01-20-2010: April Gold: Massachusetts Spells Dawn of New Age
Our look at the current gold market suggests that gold is way overbought. It is much higher priced than the cost of production. Economies are beginning to straighten out worldwide, which suggests that reckless government spending is about to be reigned in. The recent Massachusetts election suggests a repudiation of the Democrats' spending spree and will lead to more Republican victories and a curtailing of government spending. One might be tempted to ask how this could be so when during the Bush Administration the Republican slobs in Congress ran the national debt completely out of the control. Faith in America demands that reason will in the end prevail, even among some of the most corrupt politicians. The people like Ben Nelson and Mary Landrieu, whom we consider sleazy Democrats, insured the demise of healthcare reform when they attempted to blackmail Congress into giving them so much pork that the public began to react negatively. These types of bad senators insured failure of the bill, and of themselves in the process, as first beginning to dawn in Massachusetts, since Louisana will never see the $100 million in Landrieu pork, and Nebraska will never see the rest of the states forced to pay for its Medicare.
It appears the public is finally waking up to these creeps, and it is hopeful now that newly-elected congresspeople will be more amenable to doing what is best for the country rather than their own selfish interests. Fiscal discipline is bad for gold and that is why precious metals prices will probably soon collapse.
April Gold:
April Gold:
Gold and silver prices of late are under pressure because the Dollar is rising to the highest level since January 8th and the Euro is under significant pressure due to problems in Greece. China instructed its banks to curtail lending into the end of the month, meaning the Chinese are tweaking their economy, seens as negative to gold and silver prices. Metals bears are getting the edge off of early earnings reports from American corporations. The shift in the U.S. Senate as the result of the Massachusetts election is perceived to possibly slow the spending pace in the U.S. and reduce the flight to quality conerns. The gold market was unable to embrace the news that the Bank of England wanted to keep some forms of quantitative easing in place. There were some recent platinum price gains that did not seem to spill over into the gold market. Weakness in equity prices has also spilled over into physical commodity markets. The path of least resistance for gold looks lower. Much of the credit for gold's recent rise can be given to consolidation in the mining industry. There has also been difficulty in finding new sources of production. When the Dollar was strong, the heaviest burden on gold prices came from central bank sales. In September, 2009, the ECU and 18 others agreed to lmit sales for five years to 400 tons per year. Most banks aren't so eager to sell now that gold prices are higher. In April, 2008, the International Monetary Fund sold roughly 7 million ounces of gold to India and plans to sell more. The World Gold Council noted in August, 2009, that central banks had bought 14 tons of gold in the second quarter of 2009, the first net purchase by banks in a long time. In November, the World Gold Council said demand was down 34% in the third quarter of 2009 and that mine production was up 6% from a year ago. In September, 2009, GFMS Ltd. said production costs at primary gold mines were around $600/ounce.
185.0I T 1/15
I CMX - Apr-10 Gold, 100 troy oz., $/oz. Cm.=0.30 Lim.=28.5
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The above point-and-figure chart is giving a conventional buy signal.
We are headed toward a cyclical high and a seasonal up period.
Our best-performing internal program is "WilderRT." It is giving a sell signal.
Results of "WilderRT" for Gold (blue lines = successful trades, red, unsuccessful): (Not always in the market.)
Our third system is working on a long-term sell signal. (Note, disregard the year date 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 $5,399. Use of options is advised.
Scale trade sellers are moving in for the long term.
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. Red is small speculators. Green is large speculators. Blue is commercials. Large speculators with the best track record are getting increasingly-short.
The average volatility shown below suggests that a major change in direction to down is imminent at the last volatility low point.
Our option trade recommendation is to Sell the Comex Gold June 1160 Call @ 51.00 or better.
What the Apr. - 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 -1.00 or narrower selling the near as prices are falling and then buying the far, and exiting or entering when it is at -4.00 or wider buying the near as prices are rising and then sellling the far.
Here's an intraday chart for the previous day ( 1/15 ).
Risk Versus Opportunity Report
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GCJ0 April Gold
High Price: 1174
Current Price: 1141
Low Price: 1074
Risk: -0.059
Opportunity: -0.119
(O/R) Ratio = 2.030
Level Table:
| Factors | Weighted Points |
|---|---|
| Parabolic Chart | - 1 |
| Nirvana Chart | - 1 |
| News | - 1 |
| Point & Figure | + 1 |
| Cyclicals | + 1 |
| Seasonals | + 1 |
| Internal System 1 | - 1 |
| Third System | - 1 |
| Commitment of Traders | - 1 |
| Historic Range | - 1 |
| Range/Volatility | - 1 |
| Level Table | + 1 |
| Other Factors | + 1 |
| Total | - 3 |
Place 5 April Gold on a Sell Watch with stoploss @ +31.30 above the get-in point (when the current price is represented as "1141.0".)________________________________________________________________________________________________________G.S.
