Do the Charts Say Gold Is Ready to Take Off?

Source:

"Seasonally speaking, gold leaves the current 'weak' seasonal time frame it's now in and begins to gather strength into year-end."

It seems to me that the writing of this report has become repetitive. I say this because the forces that drive Gold prices haven't changed.

  • Iran…embargo going forward July 1st
  • Sovereign debt issues in Europe
  • China having a "hard" landing
  • New…Egypt having an Islamist President

Gold is trading about where it finished last year at. Obviously this means that on a close to close basis it hasn't moved very much in the first half of 2012. It might not in the second half either. Yes, there have been rallies, but as gold bulls know they haven't held.

The Eurocurrency has serious issues and I don't see those issues being quickly resolved, so that removes one of gold's props. As the Euro has fallen in value, the US Dollar has been rising. As the Dollar rises, gold in terms of the Eurocurrency costs more. India, a traditionally major consumer of gold is having the same issue. It's Rupee has lost a lot of value against the Dollar this year. China seems to be the bright spot as the Chinese public is picking up the slack from the loss of India's consumption.

I just read reports that central banks as a whole have not been adding to their gold reserves. Just as important, as a group they haven't been selling their reserves in these rough economic times.

Seasonally speaking, gold leaves the current "weak" seasonal time frame it's now in and begins, historically speaking, to gather strength into year end. Will this year follow the seasonal pattern is the question only the market can answer. Keep July 26th in mind, as the close that day becomes to me a "key" day.

The close of July 26th is the number I use as the pivot if gold is to be declared a bull market in the second part of the year. While gains and losses in-between the July 26th date and the close of this year will vacillate, this price becomes to me very important in terms of determining if seasonality is working or not. I also use this price to watch for relative strength or weakness going into year end.

More important, I am looking for buy signal now for the first time in a long time assuming the seasonality takes hold. I also like the setup of the charts going into July. The potential is there, but what's missing has been a story to get the public involved. Given all the above events, I don't know what that story

Seasonal Charts

The chart below is published with permission of the Moore Research Center, Inc.

For simplicity purposes, I have published below the 15 and 30-year seasonal patterns. As you can see, they are very similar and show that gold prices tend to decline into July.

ira0629_1

Seasoanlly speaking, there's little doubt that gold has done exactly what it should have done in terms of breaking from May into the end of June.

Monthly Chart

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The Monthly chart pattern above is bearish as the Swingline Study continues to make lower highs (red arrows) but the lows haven't been lower as 1526.7 is not as low as 1525. Prices are under the 18-Month Moving Average of Closes, 1600.6, which is acting as resistance right now.

If in early July the market were to take out this month of June's low and reverse up an over 1639.7, I would get very bullish, especially if this occurred without first taking out 1526.7 as this would create a pattern of higher lows and higher highs over the 18-Month Moving Average of Closes.

Slow Stochastics are not oversold, but they don't have to get so to get a price reversal. On the other hand, if prices were to drop under 1526.7, the odds favor that prices would get oversold on the monthly chart. That doesn't mean the trend wouldn't be down, but the chart would be in an oversold condition.

Therefore, the potential is here for prices to turn up without much in the way of a rally if you don't count a $60 move large. In the scheme of things it isn't in my opinion, so I remain on the lookout for the seasonality to kick in.

Weekly Chart

ira0629_3

As you can see the Swingline Study is making lower highs (the Red Arrows) and lower lows (the Yellow Arrows). This is taking place under the 18-Week Moving Average of Closes which I term as the market being in a downtrend.

Slow Stochastic readings remain in the 30's, close to becoming oversold, but not yet oversold.

Unlike the Monthly Chart, if prices were to close over 1630.7, the most recent Swingline High and close over the 18-Week Moving Average of Closes a buy signal would be issued.

Therefore as I see it 1600.6 is a key number on the Monthly Chart and 1630.7 a key number on the Weekly Chart. Because the market would need to do both to get the charts in sync, the more important number is 1630.7 at this point in time. If a monthly reversal were to occur without 1630.7 being taken out, that would help but not confirm prices were turning bullish.

Daily Chart

ira0629_4

The Swingline Study is making lower highs as shown with the Red Arrows and so far lower lows. The last number on this chart is the opening of trade for June 28th, so we don't know where the day's low is going to come in.

The Slow Stochastic Study which I've circled in blue is oversold. Therefore, even if prices were to work lower, nothing in the immediate near term would issue a sell signal.

The dashed black line is the Bollinger Band Study. Prices have not been able to hit this price since mid may, which means the current downtrend hasn't had a lot of downside traction.

What is interesting on this chart is that a move over 1589.0 would reverse the Swingline Study and turn bullish. If prices were to close over 1601.3, the trend would turn up.

Ideally, I'd like to see prices get under whatever this month's low is in early July and turn up and over the 1601.0 level. A very powerful momentum signal on both the Monthly and Daily Charts would be issued by this.

Summary

While the current trend is down, it won't take much for that to change in terms of price action.

Given the oversold condition of the Daily Chart, I am not considering short positions.

I can't pinpoint if the trend will turn up as I hope to see, but it should be very clear to readers of this report that I am focusing on chart reasons to get you long the market and this could happen very soon if seasonal chart action kicks in as I hope it does.

As I currently see it the trigger will be a move and close over 1601.3. Should this take place my intent is to offer very specific entry and exit points in my twice daily updates, which if you aren't a subscriber to you should be if you follow my reports.

You can subscribe to by going to www.iraepstein.com , where you will see on the right hand side, Oral and Written Subscription Page. Simply click on and become a subscriber.

I might consider option positions as well as futures if gold turns up. What I don't know is the story that will prompt a market turn, but as a market technician, I really don't care what it is.

I try to do at least two updates a day, sometimes more so entry and exit points can and often do change with market conditions. Trades are also covered in my Webinars which I regularly record. In these Webinars review not only metals, but all the major commodity markets I follow. This means stock indices, currencies, interest rates, livestock, grains, softs and energy markets.

Disclaimer: This publication is strictly the opinion of its writer and is intended solely for informative purposes and is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade in any commodities or securities herein named. Information is taken from sources believed to be reliable, but is in no way guaranteed. Chart data is courtesy of LGP-IraCharts. No guarantee of any kind is implied or possible where projections of future conditions are attempted. Futures and Options on Futures trading involve risk. In no event should the content of this market letter be construed as an express or implied promise, guarantee or implication by or from The Ira Epstein Division of The Linn Group, Inc. or The Linn Group, Inc. that you will profit or that losses can or will be limited in any manner whatsoever. No such promises, guarantees or implications are given. Past results are not indicative of future performance.

Ira Epstein
The Linn Group

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