01-02-2012: February Gold: Next Move Unclear
This is probably one of the weakest recommendations we will put out for any commodity. Forces seem relatively in balance for gold. When we place all of our indicators together, it is necessary to double-weight the "news" to get a direction. And the "news" is exceptionally unclear, with so many analysts predicting further strength in gold as a necessary hedge in one's portfolio. As we view it, it comes down to a choice between whether one believes world economies will improve, Europe's problems will be solved, the Euro Zone will remain stable and together, or whether one foresees disasters, wars with Iran and North Korea, oil embargoes, a collapse in Iraq and Afghanistan where the Chinese are favored for business connections more than Americans, and further bank crises due to toxic assets, our national debt, and a dysfunctional Congress. We have opted for the former, and think the world economy will continue to improve. In that case, the gold prices may be part of a bubble that has already begun to burst. There has been a pronounced downward trend in gold in the past few months, although we would have felt more confident about it if it were accompanied by a decrease in volatility (which in our opinioin, it has not.)
We fed into a neural network to get the following result:
February Gold:
February Gold:
Money managers cut their bullish stake in Comex gold, silver futures and options to multi-year lows during the week ended Tuesday, acording to data released by the CFTC. When gold prices do rise, it is most likely because investors are attempting to shield their wealth from a stormy economy. CNBC recently ran an article proclaiming gold was no longer a safe-haven asset. Reasons to support gold prices include the MFGlobal default, a rising dollar, and year-end-tax-loss selling. Silver is currently showing weakness, down 10% in recent trading. Prices of gold and silver at a five-month low may spur demand from jewelers and investors. Gains in the U.S. Dollar against the Euro were negative for gold prices. Jewelry demand in India rose 11% in 2011. Worries about food supplies and grain prices receded during the fall which was not good for gold, but many traders think 2012 could offer more roller coaster rides for precious metals. Corn prices have started rising once again on concern about supplies and farmers' ability to grow enough food. More consumers in Asia are eating meat, suggesting livestock industry demand for feed grains in the U.S. Federal ethanol mandates mean that about 40% of the U.S. corn crop will be used to make gasoline. At the same time prices have lured farmers into planting more corn. In Vietnam, the government is chipping away at centuries' old preference for gold over currency. It is trying to instill confidence in the local currency where interest is paid as opposed to gold. Vietnamese gold prices are higher than global gold prices and the government there is trying to bring those prices more in line to end speculative activity. Gold demand is down by as much as 40% in Vietnam. Our conclusion from this sort of news is that gold demand is based more upon speculation than investing. If one sees the world economy as continuing to deteriorate, then better prices for gold are likely, but if one sees the world economy improving, then gold prices are likely to fall. If one goes by historic gold/silver price ratios, then silver is by far the better investment for likely price gains.
201.0I T 12/30
I CMX - Feb-12 Gold, 100 troy oz., $/oz. Cm.=0.00 Lim.= 0.9
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The above point-and-figure chart is giving a conventional sell signal.
We are headed toward a cyclical high and a seasonal up period.
Our best-performing internal program is "Thrust." It is giving a buy signal.
Results of "Thrust" for Gold (blue lines = successful trades, red, unsuccessful): (Always in the market.)
Our third system has triggered a sell signal. (Note, disregard the year on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)
The point value is $100. Initial margin on a single contract is $7,290. Use of options is advised.
Scale trade sellers are entering the market for the long term in this price range.
In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Blue is small speculators. Red is large speculators. Green is commercials. Large speculators with the best track record are getting increasingly-short.
The average volatility shown below suggests that an uptrend remains intact from the last volatility low point despite appearances to the contrary.
Our option trade recommendation is to Sell the Gold April 1520 Call @ 95.59 or better.
What the Feb. - Jun. calendar spread suggests to us is that buying the near contract and selling the far one is at most times not profitable, which we think is a sign that these futures may go down. The best time to enter or leave the above spread is when it is at -3.40 or narrower buying the far as prices are falling and then selling the near, and exiting or entering when it is at -5.60 or wider sellling the far as prices are rising and then buying the near.
Here's an intraday chart for the previous day ( 12/30 ).
Risk Versus Opportunity Report
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GCG2 February Gold
High Price: 1638.8
Current Price: 1566.8
Low Price: 1419.5
Risk: -0.094
Opportunity: -0.193
(O/R) Ratio = 2.046
| Factors | Weighted Points |
|---|---|
| Inter-Market Analysis | + 1 |
| Parabolic Chart | - 1 |
| Nirvana Chart | + 1 |
| News | - 2 |
| Point & Figure | - 1 |
| Cyclicals | + 1 |
| Seasonals | + 1 |
| Internal System 1 | + 1 |
| Internal System 2 | 0 |
| Third System | - 1 |
| Historic Range | - 1 |
| Commitment of Traders | - 1 |
| Range/Volatility | + 1 |
| Level Table | + 1 |
| Other Factors | - 1 |
| Total | - 1 |
Place 2 February Gold on a Sell Watch with stoploss @ +38.37 above the get-in point._____________________________________________________________________________________________________________________________G.S.
