21st November - Gold looks vulnerable
25 November 2013
TECHNICALS:
WEEKLY Gold continuation chart
The market has found some support from the horizontals from Prior Highs at 1227 and 1265.
But it is re-approaching them…
Gold futures Dec 2013 DAILY CHART
The market is unable to bounce aggressively from the support, on the contrary, it may be about to complete a Head and Shoulders Reversal...
A completion at 1240, if it happened, or so would surely create sufficient bear impetus to break down through the band of support.
The minimum target of the H&S pattern? 1050 or so.....
FUNDAMENTALS:
The rally in Gold can be traced back to at least 2004 and during that time the global economy experienced the financial crisis and recession caused by the sub-prime scandal in the US which turned into a Euro zone sovereign debt drama.
But those dark days are behind us and although global growth has not yet fully recovered. The US recovery is proceeding at an unusually sedate pace, the Euro zone recovery, if indeed there really is one, is barely visible and Japan’s recovery has seemingly peaked. That leaves the UK economy as the fasted growing of the major developed countries.
As a result of this uusually sluggish recovery, inflation in most major economies is still very low.
But in the Euro zone the trend is particularly worrying. Together with barely visible growth, pan Euro zone CPI stands at just 0.7% year on year and looks set to decline further.
The ECB has almost run out of tools but is said to be considering negative deposit rates. The Fed too, is considering reducing the interest it pays on reserves lodged with it by the Banks.
In such an economic environment where is the reason to buy gold?
Economic growth might be slow, but there is no longer a crisis and inflation hardly argues for a safe haven asset such as Gold.
Additionally, the other traditional support of Gold, geopolitical tension is now almost completely absent.
For several years a major cause of concern has been Iran’s nuclear program. The major powers have long suspected Iran to be developing nuclear weapons which the Iranians have denied.
They claim they are developing a peaceful nuclear energy-generating program which they maintain is their right as a sovereign nation. But given their sponsoring of terrorism over many years, through their proxies of Hamas and Hezbollah, it is understandable the west has harboured very serious doubts about that claim.
But in recent elections a new, more moderate President was elected in Iran. He has expressed a desire to reach an agreement with the major powers about Iran’s nuclear program and ambitions in an effort to end years of mistrust and sanctions which have crippled Iran’s economy.
To date agreement remains elusive, yet tantalisingly close, if the two sides can strike an accord a major long running sore would have been healed.
So where next for Gold given the lack of economic or political crisis?
We judge Gold is set to trade lower, but the move may very well prove a long agonising decline. There are still many who fail to recognise that the landscape has changed and holding Gold is a cost since it is a non-interest baring asset that can only reward when moving up in value.
At some point the last remaining Bulls will recognise times have changed and Gold will revisit the lows, but patience is required.
Next story:
28th Nov - Silver Dropping Back to L/Term 76.4% Level 
Previous story:
21st Nov - USD/CAD Pushing Against Next Resistance