parabolic SAR places dots, or points, on a chart that indicate potential reversals in price movement.
The parabolic SAR is a technical indicator that is used by many traders to determine the direction of momentum and the point in time when this momentum has a higher-than-normal probability of switching directions. Thus from a momentum standpoint there is still work to do and the turn back up has not yet confirmed by price. It’s only two weeks since the low so let’s see how the next two weeks pan out (no pun intended.)
The other interesting factor on the chart above is the circled bars where we had an inside, outside and inside week. These types of bars can often be seen near a trend change and to see three of them combined does add to the potential for a trend turn. They also highlight the market players are varied on their outlook with bull and bear forces fighting for control (outside bar) and that also plays with uncertainly (inside bar) going on in the market. In summary, the market is attempting to turn its price trend back up and still has some work to do to increase the odds that the move is sustainable. The 1710-1720 and the 1755-1765 area are the two most important price points of resistance for the market to overcome on a medium term basis and are the next two areas we need to watch. On a long term basis the 1st resistance point is the 1792-1804 level. It will take a weekly/monthly close above 1813-1820 to resume the long term up trend in gold.
Put it to you this way, both the stock market and the metals are at important resistance points. The 1698 to 1710 area holds the potential for gold to peak and turn back down. However, since we are in an inversion sequence, it is also possible that we will see gold peak Dec 22nd (plus or minus 48 hours) and pullback into the 27th (plus or minus 72 hours) and then rally into mid February. We’ve been saying all last week that the price pattern on the hourly chart is choppy and overlapping and that is a real concern that cannot be eliminated.
The first scenario calls for a top on the 22nd (plus or minus 48 hours) and a low to develop on Jan 27th (plus or minus 48 hours with a rally into the 8th to the 15th of February. The 2nd scenario calls for a rally right up into the 27th (plus or minus 72 hours) and then a potential drop into the 8th thru the 15th of the month. The FIRST scenario is the bullish one. The 2nd scenario if it plays out calls for trouble in gold coming later this quarter or perhaps after March and is a bearish scenario. If it develops it could have effects that would favor a more bearish tone for the 1st half of this year.
The first scenario would make more sense as it would set up for a nice low before the Chinese New Year that begins near the 10th-12th of February.
Watch the 1648 area on a closing basis. As long as we don’t close the week below 1648, then the intermediate term remains up.
Good support for this week is 1661--1666 on a daily basis with additional weekly support at 1649-1653. During last week gold pulled back to the 1666 area where the Fib 23% retrace, and the 200 hour and 200 day moving average reside. A strong bounce off that level took place that drove prices to 1698 on Thursday. The pullback from that high was pretty strong as we gave up 15 dollars to 1683 on Friday. The hourly chart (see daily update) has the upper channel trend line at the 1710 area and that is the LINE that gold needs to close above to add more bullishness to the short and intermediate term trends.
The one level of concern is that choppy look the hourly charts have. I don’t like that at all and it does leave the market vulnerable to a price failure. Perhaps that is why this cycle inversion is not displaying strong solid up moves like we usually see during inversions.
THE BOTTOM LINE – is that 1698 is a possible high and that would favor a pullback to begin this week and into the 27th (plus or minus 72 hours). The other area is the 1710-1722 area where the blue channel line (1710) and the next purple (1720) resistance line resides. One of those two areas is the odds favored high points for this coming week.
Medium Term Bullish – We are above moving averages– resistance 1755-1765 – support 1620-1648 and 1570.
Intermediate term –Bullish- A close below 1665 would return to neutral and below 1648 bearish.
Medium term and long term accumulation should be adding 5% to their holdings at around 1660.
Resistance for this week 1695-1702 2nd tier 1710-1722
Support for this week 1666-1676 2nd tier 1648-1655
Prices rallied last week as we’re going thru a cycle inversion on our short term cycles. This is a repeat of what happened in January of 2012 but so far the price has not been as strong this time around. Cycle inversions usually give stronger price moves that what we’ve seen so far on this inversion and the chart pattern since the 1625 low is my biggest concern at the moment. Its structure is choppy and overlapping and that is usually not a sign of the “main” trend. It can continue higher but chop patterns are not usually reliable patterns. The most likely place for a failure of this pattern would be the 1698-1720 area as they usually don’t get very far above the last wave high on a chart. In fact they usually form a double top within about 10 dollars. The last pattern high was 1698 so we’ll have to be careful near the 1700 area. Prices remain in their downtrends from October but the 1626 low has met correction objectives. We still can't rule out further downside until the 25th of January, but odds favor a rally begins either this week or the week of the 25th and throughout February. Odds favor the 25th of the month more likely than this week, but we won't rule it out. IF we cycle invert and rally this week the move could be strong. A low on the 25th would favor higher into late February and likely into March.
The world's financial and political elite will head this week to the Alps for 2013's gathering of the World Economic Forum in Davos, Switzerland, with the global economy far less plagued by fear than it was last year.
Among the risk factors analysts cite:
undefined The heavy government debt loads in the eurozone, the chief concern from 2012, remain in place. Many worry that European leaders, facing citizen anger over government spending cuts in the midst of recession, will be reluctant to reduce debt and strengthen oversight of their banking system.undefined A dispute in the United States over raising the government's debt ceiling, and dealing with automatic spending cuts, has only been postponed until early March. Even if the ceiling is raised, Republicans in the U.S. Congress will likely demand deep spending cuts as a price for voting to raise it. If U.S. government spending were slashed in the short run, it could slow the global economy.
undefined A potential conflict in the Middle East between Israel and Iran remains a continuing worry because it could disrupt energy supplies, driving up the price of oil and hurting growth. "That's the thing we just don't have a good handle on," said IHS Global Insight's Behravesh. "People haven't worried about it that much recently, but it's still there."
undefined Though China will likely continue to help drive global growth, its purchases and investments could increasingly favor Chinese companies, and "foreign companies and investors won't benefit," risk consulting company Eurasia Group argues. "We have to stop treating emerging markets as an asset class for outsized growth," the consultant said in its annual risk report.
undefined Some analysts warn that the cheap credit provided by the world's central banks has numbed markets to risk and could inflate the prices of some investments. The danger is that unsustainable bubbles in assets like stocks or real estate could eventually form, potentially leading to a devastating collapse in asset prices.
Rabobank's Foley says she fears that all the cash made available by central banks "has given people a license to turn a blind eye to the macroeconomic news."
Eventually, once economic growth accelerates, central banks will have to signal they're getting ready to withdraw that stimulus. Otherwise, runaway inflation could result from all the excess money pumped into the financial system. Yet that might not be until 2014 or even later.
Executives and finance officials arriving in Davos will have to get a grip on an uncertain economy that could end up causing surprise or disappointment. Now that it has dodged some major risks, Behravesh says the global economy might even outperform expectations.
Recap
The gold market made its lows at the start of trading last week and rallied to the 1685 area. The usual take down for the jobs report got gold back down to 1666 but the reversed and pushed higher to 1698 before topping out and pulling back to 1683 and closing at 1685. The rally was good for the bulls but the pattern on the hourly chart is choppy and overlapping and that is a concern that can't be tossed out just yet. Gold is arriving at the key resistance points 1698 and 1710-1722. Gold still needs to close above that area in order to be solidly in an uptrend. The fundamentals for gold remain in place but the bond market and higher interest rates need to be watched. The government bickering over the fiscal cliff and now the debt ceiling is long term bullish but could bring down markets should there not be agreement in the shorter term when the debate does get going. The debt ceiling debate has been pushed out for three months and it’s probably a good thing. If the Republicans don't pass a debt ceiling increase, it will have a devastating impact of global proportions. Not only would it down grade USA debt ratings, but it would incite a global market panic. They are playing with fire and holding the nation hostage to paying its bills is probably the worst thing they could ever do. The answer is not holding the debt ceiling down. It’s eliminating deficit spending by slashing budgets and increasing taxes. While the republicans are looked as being more fiscally responsible the truth of the matter is they have accumulated more DEFICITS (not by much as Obama is turning that around) than the democrats have over the past 40 years. Truth is always stranger than fiction but the reason is simple. Republicans always cut taxes to their crony corporations and the very rich but they don’t CUT SPENDING.
We expected bank earnings to be better than what they reported but the outcome was the same---the stock market yawned and moved to a five year high in most of the major indices. Yawning or not, the stock market is nearing a correction that either begins this coming week or when we reach the 1520-1530 area in the S&P's.
Overview
"There have been some very important gold-related events happening over the last few years. A year ago, and more recently, I reported on the repatriation of gold by countries around the world. But now the second largest holder of gold, Germany, is apparently doing the same.
"The revelation came as Germany's budget watchdog demanded an on-site probe of the country's remaining gold reserves in London, Paris, and New York to verify whether the metal really exists.
The country has 3,396 tons of gold worth €143bn (£116bn), the world's second-largest holding after the US. Nearly all of it was shifted to vaults abroad during the Cold War in case of a Soviet attack.
Roughly 66pc is held at the New York Federal Reserve, 21pc at the Bank of England, and 8pc at the Bank of France. The German Court of Auditors told legislators in a redacted report that the gold had "never been verified physically" and ordered the Bundesbank to secure access to the storage sites.
It called for repatriation of 150 tons over the next three years to test the quality and weight of the gold bars. It said Frankfurt has no register of numbered gold bars.
The report also claimed that the Bundesbank had slashed its holdings in London from 1,440 tons to 500 tons in 2000 and 2001, allegedly because storage costs were too high. The metal was flown to Frankfurt by air freight.
The revelation has baffled gold veterans. The shift came as the euro was at its weakest, slumping to $0.84 against the dollar. But it also came as the Bank of England was selling off most of Britain's gold reserves - at market lows - on orders from Gordon Brown.
The watchdog report follows claims by the German civic campaign group "Bring Back our Gold" and its US allies in the Gold Anti-Trust Committee that official data cannot be trusted. They allege central banks have loaned out or "sold short" much of their gold.
The refrain has been picked up by German legislators. "All the gold must come home: it is precisely in this crisis that we need certainty over our gold reserves," said Heinz-Peter Haustein from the Free Democrats (FDP).
The Bundesbank said it had full trust in the "integrity and independence" of its custodians, and is given detailed accounts each year. Yet it hinted at further steps to secure its reserves. "This could also involve relocating part of the holdings," it said.
There's obviously more to this story...and we shall soon see.
This week, news came out that Germany's Bundesbank will indeed repatriate its gold to restore public confidence in the safety of Germany's reserves. It will retrieve all 374 tons of the bullion it currently keeps in Paris and 300 tons currently stored at the New York Federal Reserve Bank.
The process will take 8 years and bring about 19 percent of Germany's gold reserves back to the Fatherland. Germany holds 3,400 tons of gold reserves - the most of any country, second only to the United States.
When the process is complete, Frankfurt will hold half of Germany's gold. New York will retain 37 percent, and London will store 13 percent.
The Bundesbank's announcement indicates that German leaders believe the global economic crisis may soon intensify. In other words, the currency war I talked about in my past letters is heating up.
On January 15, the Telegraph's Ambrose Evans-Prichard said that the move represents "an extraordinary breakdown in trust between leading central banks." He compared Germany's actions to what happened in the 1960s, when the post-war currency system fell apart and France withdrew its gold from the United States.
While the Bundesbank said they have no intention of selling gold, they did say the move is "pre-emptive" in case a "currency crisis" hits the European Monetary Union. The bank's official news release explained the move as follows:
"With this new storage plan, the Bundesbank is focusing on the two primary functions of the gold reserves: to build trust and confidence domestically, and the ability to exchange gold for foreign currencies at gold trading centers abroad within a short space of time."
Germany hasn't sold gold since the 1970s and I doubt they have any intentions to.
Generally, storing so much gold domestically doesn't make sense. If a war were to ever break out and the opposing country takes over Frankfurt, that gold is no longer theirs. So why would Germany want so much of their gold back? Are they losing faith in France? In the Fed?
This move is a clear indication of public loss of confidence on foreign central banks and the integrity of the monetary union. As I mentioned in past letters, other countries such as Venezuela, Libya, and Iran have also begun repatriating their gold holdings. They, along with Germany, are protecting themselves from the currency war at hand.
The Currency War
Japan's Prime Minister Shinzo Abe has once again set the stage for a potential global currency war, announcing plans to create money and buy bonds as the government looks to stimulate their weakening economy.However, Japan's printing cannot be blamed solely on the country itself. When the Fed prints, other central banks have to print to keep up, or face a major decrease in their exports; thus a major decrease in economic growth. Japan has no natural resources or commodities and it relies solely on their innovation and exports for economic growth. When the Fed prints, so does the world.
Russia's central banker Alexei Ulyukayev said that Japan is acting to weaken its currency and there is a danger that others will follow suit and foster a round of destabilizing devaluations:
"We're on a threshold of very serious, confrontational actions in the sphere that is known...as currency wars."
In a recent article published by the Voice of Russia, it was said that Sergey Glaziev, one of the most influential advisors of the Russian president, sent a report to the Kremlin accusing both the US and EU of "legalized aggression" through unbridled monetary emission:
"As a key point of their anti-crisis policy, they (the US and EU) are refinancing their banks using negative real interest rates" and meanwhile "1.5 trillion dollars, 1.2 trillion euros and comparable amounts of yen and pounds are used to finance debt pyramids and acquire real assets across the world".
Western banks are accused of blocking their debtors in "debt traps", with the ultimate goal of "obtaining political control" and "seizing the real assets" of the debtors.
Sergey Glaziev considers that such a policy is actually a form of legalized aggression and that the world is in a state of financial war. According to the conclusions of this report Russia "cannot win this war" without some major changes in its own economic strategy.
Vedomosti reports that Vladimir Putin assembled a crack team of experts from Russian Academy of Science with a mission to create a brand new economic policy.
According to the Russian media, the report contains a warning regarding the risks of a global military conflict, "The conservation logic of the current financial and political system leads to a further escalation of military and political tensions, including the start of major war".
There are solutions mentioned which serve as recommendations to avoid this outcome. A reform of the global financial system, spearheaded by Russia, is reported to be one of those solutions."
As we are often brainwashed by domestic media, it may be difficult to see the severity and intensity of our current global financial battles. It is imperative to see the world not just from our own perspective, but from the perspective of other countries.
Russia, and many other countries, strongly believe that the continued printing of currency is leading to a worldwide restructuring of the global monetary system.
Russia and China are very big players with strong influence on global markets; Russia controls energy and China controls other commodities. Both of these countries have brilliant minds working behind the scenes to fight the current currency battles. We all need to take notice.
The rest of the world knows that currency is being printed with reckless abandon. As a result, countries around the world have begun to acquire real assets such as gold, silver, and other resource assets. Look for China and Russia to continue the mass purchases of natural resources and commodities assets around the world to spearhead a global currency regime.
If you think the commodities market is over or about to pop, think again.
GOLD COT REPORT --
Smart money has been covering
The huge net short position against gold is being unwound. We're not at the bottom yet but there has been a significant improvement. using the two most important highs as a trend line shows gold is really still in a triangle formation. The key is that the shorts are in a much better condition than gold has been in since September and that's a plus.
Our weekly charts have the medium term trend in bullish mode as the blue 34 week average is above our bear 13 RED average and price is above both. What we are addressing here is whether the TURN back up from the low at 1625 has been confirmed.
Once again there is a lot of market fanfare that the trend has resumed higher and while that has a lot of seasonal support and may very well be accurate so far it is a forecast that still needs price confirmation. There are times when it is a lot more difficult to assess whether the trend has indeed turned back up and since price is always in charge there are a few measures to watch.
One indicator that can help us determine where a trend might be ending is the Parabolic SAR (Stop And Reversal). A Parabolic SAR places dots, or points, on a chart that indicate potential reversals in price movement.
The parabolic SAR is a technical indicator that is used by many traders to determine the direction of momentum and the point in time when this momentum has a higher-than-normal probability of switching directions. Thus from a momentum standpoint there is still work to do and the turn back up has not yet confirmed by price. It’s only two weeks since the low so let’s see how the next two weeks pan out (no pun intended.)
Gold trend
The next chart shows on the left gold versus that mini moving average line. That line is a combined bond, Euro, oil, gold, & S&P weighted line. For the moment gold remains those other markets. On the right is a linear regression line that does show that gold is beginning to “trend.” What we don’t like is how deep all the daily retracements are. This is a daily chart but when we look at the hourly chart, it reveals a choppy and overlapping pattern. So we must be cautious for the moment about this recent rally. It can morph and become impulsive but until then “cautious” is the key word. Put it to you this way, both the stock market and the metals are at important resistance points. The 1698 to 1710 area holds the potential for gold to peak and turn back down. However, since we are in an inversion sequence, it is also possible that we will see gold peak Dec 22nd (plus or minus 48 hours) and pullback into the 27th (plus or minus 72 hours) and then rally into mid February. We’ve been saying all last week that the price pattern on the hourly chart is choppy and overlapping and that is a real concern that cannot be eliminated.
Bottom Line
gold has now reached the 1698 area twice this year and we do have to be on the lookout for a double top and or the next key resistance level of 1710-1720 in gold. In silver, either 32.70 or the 33.50 area is the next key resistance point. As long as gold doesn’t close below 1648 the trend is up. We do remain concerned about the price pattern on the hourly chart as it looks choppy and overlapping. Cycles are in inversion mode (see daily update) and there are two scenarios’ that are due to develop.The first scenario calls for a top on the 22nd (plus or minus 48 hours) and a low to develop on Jan 27th (plus or minus 48 hours with a rally into the 8th to the 15th of February. The 2nd scenario calls for a rally right up into the 27th (plus or minus 72 hours) and then a potential drop into the 8th thru the 15th of the month. The FIRST scenario is the bullish one. The 2nd scenario if it plays out calls for trouble in gold coming later this quarter or perhaps after March and is a bearish scenario. If it develops it could have effects that would favor a more bearish tone for the 1st half of this year.
The first scenario would make more sense as it would set up for a nice low before the Chinese New Year that begins near the 10th-12th of February.
Watch the 1648 area on a closing basis. As long as we don’t close the week below 1648, then the intermediate term remains up.
Good support for this week is 1661--1666 on a daily basis with additional weekly support at 1649-1653. During last week gold pulled back to the 1666 area where the Fib 23% retrace, and the 200 hour and 200 day moving average reside. A strong bounce off that level took place that drove prices to 1698 on Thursday. The pullback from that high was pretty strong as we gave up 15 dollars to 1683 on Friday. The hourly chart (see daily update) has the upper channel trend line at the 1710 area and that is the LINE that gold needs to close above to add more bullishness to the short and intermediate term trends.
The one level of concern is that choppy look the hourly charts have. I don’t like that at all and it does leave the market vulnerable to a price failure. Perhaps that is why this cycle inversion is not displaying strong solid up moves like we usually see during inversions.
THE BOTTOM LINE – is that 1698 is a possible high and that would favor a pullback to begin this week and into the 27th (plus or minus 72 hours). The other area is the 1710-1722 area where the blue channel line (1710) and the next purple (1720) resistance line resides. One of those two areas is the odds favored high points for this coming week.
YOU SHOULD NOT TAKE ANY MATERIAL posted on this BLOG AS RECOMMENDATIONS
TO BUY OR SELL GOLD OR ANY OTHER INVESTMENT VEHICLE LISTED.
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.
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
