by Bill Downey     Price Analysis of Gold and Silver
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Technical Analysis Trading Gold, Trading Silver/ analysis By Bill Downey providing key turning points & charts for investors and speculators in Precious Metals Trading, and Precious Metals Markets

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Gold will most likely make a new low under 1130 this year.

09 Mar 2015 12:12 PM | Bill Downey (Administrator)
It is only a matter of time until the Euro collapses sinking into the abyss. The French presidential election could be the straw that stars the disintegration of the Euro. The reason is very clear. The economic abyss with youth unemployment over 60% warns there is the complete failure to create new jobs and overall 20% unemployment in Euroland would mean the end of the single currency with massive civil unrest. The problem is NOT Greece. Greece is illustrating the problem. Europe is holding on for dear life, but the end-game was began in 2008. That was the fateful year the Euro peaked. It was the end of times for Europe. The mindless people still think that a strong currency is like a stock and it is strength rather than weakness. This stems from the entire mixed up idea of inflation and deflation. The higher a currency in price, the more deflation one sees rather than inflation for assets are on the OPPOSITE side of a currency. Those touting a return to a gold standard are wishing for deflation where assets decline along with wages.

The economics behind the Euro are a total disaster. The fatal flaw was the refusal to consolidate the debts of members as completing the requirement for a single currency to be a single debt. This is what we get when lawyers run the state. They know how to write laws and punish people who do not comply. They do not understand the economy or human nature.

Euro Sinking

German debt is soon to explode. Then we have the implosion of the banking system for their entire reserves are based upon politically correct investment into government debt of all members. This is a Greek Tragedy mixed with a comedy of errors and people in Brussels refusing to admit they screwed up big time. They are refusing to concede the ship is sinking.


Gold Rally Fails, So Where Does This Leave Us?

It certainly was a disappointing end to the week for the gold bulls. Despite initially holding up well from that $1184-$1206 resistance zone I talked about in my previous articles, Friday's market shenanigans well and truly busted any hopes of a sustained rally as gold (NYSEARCA:GLD) dropped hard and closed the week at $1167 for an overall loss of 3.75%.

The gold miners were hit even harder with the majors (NYSEARCA:GDX) losing 12.69% this week (7.47% on Friday alone), and the juniors (NYSEARCA:GDXJ) losing 11.892% (7.25% on Friday). All in all not so pretty for the crowd that feel the lows of November 2014 marked the end of the bear market, and a sure footed step for those that feel we have new lows to come.

When my primary expectation fails to play out, after the sulking period has passed (ha!), I tend to review market news for an idea of what may be affecting sentiment and I zoom out to the longer term charts to review areas of support and resistance that may come into play in the intermediate term. This week the primary focus will be on the longer term prospects for gold and precious metals, although I will of course make a short term forecast as usual.

Good News is Always Good News, Right?


On Friday we had the Non-Farm Payrolls report announced, and it most definitely acted as a catalyst for volatility in the markets. The report showed that the number of jobs created in February rose to 295,000 and unemployment dropped to 5.5%, with both figures soundly beating consensus analyst estimates.

The sell-off was in stark contrast to the good news reported, and seems to have been induced by the notion that the Federal Reserve will now increase the US base rate in June (or perhaps September) of this year. The current rate of 0.25% is certainly at odds with the increasing strength of the US economy, and many analysts feel that the Fed will have no choice but to act.

Since lower unemployment and higher job creation figures point to a financially healthier consumer and thus better prospects for most US companies, you could be wondering why stocks fell. More than anything else I would attribute the decline to the fact that markets don't like the unexpected, and this report beat expectations by a long way. Market participants are now jostling for position and making changes to their allocation, with a healthy portion withdrawing into wait and see mode and we could now see a short term small correction play out.

Once we have clarity and investors have regained a firm grasp of market conditions, you can expect to see the broad equity markets go higher once again. The last 35 years' statistics seem to bear this out, with pullbacks not uncommon in the months preceding a hike, and generally bullish performance in the months after.

What Would a Rate Hike Mean for Gold & Bond Markets?

For gold the implications are a little murkier than the broad equity markets. On the one hand we have a strong US Dollar putting pressure on the price, and on the other we have rate hikes which are often a sign that inflation is rising or at least on the horizon.

We saw the reaction in the gold price yesterday, so it is reasonably safe to say that in the short term gold may react negatively to a rate increase, but longer term I am of the opinion that a steadily rising interest rate will stimulate credit markets as people rush to secure lending while interest terms are still low, and ultimately will result in inflation which will be generally good for all assets, gold included.

When it comes to gold and interest rates, the overall effect is different depending where we are on the overall global cycles. Thus while rising rates will be viewed negatively at first, it will shift and gold will rise along with interest rates just like it did from 1968 to 1980.

The other aspect is what a rate hike will do to bond markets. Again we saw yesterday the effect on bonds, as holders of debt re-assess their positioning in light of growing inflation expectations. Inflation reduces the purchasing power of the revenue stream a bond creates, so yields rise to compensate the greater risk to holders.

However, with all the problems in the Eurozone I am firmly of the belief that the US bond market will remain attractive to investors, especially when Greece defaults in a few months' time and yet more capital flows into the dollar and dollar denominated assets for safe haven. Apologies to whomever I stole this phrase from, but the US bond market remains the best dirty shirt in the laundry and it won't be long before Eurobond holders wake up to that fact. We should therefore not see a full blown downturn in this market just yet, even with interest rates set to rise.

Gold Chart
While the flush out for gold was (as it usually is) the Friday NFP report, the kiss of death happened the previous week when PLATINUM made a new yearly. Odds favor that gold and silver will most likely do the same. Support for gold is the 1150-1160 area and then the 2014 low at 1130. Odds favor that low is not going to hold and golds next target (not the final one) will become the 1080-1100 area. On a longer term basis odds still favor the low in gold has a decent chance of being this year in the 850-900 area. Resistance 1175-1180 and 1188-1198. In summary the trend remains down in gold.




Gold Cycles


Then next short term cycle is due March 20th (plus or minus 72 hours). That is also the time for the medium term cycle . Any new low under 1160 in gold will favor the short term trend lower into that March 20th date.



Silver

Lets look at the longer term for silver.  For all intents and purposes silver remains supported at the LAST uptrend line near the 1600 dollar area.  It tried to take out the medium term moving averages but was unable to do so.   If silver loses this area of support then the move down could see 1250.  In summary,  all trends remain down in silver.


 


Technical Analysis :: Gold & Silver

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