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July 19th Gold Trend Analysis

In last nights website update resistance was listed at 1607-1612 and the high is 1610. Support was listed at 1585-1593 and the low so far is 1597.

Trades: Long gold at 1566 ———– this morning i’ve sold at 1602 — and place a LONG order at 1583 to re-enter. This is not to say price won’t go higher — as the trend is still up — but this short term trade has reached my first objective for the week and I’ll book the 36 dollar profit and look for a re-entry at lower prices. (note — this is short term — all other positions should be held)

Long Silver at 35.15 ——— I’ve already covered a long from 35.65 at 38.75 previously
last week ….and will hold the current position for now. stop is 37.30 intra day.

London Gold Fix $1,602.00 +$3.75

CME NEWS

Recent US COT positioning reports highlighted a rather significant build in the Non Commercial and Non reportable net long positioning in gold and that in turn would seem to confirm gold as one of the primary move to quality benefactors. In other words, gold has fed consistently higher off the uncertainty in the Euro zone and the US and it would appear that sentiment has fostered yet another new high for the move overnight. However, gold prices could be approaching a significant pivot point directly ahead, as a US vote on a deficit reduction plan and a Euro summit could serve to dampen some move to quality vibes. However, given the severe nature of the situations facing the markets, it is also possible that a US debt deal might fail to materialize.

Given the focus on financial issues, the gold market probably isn’t undermined by news overnight of rising long term gold production forecasts from Russian gold miner Polyus, especially since the gold trade has recently paid little attention to supply side news items.

Short term technical indicators have prompted some gold traders to predict a near term top in gold especially after more gains put the gold market in an overdone technical position.

PERHAPS the most important aspect of the gold market to consider is that OPTIONS EXPIRATION is next week — and the 1600 Strike Price calls have close to 3 million oz’s worth of contracts that will expire worthless should price be BELOW 1600. This is a great impetus for the “MARKET MAKERS” to have gold below 1600 —OR TO SPIKE GOLD TO THE 1580 AREA — SOMETIME IN THE NEXT 3 DAYS to make the premium almost worthless —and allow them to CLOSE out their positions at a profit. We have seen this over and over again in the last year. THEIR NEW tactic has been to spike price lower about 3-4 days before they expire—- and cover their positions. THUS WE SHOULD BE AWARE of the potential for this raid to develop. In the past they blantantly use to sell gold until it was under the strike price at expiration —but the last three months has been the first scenario.

There is no doubt that it is getting harder for them to manipulate this market — and since there are no absolutes —- it is possible that gold could continue higher into the 1617-1635 area. However — the more likely scenario would be for gold to at least get one spike down towards 1580-1590 before next Wednesday. Thus — for traders who are long from 1566— one strategy is to either sell half here above 1600 — and possibly pick it back up on a spike down– or for those just trading one contract — to be happy with a nice gain since last week and take profits. In trading — one size does not fit all — and thus — there is still a potential for gold and silver to move higher but we think the upside is limited for the remainder of the week to 1617-1622. Its not about picking tops and bottoms in short term trade — but to make money.

While equity markets in Asia were mixed during the overnight session, stock indices in Europe are generally stronger this morning. US equity markets are open with moderate gains this morning. The US Dollar is weaker against most of the major currencies this morning, although posting a small gain versus the Swiss Franc. An official of the European Central Bank has proposed that Greek bonds could be acceptable as lending collateral in the case of a “selective default”. China’s tax revenues during the first half of 2011 were up almost 30% above last year’s levels for the same period. German Economic Sentiment during July was -15.1, weaker than expectations. Major US economic numbers to be released this morning include June Housing Starts — which came in higher than expected (up 14%)

Going to the Charts

Price has reached our weekly target of 1607-1617 with today’s 1610 high. We discussed on the website that gold was most likely to remainn at least a few days just above and below 1600 — and as we can see by the chart — that seems to be playing out. The move has been very strong and the short term channel line very tight. SUPPORT TODAY is the 1579-1594 area where the 23% retrace and the lower dotted trend line reside. If there is to be a pullback — that is the favored area. Today is also a buttonwood date — where short term trends can change — so it’s best to at least be on guard. It looks like the lower dotted trend line on this short term channel is being tested this morning and we’d look at that area as initial support.

WITH THE TREND this strong — there is nothing to say we can’t go higher -and I don’t think the overall upside is complete– but we think the potential for a pullback to begin either today —or tomorrow (mid-Week Wednesday) has some valid consideration. Thus we would favor price RESISTANCE TO REMAIN IN THE 1607-1617 area —– as that was our initial target for this week and conservative traders can consider this area as a high potential initial peak where a pullback can develop from.

IN SUMMARY — Historical data shows a strong potential for gold to pullback before options expiration — and while the intermediate trends and medium trends are up — there is a HIGH POTENTIAL THAT GOLD can peak here in this area and begin a pullback into Thursday/Friday. Look for a test of the 1579-1590 area on the downside on pullbacks —- and the upside should be limited to 1607-1617 into Wednesday.

by Bill Downey

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Thoughts
"For a mountaineer, the important things are the effort, the posture and the muscles. The rope that holds him serves no purpose when everything works but it gives him a sense of security. In the same way, all gold does is ensure confidence; it's a safe haven."