The Iceburg

April 15, 2014 - 4:40pm

 by Gary Wagner

The Grateful Dead once sang that, "When life looks like Easy Street, there is danger at your door." Today's trading action in gold certainly proved their point.

Yet, to our way of thinking there is something seriously amiss with the analysis that says the U.S. economy is picking up so strongly it may warrant a rate increase.

The piece of news that particularly touched off the selling spree was that the U.S. consumer price index grew at 0.2% in March. This equals inflation. "Experts" were expecting 0.1%. As we are wont to do, let's average the two months and see what we get.  

Well, 0.15% x 12 months equals a yearly inflation rate of 1.8%. We advise leaving the noisemakers in the closet for the moment and see what April, May and June bring. Then we can see a 6-month trend rather than a snapshot.

The initial sell off then triggered sell orders and we plunged as low as 1288, a level gold is now considerably up from in afternoon trading.

Bloomberg reported that "Gold benefited from the escalation in tension between Russia and the Ukraine, but upbeat U.S. economic data put a damper on the safe-haven rally," according to Sun Yonggang, a macroeconomic strategist at Everbright Futures Co.

Hello? There is actual fighting in the streets in the eastern Ukraine. It seems absurdly irrational to bid gold up on the fear of war and then sell off when the war begins. But, many games are played in the markets.

As they are in world geopolitical stratagems. Russia buzzed a U.S. naval ship, something a teenager would do on a bad, bad day. It's exactly the kind of incident that starts wars. Passing 500 feet over another country's ship is an invitation to battle. The Russians also started chastising the Turks for their outspoken opposition to the Crimea invasion/takeover. And they dared to criticize the Turks over how they are policing the Straits. In case you did not know, the Turks despise the Russians.

One other factor is floating around today's sell off: physical demand is soft in China and India. In the former, it is because their economy is softer than they are letting on. In the latter, Indians are holding on for lower prices.

As always, wishing you good trading,

Gary S. Wagner - Executive Producer

Sentiment Indicator:

Gold Forecast: Proper Action

GOLD STOP RAISED YESTERDAY TO BELOW 1310 … Stops were hit today
 
long gold @ 1308 out at 1308
long silver @ 20.06 Stop hit at 1950  

Gold Market Forecast
Today's dramatic downside move took many traders and investors by surprise. It was coupled with the fact that the selloff occurs exactly one year to the day that gold prices witnessed the largest single day plunge of 2013. 
 
Our current model was looking for gold to rise to anywhere between 1333 and 1362. Yesterday's intraday high fell 50 cents shy of our bottom number of 1333. I anticipated seeing gold prices continue to move a little higher into our predictive range. Obviously that was not the case as the correction began just as it hit our first benchmark. 
 
Luckily we had raised our protective stop to our entry level and therefore had a zero gain or loss on this last gold trade. With a three-day weekend ahead, we could see gold prices continue to fall to as low as a 61% retracement of the most recent rally. With that in mind our current strategy is to look for confirmation and a conclusion to our current corrective wave "2", as it now seems we are in the final "C" wave. That should conclude the current correction.