GOLDReport

July 26, 2007

33 and 15-Year Seasonal Gold Chart

Those that are subscribers to my Twice Daily Market Commentary are aware that I have been making mention of the reversal in the Japanese Yen. The Yen has entered a Bull Market phase, which means that the "carry trade" used to purchase gold by some investors, has to be unwound. The "carry trade" occurs when you borrow using one currency as a base and buy into another to invest in goods or make the difference in interest rate differentials between the two currencies. I realize that this is a simplistic explanation, but I believe it does an effective job of describing what a "carry trade" does for. Carry Trades have been at work a long time, due in part to Yen having been in a Bear Market due to Japan's decision to maintain a near zero interest rate policy. This is now changing. Some that borrowed using the Yen are finding it necessary to unwind their "carry trades". Items bought via the "carry trade" typically often get liquidated in the process of unwinding the "carry trade". In part, this may be why the stock market broke down and may be part of the reason why neither gold nor silver has acted as a "safe haven."

It's very evident that at this time investors are not turning to gold or silver as a spot to park their funds. Investors have instead run to T-Bonds and Notes, driving the yields of both down sharply, over the past week.

As I believe that silver and gold are acting in concert together, let's simply focus this week on gold. I think opportunities lie ahead.

Last week I published the gold chart below which were created by the Moore Research Center. Both the 33-Year and 15-Year Seasonal Studies are plotted on it. The 33-year pattern is plotted in "blue" and the 15-year pattern is plotted in "red".

On the chart above I’ve highlighted where we are. This chart shows from a historical perspective what occurs as we end July and enter August. I've highlighted the area I want you to focus on in white and copy it onto the Daily Chart of December Gold below.

On the above chart look at the 15 and 33 year time frames as shown by their respective lines. Historically speaking, gold rallies into late July and from there a downside price correction ensues. Sound familiar.

Look at chart below. It is a Daily Chart of December Gold. This week's price break sure fits in with the historical timing picture above.

It cannot be disputed is that gold topped out this past Tuesday, July 24th. Prices broke hard on both Wednesday and again today ending up with a $22 break in the past 2-days of trading.

Pretty interesting isn't it.

I've overlaid part of the Seasonal Study Chart on the December Gold Daily Chart above. As you can see the patterns so far match up. Until I have reason not to, I have no reason not to believe that this relationship will not hold going forward, given the overall weakness in the Dollar, the unwinding of "carry trades" and high inflation

On the chart above you can see that the market is trading underneath both the 18-Day Moving Average of Closes, drawn in red and under the 100-Day Moving Average of Closes, drawn in green.

I want you to pay attention to the convergence of these two moving averages as time goes by. Once these averages converge and prices close over both of them I think a strong rally will ensue. By the end of August, history says that prices typically are ready to an do move higher. Therefore, the question for me is where the low will be and will history repeat itself?

Conclusion and Recommendation

For those that want to play metals, it is time to get your trading account ready to do so. I will soon be recommending how to accumulate December Call Options and when the chart pattern warrants, will be making recommendations in December Gold in my Twice Daily Market Reports.

I expect gold to become very bullish...very soon.

 

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