Dear Member,
Here is this week’s big picture update:
GOLD
Fundamentals:
Gold’s testing overhead resistance right now at the $1,262 level. I doubt it can get through there, and yesterday’s rally smacks more of short-covering than anything else. In addition, the trend remains firmly down, both technically and timing-wise, for lower prices heading into January.
Moreover, last Friday’s Non-Farm Payrolls figure came in better than expected with 200,000 jobs created. That could be the final catalyst for lower gold prices ahead as traders are now expecting an early taper by the Fed when it announces its intentions at the next FOMC meeting on December 17-18.
In other news, Barrick Gold’s next chairman has announced that the company may consider reestablishing a hedging strategy five years after spending around $5.6 billion dollars in lifting the failed hedges it made at the beginning of gold’s bull run.
This may be a sign that the low in gold may not be too far away as a large amount of short positions prepare to enter the market. Leave it up to Barrick to get their timing wrong again. In the months and years ahead, they will be sorry they started hedging again.
Technicals:
Gold traded generally in a sideways pattern during the week that saw prices capped at $1,262 on the upside and $1,210 on the downside. I expect this kind of trading action and high volatility to continue in gold going into the end of the year as the yellow metal begins to seek the final low for this down trend that began last year.
We have a turning point due in gold next week. So if we get a high in price, chances are that a reaction high will be sold off and lower prices will be ahead for gold.
I am seeing some high volatility on the horizon next week as the FOMC meets, indicating that if there is a surprise from the Fed you can expect wild trading action in gold.
SILVER
Fundamentals:
Like gold, a better-than-expected Non-Farm Payrolls figure renewed fears of an early taper by the Fed and is putting pressure on silver, which has seen weakness throughout the week. On the other hand, what might be tempering the selling is that a good jobs number is indicative of an economic recovery sparking interest in industrial commodities including silver.
Technicals:
Like gold, silver’s rally yesterday is merely short-covering, and I do not expect it to stick.
Going forward, the $19 area is where we can expect some support to come in for silver, but a close below that level will bring lower prices and a retest of the June lows. A weekly closing below the June lows and we should see $17 in silver in no time.
Massive resistance lies at the $20.90 level.
As with gold, the indicators for silver are showing some alleviation of the downward pressure seen recently with the Relative Strength Index (RSI) showing a feeble upturn and the Moving Average Convergence-Divergence (MACD) generating a bullish crossover. The lower boundary Bollinger band has also provided some support for silver during the week. But, interestingly, the center line which currently sits at $20.11 is reaffirming the significance of this area as a pivot point.
THE U.S. DOLLAR
Fundamentals:
Strength in the euro on the back of the European Central Bank’s decision to keep rates unchanged and the revised projected growth for next year of 1.1%, up from an earlier projection of 1.0%, gave a lift to the euro that pressured the Dollar Index during the week. And while the euro continues to defy gravity, I believe the currency is getting closer to going over the cliff once and for all.
Broad-based yen weakness is now providing some support for the dollar.
Technicals:
Expect some support to come in at the 80 level. A close below that and we should see a retest of the October lows.
Strong resistance at this stage for the dollar is coming in at last week’s high at the 81 level, although initially there may be some selling seen at the 80.40 level, which is also the 50-day moving average.
A daily close above this level and we may retest 81. But only if the dollar can manage a close above this will it mean a move up to the 81.50 area.
Again, the 50-day moving average line has now completely flattened out from what has been a steady downtrend since the early July highs portending an imminent move higher.
THE U.S. 30 YEAR BOND
Fundamentals:
A slew of relatively positive economic data including ISM manufacturing, November private sector hiring, and Thursday’s better-than-expected Q3 GDP reading points to a steadily improving economy and had traders convinced that was behind the selling in bonds.
In other news, commentary during the week from Atlanta Fed president Dennis Lockhart suggested that the tapering discussion will continue at the December FOMC meeting. However, he refused to confirm the possibility of a December tapering leaving bonds in the lurch searching for support.
Technicals:
Unfortunately for the long bond, last week’s trading action proved my worst fears that indeed its days may be numbered with the continued selloff in this market that has prices now trading at the September lows.
Minor support for bonds can be found at the 128 level, but any close below this and lower prices are ahead in this market. One minor hope for the bulls is Friday’s wild price swings on the back of the jobs report, which has formed a potentially bullish high wave candle. We will need to see prices move quickly and firmly higher next week to confirm this pattern. But looking at the trading action lately in bonds, any rally may prove short lived.
Only a weekly close above the 131 area would we see bonds rally on a sustained basis, but at this stage of the game, this is looking increasingly unlikely.
Stay tuned to your inbox.
Best wishes,
Larry
