Super Weekend Report
Jack Davis | Feb 20, 2017 13:25
Originally published by Chamber of Merchants
This is a super weekend report. I hope you’ll agree.
I haven’t been posting much as I’ve been trading forex most of the time… Not sure if that’s of interest to you, but if it is, let me know and I’ll update you on what I’m up to.
I’ve also been researching and positioning into gold (Evolution Mining Ltd (AX:EVN)) this week since a few developments have occurred that I will discuss.
h2 Yellen and the Fed/h2Earlier this week I was up in the wee of hours of the morning trading forex (not my preference) while Janet Yellen gave her speech. Literally it was a buy and sell fest as each conversation led the market this way and that.
She did say a few things that I found fascinating.
After her speech she was questioned on whether she thought the low GDP growth and poor wage growth were ideal and she sheepishly replied that it is pretty disappointing. This is after she just finished a speech saying that raising rates would be appropriate a few times this year.
To sum it all up, reading between the lines, she implied that when they have raised rates enough, they will then have the necessary monetary policy tools to get through the next recession.
BASICALLY ” WE NEED TO RAISE RATES SO THAT WE CAN LOWER THEM WHEN THE RECESSION HITS”.
Hilarious.
Well, the dollar rallied, the yen was sold off…. But then later the economic numbers came through and all in all …they were pretty good for the USA… and then the dollar fell, the yen appeared to top and gold preserved its highs after briefly touching $1216 USD.
So why did the dollar lose it’s rally? Why did the yen get stronger and gold strengthen with it?
Well…raising rates will cause this beautifully inflated stock market to come tumbling down faster than you can say “mortgage?”
Additionally, inflation has been making a comeback of note… like the soft muscled baby blue superman being replaced by Superman 2.0 with real abs and uber cool special effects.
Inflation is coming back with abs. And laser vision that can find your currency and grind it down to dust.
I’m not a gold bug. I’m a wealth bug. And this time the market seems to be clearly bidding in favour of gold versus other assets.
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That’s the fundamentals.
However, we have a slight bump in the road to get through…
h2 Traders/h2Even though the fundamental economic mechanism is in favour of gold, we have the general market that will start focusing on Yellen’s interest rate decisions at every FOMC meeting.
Let me say the same thing I said last year… If they raise rates, gold shines. If they don’t raise rates, gold shines.
But leading up to the FOMC meetings, we have a high probability of the dollar rallying in expectation of a rate hike.
If inflation continues to grow, the chances of a rate hike are increased. That means traders will likely rally the dollar on the way to each FOMC meeting, which may or may not be great for gold.
So what will the traders do?
The currency markets are huge. Liquid. Levered. It’s really…huuuge… So in the event that traders are shorting gold while the dollar rallies, it will only be temporary.
Of course we could see the dollar and gold rally together which is the ultimate dream scenario for non-us gold miners.
First things first though…
h2 A2 Milk/h2A2 Milk Company Ltd (AX:A2M) on the ASX rallied from $2 to $2.56 roughly, in a span of 2 weeks.
Well done to everyone who made something here. If you didn’t take profit after $2.40 then you really are a victim of your own thinking.
A fruitful short term trade.
I’ve entered another short term trade which I’ll discuss briefly below.
h2 Gold/h2Well, US gold dipped to $1216 as discussed, but promptly regained it’s footing above $1220, then $1230…Currently trading around $1242.
It’s next resistance is around $1248, then $1264+-….therafter we have a date with $1308+-
Now here’s the potential for gains.
Since Friday arvo, the Australian exchange rate has been weakening with the euro, while the yen and pound have been strengthening. Thus, while the US dollar is still above 100, the Australian gold price is around $1615-$1620 AUD.
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Note I wrote the above on Friday evening… Saturday morning gold did not hold the high above $1240… So currently AUD gold is at $1609…having lost the upper trading box… :/
So once again…
While it appears that inflation is giving rise to the next bull market in gold, it could be a bumpy road due to currency trading/strength and weakness.
Ideally, we would want the AUD/USD exchange to weaken big time… In the event of a currency depreciation we’ll be back at $1700+ AUD per ounce…
So let’s see how likely that is…
h2 AUD/USD/h2In the weak ahead we have a few economic events that can throw the AUD/USD this way and that…
What we require are disappointing numbers to weaken the currency. Weakening the currency will improve our exports and increase our wages earned. In the short run we would pay more for our imported consumer goods, yet, we can’t pay for any goods if we don’t have industries and employment for consumers to earn money.
So while it sounds self-defeating, we really do want to see some weak numbers that will convince traders to start shorting the Australian currency. In the event we start getting weakness in our exchange, we will see a renewed interest in miners, precious metals and export companies in general.
Let’s see how the exchange rate is doing on the cloud balance chart…
The cloud balance (on several levels of sensitivity) indicates that the Australian dollar is clearly in short term rally mode but has been trading sideways since March 2016 on a longer timeframe.
Now technically, we are butting up against some heavy resistance again, so a pull back is very likely.
If the economic numbers come through positively for Australia this week, and we’re still up near the top of the pink trading box, we could be in danger of running into the 0.78-0.79 zone… That would be bad for Australian gold miners since the price of gold could easily drop to $1550 again and below.
However, if those economic numbers disappoint on Wednesday and Thursday, then we may have the reversal we’re looking for to boost our miners with an Australian gold price of $1650+ all other things remaining the same.
h2 Long term and short term/h2Long term, I believe with a high degree of confidence, that gold is going not only to $1500 USD but even higher…
However, it is impossible to say for sure what will happen in the interim.
For instance…
If the stock market crashes –> gold rallies
If the dollar rallies due to Yellen –> gold may weaken
If the stock market continues its ponzi frenzy, then gold may trade sideways as a hedge.
If Yellen raises interest rates, gold may temporarily weaken (before rallying).
It’s impossible to put a timeline on these events…
Hence, we need to trade and be smart.
As I mentioned in previous posts, long term holders/investors have now even more fundamental support for gold and silver…so the case continues to strengthen for the precious metals sector. Dips may occur, but long term holders are prepared for that.
h2 Short term trade/h2My short term trade has been to parcel into EVN, that is Evolution Mining Ltd post their profit announcement. The aim would be to exit either on the 24th or at the very latest the 26th Feb due to their ex-dividends dates etc.
For me this would be a 1 week trade. If a sell-off occurs ex-dividend, it may be a good opportunity to parcel in again depending on what’s happening to AUD gold and USD gold.
I may be wrong, I may be right. But these are insights into my trading… you should not follow the same route as it may be a losing trade. So “…don’t try this at home!”
h2 Trading/h2From a trading perspective, it is clear that a very real and initial struggle for new traders/investors is getting a bearing on what the share price is actually doing before, during and upon exiting a trade.
It is very important to look at weekly, daily and hourly charts to ensure you understand the price movements of an equity.
Use candle or preferably Heikin Ashi to gain insights on trend.
If one approaches trading and investing on a gambling basis then the outcome will sooner or later become a gambler’s outcome… want to take a bet on what that is?
So, onwards and upwards….
h2 P.S./h2The US gold miners have formed a daily bull flag which is usually a continuation pattern of the bull trend.
We have clearly enjoyed the bull signals from the cloud balance chart. The Market Vectors Gold Miners (AX:GDX) may venture lower, yet, if the cloud remains green and price uses it as support, then the next bounce will be the next leg up for the gold miners. That renewed interest will certainly be echoed across the oceans.
“tell them what to trade and you feed them for the day. tell them how to trade and you feed them for generations.”
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