Issue #90
Dear Member,
Here is this week’s big picture update.
GOLD
Fundamentals:
Gold closed out the week on a strong footing as a bullish research report released by JPMorgan analysts on Friday called for a bottom in gold as cited by Dow Jones. They were also bullish on some South African gold miners getting investors to pile up on mining shares, which catapulted the HUI Goldbug Index over 3% on the last trading day of the week.
One has to question the integrity of such reporting as the big bullion banks including JPMorgan have been loading up on long positions in gold as of late and as noted in the Commitment of Traders report, accumulating the metal from hedge funds that have been selling the downtrend of the previous months.
My models show the rally will be a dead cat bounce. The final lows in the bear market are not yet in.
Technicals:
Gold has so far behaved as I thought it would: In a similar pattern to the previous week with another sideways consolidation before finishing off the week with strength and closing out with a slight gain. This time it was the 50-day moving average providing support for gold, but Friday’s strength saw it springboard off this level.
The upper Bollinger Band now rests at the $1,264 level. The line in the sand is the $1,260 – $1,280 area. So if gold can get through this area, the yellow metal is headed higher.
Support areas come in at the $1,240 and $1,220 levels and that should provide some interim support. But if tested, I don’t expect them to hold.
On the weekly level, the center Bollinger Line comes in at the $1,280 level reaffirming this resistance zone. The bulls will have their work cut out for them getting past this area.
SILVER
Fundamentals:
I maintain my view that silver has one more deflationary leg down. There are currently no fundamentals that would suggest otherwise.
Technicals:
Silver has been trading in a fairly narrow sideways band for the past two months defined by $19.00 on the downside and $20.50 on the upside. I am now waiting to see which side it breaks out of. And at this stage it’s looking less and less likely to be to the upside defined by at least a daily closing above $20.50.
A close above last week’s high at around $20.60 would confirm a breakout and higher prices ahead.
Support for silver is at last week’s pivot low just under the $20.00 price level. This level must hold, otherwise new lows are ahead for silver below $18.30, which is precisely what I expect.
THE U.S. DOLLAR
Fundamentals:
Positive economic numbers during the week including industrial production and housing starts gave support to the dollar as traders reconsider the chances of the Fed reducing stimulus despite the poor jobs number last week.
I expect more strength in the dollar as we head further into 2014.
Also remember, as the war cycles heat up in 2014, the appeal of the dollar as a safety play comes to the fore as we see rising social and political tensions build up in Europe and Asia.
Technicals:
The dollar is once again pressing up into the upper Bollinger Line just below the 200-day moving average at around the 81.50 level.
If we see a close above this area on a weekly basis, we will see a definitive breakout in the dollar with the 85 level in our sights.
Initial resistance should come in at the 83 level. But this should give way as we see the dollar press higher in the months ahead.
Support for the dollar comes in at the 80.70 – 80.50 level where there may be a brief retest next week and if so, prices should not go much below this area.
Only on a weekly close below 79.50 would the bear market resume in the dollar. And as I’ve stated, this is unlikely in the near term.
Indicators on the daily level are looking even more promising as the weeks roll by with the Relative Strength Index (RSI) up past the 60 level forging higher highs.
THE U.S. 30 YEAR BOND
Fundamentals:
The long bonds have now managed three consecutive weeks of higher closes, so the bulls definitely have the edge, but only in the very short-term.
Technicals:
Bonds managed to close the week back above its 50-day moving average and well above the critical 130 price level. Prices are beginning to push up into the upper Bollinger Line (daily) at the 130.70 level and a close above that should entail further price increases.
Resistance is scaling up all the way to the 134 – 135 price levels where a weekly close above that will reignite a bull market in bonds. For now this is still a long shot and initial resistance starts at the 131 level.
Support for bonds can be found initially at the 130 level roughly at the 50-day moving average and further down at the center Bollinger Line (daily) coming in at slightly below the 129 level. If we see a closing below this area, then expect the bear market to reassert itself.
Either way, the bond market is now fully entrenched in long-term bear mode, and interest rates will be heading higher in the months and years ahead.
Stay tuned to your inbox.
Best wishes,
Larry
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