It's The Economy, Everybody | The Gold Forecast

It's The Economy, Everybody

January 24, 2014 - 4:28pm

 by Gary Wagner

It's The Economy, Everybody
 
Gold took a breather today from its mini-rally although it rose a touch, despite a fall on almost every major stock index across the world. (Shanghai was the only winner, and that only because it had been drastically oversold.) 
 
In fact, just about everything was down today. Silver faltered. Crude was down. The 10-year U.S. Treasury yield was down. The euro and the pound were down against the dollar marginally. 
 
This is not a good sign for those who view "confidence" as an important market moving factor. 
 
But focusing on gold, should we believe one of the many dicta in trading that says, "Bounces in markets that are in downtrends tend to be shallow while declines tend to be sharp and significant"? Or should we believe that the equities correction that seems to be shaping up is a longer-term trend and will have positive effects on the price of gold? 
 
We find it hard to believe that all the prognosticators are wrong about world economic growth. We find it equally hard to believe that the $10 billion taper by the Fed last month and a potential for a similar tranche next week can have such a big effect that equities would start stumbling because of it.
 
What we are probably seeing is a classic stock market correction, one that will hit the reset button 7 to 10% below the previous highs before an upward climb based more firmly on fundamentals - like profits - resumes. 
 
Jodie Gunzberg, Vice President, Commodity Indices at S&P Dow Jones Indices said this about gold:
 
"The last time gold fell this much was in 1981 when it lost 32.8% and it took 25 years to recover its drawdown. Although in 1982, gold rebounded 12.5%, it lost another 32% in the next 2 years. If history repeats itself, it could take a long time for gold to recover but it could be viewed as a bump in the road of the long bull trend that has gained over 700% in the prior 12 years."
 
Low prices in gold have a tendency to force unprofitable gold miners to close up shop for a while until the price recovers. That in turn holds down the supply of gold, which of course, might push up the price. Or so bulls hope.
 
We're also looking at conditions going into the weekend that militate against holding positions for the two day trading hiatus. Next week, the Federal Open Market Committee meets and may or may not move to taper further. No one knows and, surprisingly, there has been little idle chatter from Fed members in the peanut gallery. So the thinking is a bit unclear.
 
The world economy is scarcely gasping for air at this point. As we pointed out to daily subscribers yesterday, for all the concern over China's manufacturing slowdown, eurozone activity was up somewhat dramatically and U.S. manufacturing has been a consistent bright spot in the world's largest economy. The U.S. is still the biggest manufacturer in the world (if precariously so), and the eurozone is roughly equivalent. Together they are more than double China's industrial output. Also, in other goods and services, the U.S. and Europe dwarf everything in sight. The contest is not even close.
 
So, when trying to keep our eye on the economic ball, the two ultra superpowers are what we should be watching. The European Central Bank is on the verge of an enormous stimulus package, one that will help the zone, though not as large as the U.S.'s three successive rounds of quantitative easing. Japan is also getting into the QE game. 
 
Speaking of QE, especially QE3, this year's big test for the Fed will be the unwinding of all the securities they have purchased. While it may seem counterintuitive, it may serve to keep interest rates way down, because a lot of the paper in the Fed house is not exactly of the highest quality and the paper has to be marketed.
 
So, we have a Friday with everyone catching their breath. But, hey, it's the economy once again. 
 

As always, wishing you good trading,

 

Gary S. Wagner - Executive Producer

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Gold Forecast: Proper Action

A major breakout occurred yesterday in gold.  Today we have follow through.

 This morning we issued a buy signal in gold. Traders who took the call should be long @ 1268.

 Place protective stop below 1245.

No positions in silver.

Closed trades:

GLD: On April 12th our stop was hit at $162. We went long at 162.82. Trade resulted in 0.82 loss per share.

Futures: Gold (GC J21) in at 1722.80. Out at at $1728 for a profit of $520.00- per Comex contract.
Forex: XAUUSD in at 1724.40. Out at at $1729 for a profit of $4.60- per ounce.
ETF's: GLD in at 161.55. Out at at $161.90 for a profit of $0.35- per share

SLV in at $24.24. Stop hit at $23.50, for a loss of $1.05 per share
May 2021 (SI K21) in at $26.26. Stop hit at $25.3 for a loss of $0.96 ounce
Forex silver in at $26.17. Stop hit at $25,30 or a loss of $0.87 per ounce

On February 18 we entered a long April Platinum trade. In at $1282. Our stop was hit today (02/26/21) @ at $1217.00
SILVER FUTURES MARCH: Entry at $27.36, and then closed the trade later @ $27.45.
XAGUSD: Entry at $27.26,, our stop was hit at $27.39

We closed our positions in SLV:
First leg SLV: @ 22.95 .out at @ $24.99
Second leg SLV @ 24.60. out at @ $24.99

On Thursday February 4 stops were hit on our long GLD ETF. We entered at 172.14. Our stop was hit at $168.29 (the open on Thursday) for a $3.85 loss per share.

GOLD FUTURES APRIL: Entry at 1845 - 1859 . Stop hit at 1813 - average loss $3900 per contract
XAUSUD: Entry at 1845 - 1857 . Stop hit at 1813 - average loss of $38 per oz
SILVER FUTURES MARCH: Entry at 25.42 - 25.46 . Stop hit at 24.11 - average loss $6650 per contract
XAGUSD: Entry at 25.33 - 25.40 - Stop hit at 24.11 - average loss $1.3 per oz
long February gold @ $1890.00 and stop hit @ $1902.20, for a profit of $1202.00 per contract
long Forex gold @ $1886.00 and stop hit @ $1898 for a profit of $12.00 per OZ
long March silver @ $26.31 and stop hit @ $26.41 for a profit of $500.00 per contract
long GLD @ $177.26 and stop hit @ $178.00 for a profit of $0.71 per share
long SLV @ $24.67 and stop hit @ 25.00 for a profit of $0.33 per share
long February Gold Futures at $1860-$1866 and stop hit at at $1869. Average profit $600 per contract
long XAUUSD at $1856-$1862 and stop hit at $1866. Average profit $6
long March Silver Futures at $25.16 - $25.25 and stop hit at $25.30. Average profit $450 per contract
long GLD @ $174.12 and stop hit at $175.78 for a profit of $1.66 per share
long GLD @ $174.12 and stop hit at $175.78 for a profit of $1.66 per share
long February Gold Futures at $1830 -$1843 and out at $1850 for a profit of $700 to $2000.00 per contract
long XAUUSD at $1841 and out at $1850 for a profit of $90.00 per mini 10 oz contract
long March Silver Futures at $24.29 and out @ $24.40 for a profit of $550.00 per comex contract
long GLD @ 1$71.50 and out @ $173.00 for a profit of $1.50 per share
long SLV @ $22.30 and out @ $22.50 for a profit of $0.20 per share
Long December gold at $1899. Stop hit at $1918, for a $1900 profit
Long forex gold at $1896.00. Stop hit at $1912, for a $1600 profit
Long December silver at $24.21. Stop hit at $25.07 for a $4300 profit
Long GLD at $180.46 and stop hit at $176.42 for a loss of $4.04 per share
Long SLV at $23.23 and stop at $22.78 for a loss of $0.40 per share
Long December Gold Futures at $1926 and stop hit at $1907.30 for a loss of $18.70 per ounce
Long Forex Gold at $1922 and stop hit at $1903 for a loss of $19.00 per ounce
Long December Silver Futures at $25.13 and stop hit at $24.73 for a loss of $0.40 per ounce
Long December gold at $1890, out at $1909.30 for a profit of $1,930.00
Long December silver at $23.95, out at $24.50 for a profit of $2,750.00
Long Forex gold at $1883.68, out $1907 for a profit of $23.32 per ounce
Long GLD ETF at $178.03, out at $179.80 for a profit of $1.77 per share
Long SLV ETF at $22.66, out at $22.03 for a loss of $0.63 per share

Gold Market Forecast

What a difference a week makes. On a technical basis, this week has provided clarity as we witnessed a major upside surge in gold prices yesterday and follow through today. With equities markets under tremendous pressure we saw gold prices effectively rebound and surge to a three-month high.

This week's gain in gold prices is significant, but what is more significant is the fact that for the first time since gold began its dramatic selloff from 1800 per ounce it has broken above and traded through its long-standing resistance line. The resistance line we identified, which can be seen in many of the charts in the gallery, clearly show a close above the resistance line. This dramatic move could be signaling a significant rise in gold considering the last time we saw gold trade at 1181 and move higher, prices culminated at 1435.

Although it is much too early to create a model with gold prices rising that dramatically, in terms of a historical perspective it is the only other time we have witnessed gold prices bounce off these lows in the last three years. Today's video will outline our thought process behind our buy recommendation this morning and detail upcoming resistance levels the market couldn't counter if gold prices continue on their upward climb next week.

Market Overview

Economic Calendar