Gold Has Cleaned Up Its Act And Washed Out The Weak

Gold Has Cleaned Up Its Act And Washed Out The Weak - Elizabeth Kraus - Gold Coin Blogger

I am constantly amazed at the gold (and silver) bashers who, if they are not economically illiterate or challenged, must be shills for the propaganda machines. This government and those in Europe are pulling out all the stops to indoctrinate the people that wealth can only be measured in terms of fiat currencies. They’ll make you cry they’ll make you laugh while they hypnotize you with words about a staff of humble beginnings! One of the truly a funny moment to me in President Obama’s speech, which I assumed was to be a turning point to have confidence in our government is, when he almost made Boehner cry as he spoke of his and Biden’s humble roots (as if that takes much effort to make Boehner cry). It is a mistake to not acknowledge Obama’s gift of deep empathy. Paul Ryan I think had the winning message of the evening when he said that government plays an important role in setting the stage–but ultimately our nation’s greatness rests in the “importance of limited government” and the “blessings of self-government.”

If all that was said in that speech was true, then why do we see an increasing distrust of any government pronouncements these days when they say, who has come from humble roots. WHO HAS NOT? Even the silver fed, had come from roots of humbleness from a gold invested relative! Meanwhile…here are some facts about gold. The “capitulation” in gold that drove the metal to its worst January in 14 years may be ending as escalating violence in northern Africa spurs demand for a haven and after a key technical indicator held.

“The capitulation is over,” said Tom Pawlicki, an analyst at MF Global Holdings Ltd. in Chicago, who correctly predicted in September that the metal would keep rallying to $1,350 an ounce after reaching a record. “The liquidation has washed out the weak trades and put gold at a point that looks attractive to new buyers.”

While futures fell as much as 8.1 percent this month, they are still 24 percent higher than a year ago. The metal has risen for 10 consecutive years in London trading, the longest winning streak in at least nine decades. That’s attracted investors including John Paulson’s Paulson & Co. and George Soros’s Soros Fund Management LLC. Paulson has denominated some share classes of his funds in gold, something that at least doubled their gain last year relative to the dollar-denominated shares, according to a performance report sent to clients this month.
Gold’s rebound from the 150-day moving average of about $1,306 is a sign that prices are poised to rally, said David Hightower, the president of the research firm based in Chicago. The metal may climb to $1,630 by the end of June, he said.

150-Day Moving Average

Prices rebounded from the 150-day moving average three other times in the past year, data compiled by Bloomberg show. The last time gold traded near the average was in late July. Since Aug. 1, prices have advanced 13 percent. They touched a record $1,432.50 on Dec. 7. The metal has not fallen below the average since January 2009.

“People take these longer moving averages as a key measure of confidence,” said Hightower, who correctly forecast that gold would rally above $1,400 last year. “Gold has respected the 150-day average in the past. By repelling from that level, it suggests that gold has value, and that the bull camp was not scared and forced out of their positions.”

The metal’s 14-day relative strength index, a gauge of whether a commodity is overbought or oversold, was at 31.7 on Jan. 27, the lowest level since October 2008. Some analysts view a level of 30 as a sign that prices may be poised to jump.

Trading Patterns

In technical analysis, investors and analysts study charts of trading patterns to forecast changes in a security, commodity, currency or index. On Jan. 28, gold futures for April delivery rose $21.90 to $1,341.70 on the Comex in New York as stocks worldwide plunged the most since November because of the violence in Egypt. Earlier, the most-active contract touched $1,309.10, the lowest since Oct. 1. The metal has dropped 5.6 percent this month and reached a record $1,432.50 on Dec. 7.

Gold fell this month as hedge funds cut their bets on higher prices. In the week end Jan. 25, three days before prices rebounded on the violence in Egypt, net-long positions dropped 3.6 percent to 129,664 contracts on the Comex, the lowest since May 2009, U.S. Commodity Futures Trading Commission data show. It was the fourth consecutive weekly drop, the longest decline since November.

Reduced Bets

Investors in exchange-traded products backed by gold also reduced their bets. Combined holdings across ETPs from 10 providers were at 2,033.8 metric tons by Jan. 28, the lowest since June, according to data compiled by Bloomberg. That’s still more gold than all but four countries’ official reserves, data from the World Gold Council in London show.

The metal’s decline this month is “a healthy break,” Hightower said. “Gold has cleaned up its act and washed out the weak hands.”
This month’s decline in prices has precedents in the decade-long bull market. Futures slumped about 8.5 percent in the five weeks to July 28 and almost 15 percent in a two-month stretch that ended in February 2010. There was also a 34 percent retreat from March 2008 to October of that year. Prices have more than doubled since then.

“The short-term negative sentiment in gold will be dramatically curtailed,” said Jon Spall, a product manager for precious metals at Barclays Capital in London, who expects the commodity to reach $1,700 this year. “Gold is a great hedge against financial uncertainty,” Spall said. “Nimble money gets in and out, but there are still plenty of people with long-term interest in gold.”

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