Gold fell more than 1 percent on Tuesday hitting its lowest price in nearly a month. The most concerning part about this decline is that it took place with dollar’s simultaneous plunge. We have already touched upon the usual negative correlation between gold and U.S. dollar in the past, and while it is certainly true most of the time, there are periods where precious metals fail to react to dollar’s weakness. There are various hypotheses why this is so this time and one of them is the “fiscal cliff” issue.

Buyers are supposedly waiting on the sidelines because of uncertainty over the “fiscal cliff” – $600 billion in tax hikes and spending cuts that are due to kick in the New Year. Republicans and Democrats dug in on talks Wednesday, with both sides urging quick action but offering no compromises. They seem to be playing “chicken” in a political stare-down that shows no signs of breaking. On Wednesday, President Barack Obama rejected a nascent Republican plan that would have extended the bitter fight over the fiscal cliff into next year.

Some pundits say the fiscal cliff problem will cause the price of gold to soar and there are those who claim the opposite. The arguments go like this. Going over the fiscal cliff will probably send an earthquake through the markets causing fear which could drive investors into gold as a safe haven. In addition, it will weaken the U.S. dollar which is likely to strengthen gold. If politicians are able to avert going over the cliff, markets will continue to focus on the QE Ponzi scheme, the debasement of the dollar and the inevitable inflation, all bullish for gold.

On the other side of the fence are those who say that going over the fiscal cliff will be bad for gold. The U.S. will go into a recession and gold will stumble along with everything else. Not going over the cliff could renew bullish sentiment for equities and decrease the appetite for gold.

We personally believe that the outlook for gold in the medium and long run is bullish and the “fiscal cliff” can do more good than harm to the yellow and other precious metals. We continue to expect the situation to be resolved by printing more money. No politician wants to be blamed for stocks’ and economy’s collapse (even a necessary one). Our best bet is that gold will rally strongly in 2013, perhaps topping close to the $2,500 level. To see what our rationale is, let us move on to today’s technical part with the analysis of the USD Index. We’ll start with the medium-term chart (charts courtesy by http://stockcharts.com.)

In the chart, virtually nothing has changed this week. Again, what was stated in last week’s article is still up-to-date:

A consolidation has been ongoing for over a month, and the index now appears ready to move lower. The decline and consolidation here are a reflection of the upswing and consolidation seen recently in the Euro Index.

Let us now have a look at the U.S. currency from a short-term perspective.

In the chart, we see that a top formed almost right at the cyclical turning point. With about one half of the previous decline corrected, it appears that a period of decline is once again in place here.

One concerning factor is that gold and silver moved lower along with the declines in this index. This is not a sign of strength for the precious metals. It means that the metals declined in terms of other currencies, mainly the euro. Let’s take a closer look at the gold-euro relationship.

On the above chart we see that the 200-day moving average support line has been reached. This level has been above local bottoms many times in the past. More importantly, the RSI has touched 30 and this has usually been quickly followed by rallies (note red arrows in the upper part of the above chart) in the past so the local bottom may already be in here.

The above chart is important not only because of the signals that we can directly see and that we described in the above paragraph. It’s important also because the decline that you can see in the last few weeks is directly linked to the simultaneous decline in the USD Index and the price of gold. Since the decline is likely over (support level being reached, buy signal from the RSI indicator), the same should be the case with the lack of positive reaction in gold to dollar’s weakness. The USD Index declines could now begin to impact gold prices, and they could start to move higher any time now.

The limitation of the above analysis is that it doesn’t have to be precise on a very short-term basis. In fact, it’s based on medium-term price moves. We could see another small move lower that would take the RSI indicator slightly below the 30 level and the above picture would not be invalidated at all – it would become even more bullish based on this factor alone. This was the case in January and December 2011.

Summing up, the situation for the USD Index looks bearish, and this has bullish implications for the precious metals. Since no response was seen this week in gold and silver prices, however, an immediate rally may not be seen based on the above charts. The medium-term picture for gold appears very favorable.

Thank you for reading. Have a great weekend and profitable week!

Sincerely,
Przemyslaw Radomski,

http://www.sunshineprofits.com

No Sooner Did I Say so in this interview recorded Monday morning and “Walla”!

Gold, Silver Dive Off Fiscal Cliff, breaking below key price support levels. 

The Dollar was Weak, despite Gold prices and the dollar usually trading opposite each other. Both gold and silver prices plunged sharply Tuesday along wih the dollar  — as lawmakers failed to make progress over resolving the fiscal cliff. Spot gold prices fell $25 and  SPDR Gold Shares (GLD), gapped down 1.10% to a four-week low, in heavy volume. GLD failed to break above its key 50-day line, which is very bearish. The next level of price support lies at the 200-day moving average, 2% below current levels.

Peter Grandich in his last interview of 2012 said before yesterday’s plunge that we shouldn’t be surprised if we see one last smack down for good measure. Further he also said that  it could very well continue until after the Presidential inauguration for Political reasons. in an Peter’s great audio interview can be listened to HERE 

On monday before the slump Mark Leibovit also said HERE “My ‘gut’ feeling is that another big ‘smackdown’ is being orchestrated, so personally I’m keeping my power dry just in case”. Mark, like Peter Grandich, is long term bullish.  As Mark always says “anytime is a good time to buy Gold & Silver. Dollar-cost-average”! The expression goes: ‘Don’t wait to buy gold – buy gold and wait’!

“This correction isn’t over,” Tom O’Brian, CEO of TFNN, an investment education firm, and editor of “The Gold Report” in Clearwater, Fla., wrote in a client note Tuesday. “Both, the physical metal, and the silver and gold equities, are now making a run to their November swing lows.”

Harry Dent, founder of HS Dent, an economic research firm in Tampa, Fla., attributed the sell-off to traders taking profits ahead of the fiscal cliff at year’s end. He remains bullish on gold on the expectation that China, Europe and the Federal Reserve will undergo more economic stimulus. He is looking to buy gold if it falls to $1,660 an ounce.

Gold hasn’t behaved as expected for Rich Winer, president of Winer Wealth Management in Woodland Hills, Calif., with $20 million in assets under management.

“I had thought that gold would do well as a result of central banks keeping interest rates low and implementing stimulative policies,” he wrote in an email. “However, since my initial prediction, the dollar has strengthened and gold has not done as well.”

2 Time #1 Gold Timer says:

The weekly chart of gold futures has been consolidating since the third quarter of 2011. If May-June of 2011 was truly the bottom, then the correction was comparable to that experienced in 2008. 

Since the election there has been a mad rush by the public into gold coins. Conventional wisdom says that when the public gets excited about an investment, it’s a top or at least a danger signal. But, like so many old market tales, the truth is somewhat different. The investing public isn’t as stupid as some one make them out. 

For instance, I remember that the public was wild about real estate starting in the 1960s, but that didn’t stop property values from increasing for decades. 

The last time we had such enthusiasm for gold coins was in 2008 and as the chart below shows, the price of gold more than doubled after that. 

Will it happen this time? I doubt we’ll get a double in four years, but I do know that Mr. Bernanke is dedicated to printing money as is European Central Bank. 

Just recently, the Bank of Japan promised to do the same thing. I suppose that they figured since Bernanke has been so successful in turning the U.S. economy around, they would try the same thing. I hope you note a bit of sarcasm in that last statement. 

Irresponsible central bankers such as Bernanke and Mario Draghi who flood the World with paper currency will cause gold to go up over time as the public gradually loses faith in dollars, yen, euros etc. 

This, plus the fact that they ain’t making it no more is a longer term positive for the yellow metal, but also note that gold can go into a funk for an extended period so hopefully, we can time our way to profits although it’s been very tricky lately with massive moves back and forth.

We’re bullish on gold, but the recent break below a previous low (arrows) makes us a bit nervous.

By 2 Time #1 Gold Timer Stephen Todd – (The above an Excerpt from his Dec. 2012 Issue which covers all markets)

About The TODD MARKET FORECAST 

Since 1993, we have given instructions to mutual fund investors to be either 100% invested or 100% on the sidelines. According to Timer Digest, of Greenwich, CT, which monitors over 100 advisory services world wide, we are only one of four
services to have beaten the buy and hold over the past ten years.

We were rated # 1 for the past ten years at year end, 2003, 2004 and 2005. In 2006, we slipped to # 3. At the end of 2007 we were ranked # 4.

Since then, we have dropped out of the top ten for stocks, but we were bond timer of the year at the end of 2007 and 2008 which means we were ranked number 1 both years. We were rated # 1 in gold timing for 1997 and again in 2011.

TODD MARKET FORECAST (Excerpt from the Dec. 2012 Issue)

Stephen Todd P.O. Box 4131 

Registered Investment Advisor Phone 909 338 8354 Crestline, CA 92325-4131 

www.toddmarketforecast.com Issue 12 Year 27 e-mail -toddmarketforecast@yahoo.com 

Due the first Tuesday of each month.