CASE FOR GOLD BULLION 2013

 

  • Price action on the weekly looks set for reversal of the price of gold:
    -After heavy selling Gold formed a reversal bullish hammer right at 61.8% Fibonacci retracement.
  • Gold is still trading inside a wedge and is likely to break to the upside
  • RSI and Slow Stochastic did not confirm lower low (positive divergence)
  • There is a MACD Buy Signal on daily chart
  •  Support around US$1,625.00-1,640.00 has held so far and is a region that has served as strong demand and supply zone in the past.
  •  Longer term Gold in similar correction pattern in 2008/2009. Breakout above US$1,920.00 is expected to happen by around June 2013 with a 1.618 projection of 2210$
  • Gold in Japanese Yen is testing all time highs (breakout will be very bullish for gold) with the expectations high that BOJ will increase its package by 10trillion and aggressive measure by BOJ to control inflation.
  • Recent COT Data for Gold is slightly positive. Commercials short position still away from optimal levels around  150k but commercials have reduced their shorts significantly.
  • Sentiment is extremely bearish and at levels from which rallies can be expected to start. (Market Vane Bullish Consensus below 60% and Bernstein's Daily Sentiment Index at multiyear low)
  • Seasonality until February and even until May is positive for precious metals sector
  •  For the first time since September 2011 Platinum is more expensive than gold again. The Platinum-to-Gold Ratio is breaking out to the upside.
    -Platinum has moved up way too much, way too fast. As a mean reversion, we are likely to see prices back off in the near future. YTD platinum futures are higher by 10%, making it one of the best performing commodities. Platinum also looks overbought and though supply disruptions could keep this metal in the spotlight, it might fall back in the short run.
  •  There is strong physical coin demand in U.S
  •  Germany will start to repatriate a part of its Gold reserves; other countries like Netherlands are expected to follow.
  • FTSE all World Stock index is at highest level since May 2011 (indicative of Risk On continuity) & Chinese Stock market in new uptrend.
  •  Unlimited QE from the Federal reserve -> money printing all over the world will push asset prices in all sectors higher...
  •  Throughout history, periods of massive money creation have always been inflationary and this time should be no different.
  • US debt ceiling debate which is likely to trigger risk off and move into gold safe haven.

In the past there were six instances between 1996-2007 when the debt limit was reached, the treasury resorted to extra-ordiary measures. For half of these, gold prices rallied by around 10% in the month leading to the increase of the debt limit, a similar magnitude to that seen in 2011 . There is only one precedent where in July 1957 the Treasury exhausted its borrowing authority and was forced to delay scheduled payments.

 

 

  • Under pressure from the prime minister the Japanese central bank will double its inflation target to 2 percent and consider easing policy again most likely through an increase in its 101-trillion-yen ($1.1 trillion) asset-buying and lending programme. There are very high chances of an additional 10trillion being announced very soon.

 

  • Conclusion:

 

1. Gold has been in a downtrend since early October, but is still consolidating inside a rising wedge. Volume on the rejection from the rising trend line shows buyers commitment to keep gold in an uptrend. You can wait for the break out on both sides or buy on dips in anticipation of a breakout to the upside unless the uptrend is broken
2.  In over the last 3 weeks gold has built a solid base as prices have consolidated trading on both sides of the 200 day MA. It hit 61.8% Fibonacci level but prices never settled below that critical pivot point. On Friday 18th of January prices closed above 1675$ at 50% Fib level, with the next target as 38.2% level just above $1700/ounce. The next significant resistance is at $1718 where there is the 100DMA.

3. Now $1,696.00 - $1,704.00 is the line in the sand. If Gold can move above this strong resistance zone the probability for a continuation to $1,795.00 increases dramatically. This will likely signal that the sideways consolidation pattern is about to end soon because bears could not push prices back below to $1,550.00 – 1,525.00 support level which is a good demand zone.

3) If Gold instead should struggle right where we are now, I'd expect either a sideways movement or another wave of selling that might retest or take out US$1,640/25.00 on a daily close. But would still recommend buying such a dip with a stop below 1625$.

4) Due to the very negative sentiment, the strong performance of gold in Japanese Yen and the renewed strength in Asian overnight trading I think the upside is the more likely outcome and chances are good that gold will make a move to US$1,800.00 within the next 1-3 months.

 

Long term:


1. Central banks have been buying physical gold with Chinese central bank notably buying dips in an effort to increase gold reserve holdings. Russia as well expected to increase to 10%.

  1. Nothing has changed. Gold is still a hedge against inflation and a safe haven.
     Precious Metals bull market continues.
  2. Price target DowJones-Gold Ratio ca. 1:1
  3. Price target Gold/Silver Ratio ca. 10:1
  4. In my opinion is still in its 2nd phase of this long term bull market. 1st stage saw the miners closing their hedge books, 2nd stage is continuously presenting us news about institutions and central banks buying gold.

 

Calculated support and resistance levels:

1625.94 (2013 low), 1630.00, 1634.07,  1638.17, 1642.26, 1646.37, 1650.48, 1654.61, 1658.74, 1662.89, 1667.05, 1671.22, 1675.39, 1679.58, 1683,78, 1687.99, 1692.21, 1696.44, 1700.68, 1704.93, 1709.197, 1713.47, 1717.75, 1722.05, 1726.35, 1730.67, 1734.996, 1739.33, 1743.68, 1748.04, 1752.41, 1756.79, 1761.18

 

 

 

Views: 131

Comment by tradesmart on January 20, 2013 at 3:56pm
goldyen buy is the best imho... since usdjpy looks like buy dip near term for over 92.
Comment by tradesmart on January 20, 2013 at 3:57pm
there is risk of fundamental news impact so suggesting proper money management on buy dip strategy

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