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15th september Gold Trend Analysis

There has been a major intervention and the gold market is dropping hard.

Trades — Long 1 mini gold at 1825.20 —- stopped out at 1803 (last night Website Updates)

London Fix – 1803

The Euro zone was headed toward a collapse without a big scale fund backing EU sovereign debt. The big news that has hit this morning is that the central banks of Europe, Swiss, England, Japan, and the USA have once again joined hands and will provide Europe another bailout of DOLLARS to avoid a collapse. With this type of news one would think that gold would be going through the roof —- instead it has sold off as the price lows in spot Forex reached 1778 this morning. We can only conclude that the intervention also included a selling of gold.

Banks Use Gold to Get Dollar Funds
By Jack Farchy
Financial Times, London
Wednesday, September 14, 2011
http://www.ft.com/intl/cms/s/0/9c5ec914-deed-11e0-9af3-00144feabdc0.html
European banks are rushing to use their gold to obtain much-needed dollar funding, in the latest sign of the growing liquidity crunch for the continent’s financial institutions.
Gold dealers and analysts said that there had been a strong move to lend gold in the market in exchange for dollars in the past week, accelerating in recent days.
The rush has pushed gold leasing rates — the implied interest rate for lending gold in the market in exchange for dollars — to lows, according to Thomson Reuters data. The one-month gold leasing rate has plunged to a historic low of -0.48 per cent, suggesting that a bank lending gold for one month would have to pay to do so, at an annualised rate of 0.48 per cent.

Large bullion-dealing banks take gold on deposit from a range of customers such as investors, central banks, and other commercial banks. Although they often lend out some of that gold around the end of quarterly reporting periods in order to reduce their liabilities, the latest move is unusually dramatic and highlights the stresses in the dollar funding market, according to bankers. The banks do not, however, lend all their gold and some of it is held in accounts that preclude them for using it for trading.

Edel Tully, precious metals strategist at UBS, wrote in a note to clients that the drop in lease rates suggested there was a lot of interest in exchanging gold for dollars.

“Pressure on banks’ balance sheets in the last couple of months is exacerbating the usual end-quarter balance sheet-specific action,” she added.

The cost for European banks to swap euros into dollars has jumped fivefold since June, hitting the highest levels since December 2008. The main reason for the spike is the demand for the US dollars due to its growing status as a haven in the face of rising worries of an imminent Greek default that could spark a deeper sovereign debt crisis.
Traders said that the large volume of lending was one reason gold prices had struggled to achieve upward momentum, despite growing concerns over the eurozone crisis.

The recovery effort has once again lifted global equities over the last 24 hours while taking out the stops in gold. Who knows how long this latest bailout will last and how it will be taken. With all the banks participating, its a blank check —— and as many US Dollars are neeed —- will be provided.
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GFMS loated a number of figures on demand overnight and it would seem like gold was initially undermined by some of those figures. For instance, GFMS indicated a 24% decline in 1st half gold investment demand. In retrospect, the GFMS numbers overnight appear to be the victim of significant demand levels in earlier reporting periods. It should also be noted that GFMS predicted a noted rise in 2nd half gold supply and that probably inspired some additional long profit taking. The gold market also saw some brokerage firm upward revisions in gold price targets overnight but that news didn’t seem to have much impact on gold prices.

While equity markets in Asia were mixed during overnight trading, stock indices in Europe and US equity markets open are all higher on the bailout news. The Swiss bank UBS announced that a “rogue” trader might have lost up to $2 billion through unauthorized trading. UK Retail Sales during August were down 0.2%, better than expectations. Euro zone CPI during August was up 2.5% year-on-year, in line with forecasts. Major US economic numbers released this morning include the August Consumer Price Index—- up 0.4%, the NY Fed’s Manufacturing Index for September was down 8.8, August Industrial Production was higher on MINING output, and the Philly Fed’s Business Index was down 17.7. In addition, Fed Chairman Bernanke and Fed Governor Tarullo will give speeches during the session.

Going to the charts

Last nights website update moved the stop on the mini long gold to 1803 as the pressure and potential breakdown of the lower dotted trend line continued to increase. The mass interventions continue and the commitment of the central banks to provide US Dollars to Europ until the end of the year is a blank check. While this should all be bullish for gold, it is apparant that the central banks are selling gold in an attempt to set off a landslide of stops. Medium and Long term, its very bullish. But at the moment —- the trend is down.

The next support level in gold seems to be the 1750-1765 area in gold. With the type of intervention we are seeing there is no telling the reaction of margin calls or whether the huge positions in GLD and SLV could bring this market to the 1680-1700 area. Even that price is only at the 50 day moving average so the potential is there.

Short term trends are due to bottom today — but with intervention — anything can happen and it is best at this point to just wait for the price to settle down. With that said — the 1750-1765 area is the most likely target for today from where the next bounce should develop. Resistance is the 1790-1806 area.

In simmary — the intervention is on — and could extend prices lower. I’m standing aside until this blows over.

As to the medium term —– we’ve discussed the potential that a 34 month run up from the price low in 2008 has taken place and speculated that the most likely place for a medium term correction could come in this timeframe. Although September is the “seasonal” strong point in the market — further discussion on the website about July and August rallies did leave the potential for pullbacks into the Nov/Dec timeframe.

Now that the news is out —- and another massive dollar bailout is underway — the longer term gold price will return. Its just a matter of how many stops they clear out. While there should be a bounce near the 1750-1765 area and into Friday — I’ll probably let the weekend go by and stay on the sidelines. That is my thought at the moment.