Has Something Changed?
Well the bigger the city, the brighter the lights
The bigger the dog, well the harder the bite...
from "I Know A Little" - Lynyrd Skynyrd
Some people consider reading fundamentals in precious metals markets akin to phrenology - the interpretation of skull shape and irregularities in humans; or sifting tea leaves; or poring through the entrails of goats as the ancients did.
Indeed, analyzing fundamentals is one of the dismal sciences, especially on the day-to-day level. However, as one surveys a larger sweep, fundamentals come into much stronger play. Fundamentals cannot ever displace technical analyses, but rather give us a sort of fertile topsoil in which market direction accuracy can grow.
So, the question: Has Something Changed? We see today, as we have seen after the last handful of drops recently, short coverers step in to take at least temporary control of the market. Gold doesn't appear to be free-falling any longer, but rather seeking direction and that direction is modestly up.
A second point: good news vs. bad news. We speak here of socio-political news. Everyone knows what has happened in Egypt. Unrest in the Middle East is never good for the price of oil, especially for Europe since so much of its oil comes through the Suez Canal, which can be closed at the drop of a hat. However, that threat has shrunk, ironically because of the Iraq War's spurring pipelines to have been built through Turkey. Libya is within sight of Italy and has been re-ramping up production for some many months now. But, precious metals markets always like instability on an emotional level.
Interestingly, two countries whose economies have been booming and whose citizens are much better off are also showing signs of instability: Brazil and Turkey, although they seem to have been reduced to a low simmer for a moment. Those two nations are at a stage we might call the "rising expectations" phase of development. A little prosperity engenders desire for more prosperity.
So let's take the instability in Syria, Egypt, Brazil and Turkey in aggregate. You would think this would really propel gold upwards. No such luck. What the unrest is really doing is making super-stable regions like North America, China and the Eurozone very attractive for loose cash. The rise of the equities markets tells us that, among other things.
Is the secular gold bull market over or are we just in the midst of trying to end a steep correction? The '03 correction was 16% and then prices more than doubled off those lows until the '06 correction, which at 22.6%, was steeper and took longer to return to new highs. Then followed the '08-'09 correction, which was even steeper, at 29.5%, and longer... but gold hit new highs once more. From the all-time peak in late 2011, we have now corrected 35.4% or thereabouts.
One can weigh up the scenarios of a change in secular movements versus corrective movements. We have to ask and answer these questions when it comes to fundamentals:
Where is inflation (sleeping) and when might it rise?
Can the Fed taper QE3 smoothly, or has that already happened, in effect, and have the markets factored it in? In other words, was the warning shot, the whole war?
Can the dollar's strength continue indefinitely?
Is there some sort of socio-political instability that can move precious markets up?
Why does the 35.4% correction feel so much worse than the 29.5% correction? (Part one of the answer is, "because the actual drop is more impressive in dollar terms.") And that's why we chose the quote we did for today's fundamentals piece. The rise was bigger. The fall was bigger.
How long does it really take to "correct a correction"? We'll answer this straight up. If it is truly a correction, it takes about - and we stress "about" - the same time to recover from a correction as it did for the initial corrective drop to complete itself in the first place.
So, when we can declare the correction is over with certainty - which we are not yet sure of - we could expect it to take about 90 to 100 weeks for gold to return to its high of 1900.
In between, there are countless opportunities to make money.
Wishing you as always good trading,
Gary S. Wagner
[11:38:16 AM] gary wagner: There is absolutely no doubt that it is tricky or tough it best to trade either gold or silver in its current state. Today’s moderate upside move continues the swing of the pendulum. This pendulum as continued to offer traders mixed signals as they look at the overall state and price of both gold and silver. We have seen support begin to form at $1200 per ounce in gold. We have also seen resistance in gold in a band between 1265 and 1275. On today’s video we will point out a candlestick pattern we have identified which is simply called “tower tops”. This pattern has a strong track record of defining interim resistance points in the market. These mixed signals have moved gold back into what I believe will probably be a range bound market. It will be defined with the support and resistance we have spoken about above.
Proper Action: No current position
COT LINK See previous weeks in Historical Commitments of Traders Reports.
Gary S. Wagner - Executive Producer