Seeking Alpha

Przemyslaw Rado...'s  Instablog

Przemyslaw Radomski, CFA
Send Message
Przemyslaw Radomski, CFA (PR) is a precious metals investor and analyst who takes advantage of the emotionality on the markets, and invites you to do the same. His company, Sunshine Profits, publishes analytical software that anyone can use in order to get an accurate and unbiased view on the... More
My company:
Sunshine Profits
My blog:
Sunshine Profits' Articles
  • Sunshine Profits: Further Declines Or A Rally In Gold? Where Is The Bottom? 0 comments
    Jun 28, 2013 12:39 PM | about stocks: GLD, SLV, GDX, UUP, UDN, SPY, DIA, DGP, DZZ, DGZ, UBG, UBM, USV, PTM, PTD, JJM, JJN, IAU, GDXJ

    Further Declines or a Rally in Gold? Where is the Bottom?

    Based on the June 28th, 2013 Premium Update. Visit our archives for more gold & silver articles.

    Without a doubt, this was a week of strong declines for the yellow metal. What could we read in newspapers and see on TV? The big banks were falling over each other in their scramble to get on the bear bandwagon. Here are some sample headlines:

    Morgan Stanley to Goldman Cut Gold Forecasts on Fed Outlook

    "'Paradigm shift' to send gold sliding to $1,200 an ounce: SocGen"

    "Gold to Drop Even Further as Fed Increases Real Rates: Goldman Sachs"

    "Deutsche Bank cuts gold, silver forecast for 2013"

    "Credit Suisse cuts gold, silver, Brent forecasts"

    Everybody is talking about the price of gold and wondering where the bottom is. Today in early Asian trade gold fell under $1,200 to its lowest level since 2010. This is down more than $200 an ounce since the beginning of last week and probably the yellow metal is on track to post its worst quarter since at least 1968.

    "It's a long term bear market. If you bought into it today, don't expect it's going to do much. And if you own some and get a rally, get rid of it," said Dennis Gartman, editor of The Gartman Letter, a daily commentary on financial markets.

    On the other hand we can read some more optimistic comments.

    James Rickards, managing director at Tangent Capital expects China to start buying gold at these low levels, up to perhaps 4,000 tons. "People will say 'Why is China buying gold if it's so worthless?' " he said.

    Who is wrong? Who is right? Would it be the metal's worst weekly performance since 1983? To see if this week holds any surprises for gold and the precious metals sector let's begin this week's technical part with the analysis of the US Dollar Index. We will start with the very long-term chart (charts courtesy by http://stockcharts.com.)

    (click to enlarge)

    When we look at this chart, (recall that we have been expecting the index to move higher for some time now once the breakout was seen), we see that a rally finally materialized this week. This chart is still bullish at this time. There is a resistance level at 86.4, and also another one which corresponds to the previous high (seen this week) and that will be seen more clearly on the next chart.

    Let's take a look at the medium-term situation.

    (click to enlarge)

    In this perspective we can see that the support line was reached and it held the decline, so the medium-term trend remains up. As mentioned above, there could be a pause around 84.5 or so, which is just one index point higher than the current level.

    The situation remains bullish for the USD Index in the long and medium term, so let's check to see if the short-time outlook is the same.

    (click to enlarge)

    In this week's USD Index short-term chart, we can see how the situation has evolved recently. A sharp rally was seen recently so a pause would not be surprising. As odd as it may sound given the previous sentence, a continuation of the rally is also a possibility. The upswing is pretty symmetrical with the preceding decline, and if this continues, we could see a move above 84 in the coming days. This would likely have severe bearish implications for gold and silver. Taking a closer look, it seems that higher USD values in the past few days drove gold and silver prices lower, so a move above 84 would surely be a big deal for the whole precious metals sector.

    Now let's move on to the analysis of the Euro Index.

    (click to enlarge)

    In this week's Euro Index chart, we see that the head-and-shoulders pattern remains in place. It has not yet completed (and it could still be invalidated) but it is still being formed. With the short-term trend down for the euro, this chart is bearish at this time for the medium term, so it confirms what we wrote about the USD Index, as the two indices move in the opposite directions as the EUR:USD currency exchange rate is the main part of the USD Index.

    Our final chart looks at the price of the yellow metal from a non-USD perspective. We haven't commented on gold from this perspective for some time, so at the beginning let's remind what this rather unknown ratio actually is.

    UDN is the symbol for the PowerShares DB US Dollar Index Bearish Fund, which moves in the exactly opposite direction to the USD Index. Since the USD Index is a weighted average of dollar's currency exchange rates with world's most important currencies, we may use the gold:UDN ratio to estimate the value of gold priced in "other currencies." What we feature on the chart below is not the price of gold in one particular currency. It is a weighted average price of gold that we calculate based on the price of gold in a number of currencies other than the US dollar.

    (click to enlarge)

    In this week's chart of gold from the non-USD perspective we see the yellow metal confirmed its breakdown and is declining just as is the case with gold seen from our regular USD perspective.

    The technical situation on this chart is bearish. The next support level for gold priced in currencies other than the dollar is lower than gold is today, so there is still room for further decline in the coming days and weeks, even though gold rallied on Friday (at least in the first hours of the session).

    Summing up, the long, medium, and short-term outlook for the USD remains bullish. Further moves to the upside seem probable sooner or later based on the long and medium-term trends. This has bearish implications for gold (and the precious metals sector) and suggests lower prices are on the horizon. Consequently, the final bottom for this decline seems not to be in just yet. At the same time please note that the local bottom may be relatively close or it is already in.

    To make sure that you are notified once the new features are implemented, and get immediate access to our free thoughts on the market, including information not available publicly, we urge you to sign up for our free gold investment newsletter. Sign up today and you'll also get free, 7-day access to the Premium Sections on our website, including valuable tools and charts dedicated to serious Precious Metals Investors and Traders along with our 14 best gold investment practices. It's free and you may unsubscribe at any time.

    Thank you for reading. Have a great and profitable week!

    Przemyslaw Radomski, CFA

    Founder, Editor-in-chief

    Gold Investment & Silver Investment Website - SunshineProfits.com

    * * * * *

    About Sunshine Profits

    Sunshine Profits enables anyone to forecast market changes with a level of accuracy that was once only available to closed-door institutions. It provides free trial access to its best investment tools (including lists of best gold stocks and silver stocks), proprietary gold & silver indicators, buy & sell signals, weekly newsletter, and more. Seeing is believing.

    Disclaimer

    All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Back To Przemyslaw Radomski, CFA's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers

StockTalks

More »
Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.