Dear Member,
Here is this week’s big picture update.
GOLD
Fundamentals:
The big news for last week was the budget deal struck in Washington that will see the government through for another two years. Obama is expected to sign it into law. Gold’s reaction to the news was negative as the market may have interpreted this as being one less road block for the economy, therefore, heightening expectations of a taper by the Fed at this week’s meeting.
With the holiday season drawing closer and traders starting to take leave, volatility will be on the rise as liquidity begins to dry up. This was witnessed in gold last week with prices swinging more than $40 on a few occasions.
I expect the volatility to continue into year-end and for gold to head lower with the occasional bounce to test resistance.
Technicals:
Gold began the week in a strong position rallying roughly $40 before finding resistance just below major closing resistance at the $1,262.50 level.
It precipitously sold off heavily on Thursday before managing to regain some of the losses into Friday’s close.
Given the decent rally Friday afternoon, gold looks like it may head a little higher early this week; however, it still has solid overhead resistance at $1,240 and $1,262.
Nevertheless, the trend is down. Only a weekly close above $1,300 would cause a sustainable bull run for gold. This, however, is looking more unlikely given gold’s recent price action.
On the down side, a close below last week’s low at $1,220 and, more importantly $1,210, and we will see sharp new lows in gold.
Indicators have continued to ease their oversold condition with both the Moving Average Convergence-Divergence (MACD) and Relative Strength Index (RSI) etching out a sideways higher movement.
The center line Bollinger band is currently at $1,245 and will provide some resistance on any rally we may see early next week. Keep in mind we have a potential panic mode for prices this week, meaning we can see some sharp moves and high volatility in gold, likely due to the Fed meeting set for Tuesday and Wednesday.
SILVER
Fundamentals:
Like gold, the news out of Washington of a budget deal hit silver hard during the week. Traders were optimistic that silver managed to recapture the psychologically important $20 level. But silver was unable to hold on to it.
Technicals:
Silver will not rally on a sustainable basis unless the all-important $20.40 level gives way on a weekly basis.
I have mentioned in previous issues the importance of this price zone, and this was proven again last week as silver failed to penetrate it.
The rally on Friday into the close was weaker in silver than gold, and this tends to warn that any further rally is unlikely to continue much higher. Once again, the $20 price area will provide initial resistance early this week.
On the downside, some support comes in at the $19 level where the lower boundary Bollinger line rests. In any case, were silver to head back down into this zone one more time then chances are high that we will see lower prices for silver below those seen in June.
Indicators are looking slightly more bearish for silver than gold with both the RSI and MACD carving out more of a sideways movement. However, the MACD looks to be potentially forming a bearish crossover and needs monitoring early this week for any signs of weakness.
THE U.S. DOLLAR
Fundamentals:
The dollar also took cues from the deal struck in Washington and reversed what was a poor start to the week to rally into the close on Friday. Traders perhaps saw this news as an opportunity to book profits after what has been a steady month-long slow selloff for the dollar.
In other news, a German newspaper reported during the week that a deal was struck in the gulf states to form a single currency that will be pegged to the U.S. dollar, to the detriment of the euro. This may have contributed to the turn around in sentiment for the dollar as it remains to be seen if a sustained rally can materialize. I remain bullish the dollar on an intermediate-term basis.
Technicals:
Friday’s rally failed to penetrate the 50-day moving average after having tested it from below. The dollar looks poised to move higher in the coming days and weeks. But first we must see a close above the 80.40-50 region, where we also find the Bollinger center line.
Above that, resistance can be found scaling up all the way to the 81.50 area. A close above that and we will see a continued, strong rally.
The dollar’s trading action last week was constructive as it found support in the 79.90 – 80.00 region. Indicators are also looking encouraging for the bulls where the MACD is beginning to show signs of a bullish crossover after having turned down for the majority of the past month.
THE U.S. 30-YEAR BOND
Fundamentals:
Bonds came under pressure on Thursday on the back of a weak 30-year auction, as traders remained tentative ahead of the FOMC meeting this week. A $13 billion offering sold at the highest yield since July 2011.
Bond prices have already been under pressure from the earlier release of the Commerce Department’s report of retail sales figures for the month of November showing an increase of 0.7%, higher than the 0.6% rise forecast by economists.
Technicals:
Bulls will have their work cut out for them as they face numerous resistance levels scaling up from the 131 level all the way through to 134. Only a weekly close back above the 135 area would result in any sustained bull trend.
Meanwhile, the inverted head and shoulders pattern still lurks over bonds and a close below 128 will confirm this bearish signal.
So stay tuned to your inbox for any important updates I may have for you this week.
Best wishes,
Larry
Position Tracker
Click here, or on the image below, to view our position tracker in .pdf format.
