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12th december Gold Trend Analysis

The markets are once again in an extreme sell off. Both daily support levels were broken and the weekly support of 1640-1666 has been reached as the low in Spot gold is 1657 this morning.

Trades — We exited all our short term gold and silver long side leverage positions last Friday and we’re flat in the markets coming into this morning. We discussed the rather be “safe than sorry” scenario and while I’m not short — more importantly, safe is not exactly a bad place to be this morning. We’ll be looking for a set up and will discuss more tonight on the website.

London Gold Fix $1,680.00 -$32.00 LME

The gold market has started out with a noted range down extension and in the process the February gold contract has reached down to the levels below the 34 week moving average at 1650. Clearly statements from German officials and from downgrades from Moody’s overnight have rekindled the Euro zone crisis again and it would seem like the EU summit solution was very short lived. Suggestions from a key German government official that the EU maneuver last Friday might not be legal, clearly tamps down the hope that seemed to be in place at the end of last week.

With the equity markets starting off on a weaker footing, Italian yields on the rise and at least one ratings company promising to revisit sovereign debt ratings as early as the 1st quarter of 2012, the Euro zone focus isn’t likely to be diminished very soon. While some gold bulls might look forward to this week’s US FOMC meeting, many economists and analysts don’t expect the US Fed to make any additional moves in the wake of the improvement in US claims and especially in the wake of last month’s surprise US unemployment rate decline.

If the focus wasn’t locked onto Europe this morning, gold might have garnered some support from news of Chinese mainland gold imports from Hong Kong in October. At least in the near term, demand and supply news might be discounted, as the gold trade remains infatuated with all things Euro. Given the magnitude of the initial slide this morning in February gold, it is also possible that technical stop loss selling is accentuating the initial downward bias. The Commitments of Traders Futures and Options report as of December 6th for Gold showed Non-Commercial traders were net long 182,467 contracts, an increase of 8,139 contracts. The Commercial traders were net short 225,886 contracts, an increase of 11,478 contracts. The Non-reportable traders were net long 43,419 contracts, an increase of 3,339 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 225,886 contracts. This represents an increase of 11,478 contracts in the net long position held by these traders. While equity markets in Asia were mixed during overnight trading, stock indices in Europe are generally weaker this morning. US markets will open with large. The US Dollar is stronger against most of the majors this morning. Japanese Wholesale Prices were up 1.7% year-on-year, higher than expectations. The first leg of the Treasury’s refunding, the 3-year Note auction, will have results announced today at 1:00 PM. There are no major US economic numbers to be released this morning.

Going to the Chart

We’ve put the longer term chart for display this morning. As discussed on the website over the weekend, gold is at major long term trend lines. The chart shows the upper gold channel line and the lower dotted blue channel line. We covered this issue that if gold began breaking the upper gold channel line that the potentail to accelerate lower and head towards a major test of the lower blue dotted trend line would be in play. In addition the short term trends we’ve been following were due to take place coming into this week as this is playing out. Cyclical analysis has also pointed out that if there is to be a “big” move in the metals that this was the most likely time of the year to it to unfold.

It looks like a test of 1628-1650 is under way in the spot market. This area covers the Fibonacci 23% total retrace from the 2008 lows and the 34 week moving average. We also touched on this potential in the medium term button update and reviewed that we were most likely in a long term correction that did not look complete — and that this time frame (13 weeks from the crash) was the most liekly time for a big move. Today’s drop opens up a lot of possiblities we will cover tonight. For now — the 1628-1650 area is support for the remainder of the day.

The lower dotted trend line and the 55 week average will be major support for this week. That will put price levels at 1552-1600 as another area of price potential. On a shorter term basis — our trend turns calling for a turn on Dec 10th (plus or minus 72 hours) was a direct hit — making the weekly high at 1757 on Thursday and now having dropped 100 dollars from that level in just 3 trade days. Because the “window” for a turn closes today, there’s still a small possibility that could make “the” low today. We’re not betting on that just yet — and for now — we’re staying with our downtrend scenario and will review again tonight and look for a set up.

In summary, a major sell off is underway. However, as you can see by the chart — gold is acting very normal and exactly like it has been doing all thru this bull market. It is selling off during a major liquidity squeeze. We have maintained for the past 2 years whenever asked — what could bring gold down — we have stated every single time — a liquidity squeeze. Be sure to read the medium term button at the website where an analysis of the long term trends has been recently published, especially the 32 year chart of all the highs and lows in the gold market and how they have pointed to this time frame as the most likely place for this correction to be in play. Resistance for the remainder of the day is the 1666-1678 area and support is 1628-1648. Finally — with today being the last day for the “window” of a trend turn —- there is still a small possibility that gold is making the “LOW” for this move in these final 24 hours of the window. While this is not the preferred scenario — we do want to put the potential out there.

Those looking for long term accumulation —- the 34 week moving average is at 1650 — this is one of the two area’s to look at for medium term accumulation (NOT LEVERAGE) but something your buying to hold. More tonight on the website. For now — the weekend update covered this scenario where it will be real easy to LOSE MONEY that has been made for the year. It’s best to remain cautious and until we are shown differently, it’s best to favor the downside. We’ll address the SCENARIO where today’s low on the final “window” day could lead to a low on the website tonight. If we see opportunity for a setup — we’ll email. THE POTENTIAL FOR A MAJOR sell off in the markets remain in play as laid out on the website also. THIS IS A LONG TERM WAVE point — like we mentioned earlier — we’ve covered the scenario on the medium term button. So give that a read for perspective.