GOLDReport

June 21, 2007

Observations

Comparing prices on a week to week basis, as I am writing this report August Gold is down $1.50 and September Silver is down 6-cents. Both of these markets managed to rally up to their respective 18-Day Moving Average of Closes earlier this week, on to find resistance proved formidable at those levels and prices retreated down.

World inflation is on the rise. This is causing interest rate increases in many countries, as that is the primary weapon against inflation. China is reported to be ready to raise their interest rates again. I see them having little choice as our politicians continue to jump all over them, accusing them of maintaining an unfair exchange rate given their costs as grounds for a trade dispute.

Why is it that no one is talking about Japan, who has a national policy geared to letting its currency rate tumble, with the obvious goal of gaining a trade advantage, which having a low Yen results in. Just yesterday I read that because of the exchange rate, Japanese car manufacturers can actually make a car cheaper in Japan than in the US, including the cost of shipping it to America.

Without doubt this will put pressure on the corporations to move manufacturing out of the USA. Should this occur, trade talk against Japan would immediately begin. However, because they manufacture here, I don't expect much political pressure to be put on Japan. China doesn't manufacture here, which means we have two different standards at work.

Metal prices are breaking pretty hard today. Prices are retreating back to prior support levels as mentioned in last weeks report.

August Gold

The current short-term trend is neutral and Stochastics have come back down into oversold territory with a reading of 28.40. Some questions I had about this market were answered this past week.

First, the seasonal influence on prices is working. That influence is down through most of the summer.

Second, the market is caught up in trading range, with downside bias. Support is at $647 and resistance is now at $665.8.

There are times when one is simply better off looking at market than places bets on them. As readers of this report know, that is pretty much what I have been doing and as of this writing, don't have a reason to change my stance.

Let's look at the August Gold Daily Chart to see what is going on.

The purple channel represents what I believe to be the "slope", the downtrend channel that is at work on this chart. It is pretty easy to see.

Resistance is currently at the 18-Day Moving Average of Closes, 662.6 which matched up well right now with "resistance line, the top purple line" which comes in at 662.5 at this moment. As the days go by, due to the slope of the resistance line will get well under the 18-Day Moving Average of Closes. Should prices close over this line a change in market direction may be at hand. If so that change should lead prices back up to the next resistance level, the 18-Day Moving Average of Closes.

Conclusion and Recommendation

On June 14th of last week I wrote; "Given the oversold condition of the market, it is possible that gold makes an attempt to move back up to the 18-Day Moving Average of Closes, currently at $664.1. However, I do not expect a lot of upside follow through if prices do move higher. In fact, this is about the most I would expect." On June 20th August Gold made its most recent high of 665.8. Since that time, prices have fallen back to today's low of 660.5, a $15 price break.

I don't expect a lot from the gold market at this point in time as Stochastics are already close to becoming oversold, which implies that the current price break will probably not have a lot of "punch" to it and the seasonal tendency is biased to the downside. Should Stochastics embed, that would change things, but they are not close to doing right now. A break down to the Bollinger Band Bottom, shown as a white band on the above chart which comes in at 6461, is the most I would look for. That low coincides well with the previous low of 647 made on June 13th.

As for the upside, in my opinion prices would have to close over the most recent high of 665.8 in order for me to think an uptrend of substance was taking place. Resistance is clear near 662.6.

Temporarily treat this market as a trading affair, with downside bias.

 

If you haven't had a FREE 2-Week Trial to my Twice Daily Recommendation, simply go to www.iepstein.com and fill out the request form.

If you haven't had one in the past, you can subscribe for FREE for the next 14-days and receive access to all of my research including my Nightly Audio/Video Recordings where I cover in detail all the metal markets. Go to www.iepstein.com for more information.

 

Silver

Silver is suffering like gold. Not terribly, but still suffering. Last week's attempt to rally failed miserably against the 18-Day Moving Average of Closes shown on the chart below. The failure to breakout to the upside caught those long this market.

Technically speaking there are a number of ways to interpret the silver chart below.

First, it obvious that the 18-Day Moving Average of Closes has contained rallies very well. The 18-Day Moving Average of Closes is drawn as the "red line" on the chart below.

Second, each time the market breaks it quickly becomes oversold. This is shown in the Stochastic Study. I consider a reading under 30 to be an oversold condition.

Third, the current short term chart pattern, as shown by the "yellow line", the Swingline, is now one which as of today has produced a Lower Low. Today's break took prices under the previous Swingline Low, shown with a large Red Arrow, which was made two days ago. Once this occurred the short-term uptrend that had moved the market back up to resistance at the 18-Day Moving Average of Closes, ended.

If prices continue to break, the next downside target is the Bollinger Band Bottom, shown as white band, which currently intersects at 12.98.

Should prices rally, resistance is should come in at 13.477, the 18-Day Moving Average of Closes.

Recommendation

As you can see from the above chart, last week's rally did not hold. My guess is that today's break washed out a number of the "weak" longs that bought into that rally. Given the low Stochastic reading, I don't see myself wanting to recommend getting short right now.

Like my gold analysis, I don't see silver doing much other than trading around in a trading range that has 12.98 as a potential trading bottom and yesterday’s high of 13.535 as a trading top. Close over either number and I will change my mind, but right now, I am viewing this market as simply a trading affair.

Free Offering: New Futures Trading Kit

Our FREE New Investors Kit is contained on a CD. It includes:

14-Day Trial to our Charting Software with:

• Live Streaming Quotes from the CBOT and the CME
• Paper Trading
• Price Ladders
• Streaming News

14-Day Access to our Nightly Audio/ Video Report

14-Day Access to our Twice Daily e-mailed Market Research

Brochures, Booklets and much more...all on the New Investor Kit CD

For those that trade or want to trade the Metal Markets, call us to find out just how low our commissions are. They are very low. For those trading elsewhere, we'll probably be able to beat what you are paying by a lot. I think you'll be more than surprised!

Go to www.iepstein.com to signup and receive

For more assistance, call one of our brokers at:

Our phone number is 1 800-284-3010. Please remember that this report goes hand in hand with our Twice Daily Market Commentaries that is available through Ira's Subscription Page.

Please call for more information.

Archives of these Metals Reports can be viewed Here.

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. No guarantee of any kind is implied or possible where projections of future conditions are attempted. 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 Ira Epstein & Company or Shatkin Arbor, 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 no indication of future performance.