Issue #59
Dear Member,
Gold and silver are both rallying this morning, in what looks like a major turnaround. But it’s not. It’s merely a knee-jerk reaction to the debt ceiling resolution and short-covering. Nothing more, nothing less.
The simple truth is that prior to the debt resolution, investors all over the world were scrambling for dollars and selling gold. Now that there’s a resolution, the reverse is happening: Investors are buying back some gold, in mostly short-covering, and selling the dollars they recently bought.
In other words, we are seeing nothing but very short-term gyrations, a knee-jerk rally, at best. Not one indicator on my system is telling me to reverse positions and go long.
Indeed, looking at this weekly chart of gold, you can clearly see that gold remains in a downtrend, even after today’s sharp move higher.
At the very least, for this rally to continue, it would require gold to close above the $1,338 level tomorrow, then dip back down to test — and hold — daily support at the $1,307 area. If that were to happen, then early next week I would be looking to establish long positions for a rally to the $1,400 area.
But at a minimum, unless gold closes above $1,338 tomorrow, this rally could just as easily fail, and fail big time. Especially with the cycle picture still so bearish, as you can see from this chart.
Bottom line: Hold your positions, with your stops in place. If stopped out, I will reassess the market based on the action over the next couple of days.
Keep in mind that the debt ceiling resolution changes nothing. It merely kicks the can down the road until January 15 and raises the debt ceiling until February 7. Put another way, we face the prospects of another bitter budget fight and government shutdown early next year.
And it certainly changes nothing in Europe, where despite everything you hear in the mainstream press, Europe is nearing another cliff, which will be deflationary in the short-term for gold.
Stay tuned …
Best wishes,
Larry
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