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Is Gold In A Bear Market?

April 28th, 2013

bear and bull 8: “The fundamentals for gold are unassailable, the long technical picture is excellent and gold remains very inexpensive when compared to almost every other alternative (most particularly, bonds, treasury bills and bank deposits). With currency debasement assured and some form of hyperinflation probable, gold should trade at several multiples of the current price before this bull market reaches its end.” John Embry, Chief Investment Strategist for Sprott Gold and Precious Minerals Fund

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Has the gold bear market started?

Not according to my most recent interview with John Embry, (Sprott Asset Management, Chief Investment Strategist), “I am absolutely sure the gold and silver bull market has not ended. If you don’t like gold prices here, then you must like the value of paper money and you’re getting next to zero interest on it.” With governments printing money around the world, he said, “I don’t see how you can possibly make that argument.”

After a painful week for the bulls experiencing a massive effort by the central banks to collapse the price of the yellow metal more than $200 an ounce in just a couple of days, the price rallied on Friday to close near the 1400 level.

The price of gold dropping from a high of 1557 made on April 10, 2013 to a low of 1323 in 6 days was a clear move by the central banks to indirectly confiscate the ownership of the gold market from the private sector by using the virtual electronic paper market and manipulate prices to extreme levels.

The volume collapsed from 219,806 contracts as of March 25, 2013 to 92 contracts by April 17. One might say, it is an understatement to make that all the sell stops have been taken out.

According to the latest Commodity Futures Trading Commission report COTreleased Friday, it indicates that hedge funds and commodity trading advisors took advantage of the steep drop in prices.

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Managed money traders raised their net “long” positioning, or bets prices will go higher, by 21,675 contracts to 68,662 contracts net long, according to Gene Arensberg, editor of the Got Gold Report.

Managed money, which had recently built up a record short position in gold, covered 12,411 shorts to show a “still high” 54,025 contracts of short gold futures, he said.”Managed money covered a goodly portion of their huge short position and they increased their net long position, but they still hold a very large gross short position,” said Arensberg.

Is the gold really there?

Over the last 90 days without any announcement, stocks of gold held at Comex warehouses plunged by the largest figure ever on record during a single quarter since record keeping began in 2001.

“This is one of the greatest and generational opportunities to accumulate gold and silver at these levels” stated Karl Schott, bullion specialist with EMA in a recent interview. ” The spreads between the paper market and the real physical bullion market are beginning to get expensive and it is becoming increasingly more difficult to buy the physical bullion without some kind of substantial premium. I think this is a clear sign of capitulation in prices.”

Why isn’t gold in a bear market now?

Objectively investigating from the physical markets perspective, I recently wrote a piece entitled - Gold: A Possible Paper Short Squeeze? - I pointed out the discrepancy between the activity in the physical market trade on the LME and the virtual paper markets or electronic platforms.

Bullion banks and central banks, which have been shorting gold, have applied great pressure to drive the price of gold down in the paper markets. This, in turn, has led to the fall in the price of gold–at least on the paper market.

In my report London metals trader and whistleblower, Andrew McGuire made the following comment; “Since gold broke 1550, McGuire said, “there has been far in excess of 500 tons of paper gold that has been sold, strongly suggesting a bull market-at least on the paper market. The physical market, however, tells an entirely different story. Just in Shanghai, physical deliveries were 283 tons in March alone. In eight trading days in April another 183 tons were delivered. Some 400 tons have been delivered to buyers in Shanghai in less than a month and a half, and that is just for one exchange.”

McGuire stressed the importance of the difference between a paper market intervention and a physical intervention. He said, “There’s a huge difference. Traditionally, when official buyers have come into the market, they have been able to back up the paper intervention with real physical supply. McGuire said, “What we’re seeing now is none of the physical supply is there.”

What to do now?

“Do not be sucked in by this,” Mr. Embry said. “Sell is just what they want you to do. You must hold your position. If you have cash, I think this is a wonderful opportunity to dollar-cost average in.”Although we are in a bottom area, he said, “You can’t pick the bottom because you can see what these guys can do in a short period of time.”

If you are long gold or hold physical gold, this is certainly not the time to sell. Studies show that most investors lose money by buying high when the media is focused on the latest hot investment, and selling low, as the media focuses on stories about an investment that is plummeting. Gold is plummeting.

However, the fundamentals reinforce a mid- to long-term prediction of a bull market in gold and silver. Governments around the world continue to run deficit budgets. Even in the United States, where sequestration was, and is, big news, the reductions in spending were not a reduction in overall government spending. They were reductions in the rate of increases in expected spending, with non-discretionary spending, such as funds spent on Social Security and Medicare, let untouched. The US government continues to borrow more money in order to spend more, even with all the talk of reducing spending. The total debt of the US government continues to grow, from $17.7 trillion in 2011 to an estimated $20.2 trillion in 2013.

To meet such debts, governments around the world are printing more money and borrowing. Printing more money, as with anything, decreases the value of each piece of currency. By keeping interest rates extremely low, governments seek to keep their own borrowing costs low, but also help inflate the stock market and housing markets with artificially induced growth. How long can this cycle last?

Let’s examine what I said in this recent forecast and see what the market has done since the projection was made. “Conventional interpretation of cycles defines the expectation of a cycle top to be accompanied ideally with new seasonal or historic highs in price. This is the highest probability factor for the signal to materialize as originally anticipated. In the current analysis, this is not the case. Instead, what we see as we move into the latter part of the forecast is that prices are doing the opposite or have created an “Inversion”.

Sometimes a cycle high occurs when there should be a cycle low and vice versa. This can happen when a cycle high or low is skipped or is minimal. A cycle low may be short or almost non-existent in a strong uptrend. Similarly, markets can fall fast and skip a cycle high during sharp declines. Inversions are more prominent with shorter cycles and less common with longer cycles. For instance, one could expect more inversions with a 10-week cycle than a 40-week cycle.

This is actually an alternate count to interpret the signal. Based on the fact that the prices are making weekly lows into this cycle time frame, it is actually telling us that instead of a cycle high it is making a cycle low. It indicates that this inversion confirms the probability that we’re looking not only at a short-term bottom, but a major generational bottom or the yearly lows are coming in sooner than expected for 2013.”

No one knows for sure, but it is an ideal time to start cost-averaging into theprecious metals markets. Why? Because no one can ever pick the top or bottom of a market, but we are in the region of a bottom. Once the massive printing of money leads to inflation, fiat money will be worth less and, as has happened historically, investors will flee to physical investments, such as gold and silver.

Such a volatile market also provides opportunities for short-term trading that can lead to nice profits.

Strategies and Technical Landscape

Let’s take a look at a few derivative instruments in the precious metals sector and see what short-term opportunities we can identify for next trading week.

GOLD

The April gold futures contract closed at 1400. The market closing below the 9 day MA (1452) is confirmation that the trend momentum is bearish. A close above the 9 MA would negate the weekly bearish short-term trend to neutral. With the market closing below the VC Weekly Price Momentum Indicator of 1442, it confirms that the price momentum is bearish.

Long positions, look to take some profits, as we reach the 1561 and 1722 levels during the week. Short positions, buy corrections at the 1281 to 1162 levels to cover shorts and go long on a weekly reversal stop. If long, use the 1162 level as a weekly Stop Close Only and go neutral.

The weekly lows need to hold and close above it on a weekly basis. Then we can begin to build a strong argument that weekly lows are in and the foundation is in place to support a larger move to the upside. Extremely Oversold.

SILVER

The May futures contract closed at 23.24. The market closing below the 9 day MA (24.97) is confirmation that the trend momentum is bearish. A close above the 9 MA would negate the weekly bearish short-term trend to neutral. With the market closing below the VC Weekly Price Momentum Indicator of 24.53, it confirms that the price momentum is bearish.

Long positions, look to take some profits, as we reach the 27.07 and 30.89 levels during the week. Short positions, buy corrections at the 20.71 to 18.17 levels to cover shorts and go long on a weekly reversal stop. If long, use the 18.17 level as a weekly Stop Close Only and go neutral.

The weekly lows need to hold and close above it on a weekly basis. Then we can begin to build a strong argument that weekly lows are in and the foundation is in place to support a larger move to the upside. Extremely Oversold.

AGQ – ETF

The ProShares Ultra Silver ETF (NYSEARCA:AGQ) contract closed at 24.43. The market closing below the 9 MA (29.14) is confirmation the trend momentum is bearish. With the market closing below the VC Weekly Price Momentum Indicator of 28.23, it confirms the price momentum is bearish.

Long positions, look to take some profits, as we reach the 33.02 and 41.60 levels during the week. Short positions, buy corrections at the 19.85 to 15.26 levels to cover shorts and go long on a weekly reversal stop. If long, use the 15.26 level as a Stop Close Only and go neutral.

The weekly lows need to hold and close above it on a weekly basis. Then we can begin to build a strong argument that weekly lows are in and the foundation is in place to support a larger move to the upside. Extremely Oversold.

GLD – ETF

The SPDR Gold Trust ETF (NYSEARCA:GLD) contract closed at 135.47. The market closing below the 9 day MA (140.65) is confirmation that the trend momentum is bearish. A close above the 9 MA would negate the weekly bearish short-term trend to neutral. With the market closing below the VC Weekly Price Momentum Indicator of 140.30, it confirms that the price momentum is bearish.

Long positions, look to take some profits, as we reach the 150.10 and 164.72 levels during the week. Short positions, buy corrections at the 125.68 to 115.18 levels to cover shorts and go long on a weekly reversal stop. If long, use the 115.18 level as a weekly Stop Close Only and go neutral.

The weekly lows need to hold and close above it on a weekly basis. Then we can begin to build a strong argument that weekly lows are in and the foundation is in place to support a larger move to the upside. Extremely Oversold.

PGLC

The PGLC stock closed at .415. The market closing below the 9 day (.42) MA is confirmation that the trend momentum is bearish. A close above the 9 MA would negate the weekly bearish short-term trend to neutral. With the market closing above the VC Weekly Price Momentum Indicator of .40, it confirms that the price momentum is bullish.

Long positions, look to take some profits, as we reach the .43 and .44 levels during the week. Short positions, buy corrections at the .40 or .37 levels to cover shorts and go long on a weekly reversal stop. If long, use the .37 level as a weekly Stop Close Only and go neutral.

The weekly lows need to hold and close above it on a weekly basis. Then we can begin to build a strong argument that weekly lows are in and the foundation is in place to support a larger move to the upside. Extremely Oversold.

Trading derivatives, financial instruments and precious metals involves significant risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of future results.

This article is brought to you courtesy of  from Equity Management Academy.


NYSE:AGQ, NYSE:GLD


 

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  1. paulos
    April 29th, 2013 at 03:18 | #1

    Don’t be a lemming to protect the positions of the blind, you will end up in the obvious ditch coming – gold is being hammered down to keep people’s interest in bonds. The USgovt-GS team is trying to strengthen the economy by shaking people out of gold – and who am I am my paltry resources to stop them? Gold will drop to 900-1200 in a few months. If you want a hedge against inflation, the best bet is FARMLAND – this sees exponential rises in time which offset any tax deterrent factor. Don’t buy into a dead-cat bounce – the technical indicators prove gold is bearish for awhile now. Get out now while you still break even or stop loss!

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