GOLDReport
July 9, 2008
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Finally...Crude and the energy products breakdown!
Did you see the cast of characters speaking on TV yesterday attempting to bolster up the US Dollar? All that was missing was Ronald Regan. Because of the G-8 Meeting, the US is putting its best foot forward in talking up the US economy and with it, the US Dollar.
The problem here is that this is just talk. Talk without substance at this moment in time. The Fed could raise interest rates, but given fragile state of the banking sector and the political fallout if they did so in front of the election, I doubt they will. Without doing so I see little fundamental reason for the Dollar to rally.
Go back and read my past reports. I have been on record for at months stating that I think the Dollar is caught in a trading range, a range that it need not break out of for very long time. This began in the June contract when prices spiked up to 74.50 and quickly fell back to near 71.60. Since than, prices have gone sideways.
The drawdown in Crude Oil inventories released today was twice as much as was predicted. However the build in gasoline stocks was twice as large as expected due in my opinion to a change in American driving habits because of high priced gasoline and the recession.
The question that needs answering is this: Is the Bull Market over in metals or is the pullback in prices simply a price correction. My guess is that we are in price correction for the reasons stated below.
The Inflation Story
The price breaks in grain and energy prices seen over the past 10-days and especially since the 4th of July Holiday is impressive. An excess in terms of pricing, commonly called "Price Premium" has quickly come out, yes out of corn, wheat and energies. The problem I have is that the excesses in their pricing simply took these markets to too high a price. However, relatively speaking, all prices remain and will probably remain at historic highs until demand subsides.
July is often a wild card month in the commodity markets. Weather plays havoc with grains and energy demand. I do not see this year being any different than previous years, so expect a lot of volatility all month long. As we approach September, things often settle in.
Gold's Seasonal Story
For weeks on end I have been displaying a Seasonal Gold, provided to us by the good folks of Moore Research Center...www.mrci.com
Let's look at a Seasonal Chart of Gold.
As I wrote about last week, what I look at when viewing historical seasonal charts is market momentum. Without question, the above chart makes an argument upward price momentum into year end. Remember, gold demand picks up now for the Christmas Season.
December Gold
Lets start out by looking at a Daily Chart of December Gold Futures
Gold is now in a corrective stage. The Stochastic Study is breaking down, leaving the 18-Day Moving Average of Closes as the most likely downside target. That target is not far away as you can see on the above chart. (I've plotted the 18-Day Moving Average of Closes in "red".)
Stochastics are currently trading in the high 60's, low 70's. Both the red and yellow lines have to get under 70 to alleviate the overbought condition, so I expect one of two things. Either prices dip back to this key moving average or the average moves up to where prices are trading. While this goes on, Stochastics should correct and get back to a more neutral stance.
Conclusion and Recommendation
Those that follow my Twice Daily Updates should now be long the December Bull Call $1000-$1025 Spread at 6.30.
This spread has until the end of November. If the seasonals in gold and silver take hold and Crude simply holds steady or slowly declines, the gains ahead could be very substantial. If you or I am wrong, your risk is limited to the cost of the spread plus fees. Don't forget that this strategy is not a do or die situation. You have the flexibility to get out at any time prior to expiration for whatever the spread is worth. Expiration is in late November, so you have a lot of time to see trends develop.
My recommendation at this time is to hold tight.
Here is a matrix of Gold Spread make up by one of my company's broker's, Mark Pasek, who can be reached at 1-800-284-1065
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Silver
Let's look at the Seasonal Silver Chart to see what it offers.
Historically speaking silver bottoms once in June and again in late August. After that price momentum often move higher into February.
Last week I said that I was fearful of buying Silver's current $2 rally in Silver. Since that report was written prices have pulled back nearly 70-cents, or about a third of the current price gain.
Silver
Silver hasn't received a lot of attention from me recently. It's not that I've abandoned it. Rather, given its $2.00 run up in but a matter of two weeks, I've been left admiring its performance.
Let's look at Silver.
I've labeled the $2.00 run in prices with a double headed red arrow.
It's very hard to simply step in given that until today's small price break, there has been no correction to buy into.
I believe a major low has been made and am now looking to buy into Silver Calls either outright or via Bull Call Spreads.
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