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Bullion Charts and Commentary for June 6
posted Jun 6, 2004 at 01:47PM

Price Action

Commentary follows charts...

Fib Study #1

Fib Study #2

Daily Chart

Weekly Chart


As expected bullion took a run at its 200dma, took a peek around, and then spent most of the week consolidating. The week ended with both gold and USD bouncing off 50% Fib support levels.

My feeling is that given the USD stochastics are bottomed out it may be girding itself to retest it's channel break-down point.

Looking at the stochastics action on gold, my feeling is that this IS a consolidation off its recovery bounce highs, and that another attempt at the 200dma will be forthcoming or at the least some strength at the start of the week.

There was some disappointment/apprehension over gold being unable to breach the 400 level...but in TA terms getting a close over the 200dma will do just fine. Such a close is of vital importance to stocks, whose index charts are much more technically vulnerable.

There is no way to disguise this...bulls are going to have to be very committed to grind through the morass of technical resistance.

In the larger picture, there is a wide spectrum of analysis out there to choose from. On one end you have the sentiment that the gold bull is back in gear. There is nothing on the gold charts to definitely disprove that. Despite some wobbliness on weekly and monthly charts, long term trend-lines remain intact and the USD is hardly looking like a juggernaut.

On the other end you have those who say the party is over and most people can't believe it. They would argue that the chart action of late is simply a recovery bounce off unprecedented oversold levels of a first down leg. A bounce like that which followed the first downleg of the Nasdaq bust. And guess what? There is nothing in the charts to disprove that either.

My own view, and not that I am interested in finding a "fuzzy middle", does happen to be between the two. In short gold has completed a first major upleg in a secular bull market. It is now in a process of correctiing that entire move.

Now don't get me wrong, if I am right, by the time gold finishes it's consolidation, it will feel like like a bear market, and will have many of the characteristics of a bear market bottom - unbelievably low prices, sentiment in the toilet, small specs having a net SHORT postion on the COMEX, prominent gold analysts being pilloried by the johnny come latelies.

The argument for this view are this: Despite an overall bullish envirnoment for gold, several aspects of that environment have changed, and these changes will provide strong head-winds against rising gold prices.

Some examples.

For the meat of the bull cycle gold speculators were confident that the Fed would not raise rates and mostly likely lower them. That has now changed. For intermediate time frames you can assume that the Fed will no longer lower rates..indeed they are likely to start raising them.

The fact that the Fed is so far behind the curve he can't even see it, has not yet penetrated the conciousness of the market.

One can get a sense of this from the following chart.

An underlying boost for gold prices was the increasing spread between long and short term yields. The chart price action shows a definite pattern of lower lows and lower highs being put in.

This chart is at oversold levels, and that should help gold in the short-term, but if we only get a shallow upwards correction, it will be further proof that at least an IT down-trend is in place.

Because of this a lot of carry trades will have to be unwound, and this means many components of the CRB will be consolidating in a southwards fashion in the interim.

Another example is that during the meat of the gold bull-leg, the economy was losing jobs at a frantic clip. The situation has now reversed - even in the all important manufacturing sector. As we know now..40 dollar oil is not a sign of inflation, but the minute people start getting jobs the Fed starts getting into inflation hawk mode.

Lots of emphasis is being put on the "terrorist" card. Terrorism is not new news and the acts themselves do nothing of note for gold outside of short term spikes. 9-11 was the best example of that.

You have to be very careful of what you ask for. If a "spectacular" attack occured in European capitals, the results on currency may not be what people expect.

As far as speculating on a terrorist attack on Saudi oil supplies, then I suggest junior oil stocks are what you should be looking at, not miners whose costs are going to go through the roof. No shortage of good oil juniors whose stocks have been pummeled.

But even there you have to be careful. $80 oil would ironically have a deflationary affect, in that it would simply suck money out of the system like air out of a balloon.

Now all of the above, the interest rates, the unwinding of of dollar and commodity trades are temporary phenomena. At some point they will stop having an affect on the markets, and foundation fundamentals will again make thier presence felt..i.e. the fact that the US is bankrupting itself in every way it can be bankrupted.

Until then my buy and hold hat is in the closet and my scalp trader's cap is on. I am still of the opinion that keeping a large core position in cash will leave one nicely positioned for future opportunities.

Good trading

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