Dear Member,
Friday was a heck of a day for the precious metals. After plunging as low as $1,304.50, the nearby futures gold contract rallied sharply, back up as high as $1,330.
Nevertheless, and very importantly, the nearby gold futures contract closed below the $1,317.90 weekly sell signal at the end of the Comex trading session on Friday, yielding a sell signal on my system.
The rally that occurred in the late Friday trading session was nothing but a bounce. The weekly sell signal in gold, I repeat, was hit on Friday.
Earlier this morning, gold rallied a bit further, to the $1,336 level, largely on news that Larry Summers withdrew his hat for Chairman of the Federal Reserve.
The thinking was that since Mr. Summers is more hawkish on inflation and interest rates than his colleague, Janet Yellen — who is now likely to get the head post at the Fed — there would be more printing under Yellen, and hence, that would be bullish for gold.
Wrong. Although Janet Yellen is certainly more in the camp of helicopter Ben Bernanke than Summers is, gold is not done with the downside yet. Evidence came quickly. Gold’s late Friday and early morning rally today have been largely wiped out, and gold is now trading at the $1,312 level, more than $5 below my weekly sell signal.
Given the important Fed meeting this week, starting tomorrow and ending on Wednesday, it’s likely that we will see not just gold, but all markets virtually come to a standstill and trade in tight ranges until the Fed’s tapering announcement is released Wednesday at 2 pm.
The Fed will most likely curtail or taper some of its bond purchases, but my view, based on all of my indicators, is that it will be a non-event. Whether the Fed slices $10 or $15 billion off its bond purchases will hardly make a dent in the markets, and no matter, the announcement will not change the current trends that are in motion.
Hold all open positions and related protective sell stops. Support in gold will now be found at the $1,263 level. If that gives way — and I expect it will — then we should see gold slump very sharply heading into the end of the month, in accordance with the cycle chart I previously showed you. Support in silver lies at the $21.17 level. Once that goes, look out below.
Stay tuned and best wishes,
Larry
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