Make It or Break It Week for Gold

By Brad Zigler

The U.S. dollar's developed some spine this week and, not so coincidentally, seems to have blunted gold's advance. Not that the dollar is the only roadblock in gold's path, mind you. The yellow metal, in fact, is at a technical crossroads now.

Gold's medium-term trend – that is, the arc scribed on the monthly and weekly charts – is down since the peak reached in March 2008. The near-term chart, however, shows a rather nicely developing rally from gold's October lows. The rally, however, could stall if the nearby COMEX contract can't close out the week above $931. Even then, there's resistance at $939.60 to overcome.

COMEX Gold (Feb. '09)

Backing and filling is not uncommon in a trending market, so the intersection of chart trend lines may only matter to technical wonks (okay, I admit to some wonkishness). Still, there's something more at work, something more fundamental.

Have you noticed the shape of the gold forward curve recently?

The curve is the ladder of prices for forward sales and swaps determined by the London gold market makers; much the same as the stair-step pricing you'd find in the COMEX gold futures market as you go further out in the delivery calendar.

The spread between nearby and distant forward rates, loco London, has been widening as gold lease rates have fallen. The interplay between lease rates and forward premiums is a supply indicator. Low lease rates and high forward premia signal a plentiful supply of metal. This can stem from either forward buying of metal or an increase in the supply of gold liquidity in the spot market.

More supply would be inconsistent with the rising price trend in February gold COMEX futures.

London Gold Forward Rates

That make's Friday's COMEX close a critical indicator of gold's near-term prospects. Keep the number $931 in your sights for Friday.

Comments

[Gold Barron:]

Past performance in Gold does not dictate future performance. Charts are somewhat meaningless in the current market.

Feb 04 04:31 PM

[Brad Zigler:]

SOMEWHAT meaningless?

Feb 04 05:58 PM

[Gold Barron:]

Yes Brad, somewhat meaningless. You cant chart fear in the market or an impending dollar collapse. Nor can you chart blatant market manipulation at the Comex.

Feb 04 06:17 PM

[ashadu:]

thats what charts do, they reflect the fear and manipulation in real time. what they dont do is predict the future.

Feb 04 09:11 PM

[Brad Zigler:]

No prognostication, fundamental or technical, can predict the future with certainty. There's always randomness to take into account.

Charts can, however, identify areas of support and resistance. Cnarting price angainst open interst and volume can also gauge momentum and sentiment.

I'd contend that you CAN see signs of an an imminent currency collapse refected in a chart. Diminishing faith in a currency would precipitate a sell-off, scribing an arc similar to the recent demand destruction in the crude oil market.

Feb 05 01:53 AM

[Brad Zigler:]

If you contend COMEX to be manipulated (what evidence have you?), how do you explain COMEX and the London cash/forward market tracking each other?

Feb 05 01:58 AM

[Conan the B...:]

Ashadu: Gold will be below $800 before it goes above $1,000. This is what I see in the charts based on previous activity.

The past is obviously relevant, otherwise tracking the PE of any stock or Index would also be irrelevant.

All a Chart does is put the price against earnings into a graphics format. A chart will give you a comparison of how a given company or Index acted in a Historically similar situation.

It is a Tool not a panacea.

Feb 05 02:56 AM

[Mr. Ed, Jr.:]

Indeed. It seems just about everything is useless in the current market. Good luck to all in whatever path you take.


On Feb 04 04:31 PM Gold Barron wrote:

> Past performance in Gold does not dictate future performance. Charts
> are somewhat meaningless in the current market.

Feb 05 03:11 AM

[don pedro:]

i wrote a book on chart analysis 10 years ago when only pro's had an idea what a moving average or rsi is.... i DO NOT NEED a chart to understand that a bunch of old debt plus a lot more new debt will hurt the dollar and increase inflation. and that this will help precious metals. when this will play out is anybody's guess, but it will happen, not doubt about that.

once the ATM's stop spitting out money its too late to protect your ass, so better safe than sorry.... just ask anybody in iceland...

Feb 05 10:19 AM

[optionsgirl:]

Any speculation of gold's future direction and the US dollar's demise should include a discussion of China and the amount of US Dollars and US debt China owns. China has been a gold buyer in recent months.

As for the IMF, it must continue to sell gold in order to squander the proceeds. Isn't that its' mandate?

Feb 05 12:16 PM

[Conan the B...:]

that's what the IMF does, its just waiting for the opportunity to do so.

The time is about right also. Gold went up above $1,000 and hit a brick wall around this time last year. This year, with the Big Boys pushing it, it has problems at $930.

Feb 05 02:20 PM

[LR European:]

$931 by Friday seems extremely specific in terms of both price and time. Not sure why. No doubt, as you explain, the level is important for some, but I think this market is broadening now. Many couldn't give a monkey's what the price is this Friday, providing the uptrend is intact and key support levels are not broken.

Feb 05 04:04 PM

[5142152-337:]

Brad Zigler:

I presume you are pulling our collective legs. Inferring that silver and gold are not being manipulated is laughable. I suggest you read Jason Hommel and Theodore Butler. They will give you volumns of PROOF that the COMEX, CTFC, et al are up to their hips in manipulation. Here are the websites:
butlerresearch.com/arc...
silverstockreport.com/...

Feb 06 08:57 PM