Wednesday, November 13, 2013

Charts of Gold, Dollar, Natural Gas and More

Here's an interesting factoid from Bloomberg

Holdings in gold-backed exchange-traded products increased for a fourth day yesterday, rising 0.1 metric ton to 1,876.7 tons, data compiled by Bloomberg show. Assets reached 1,874.9 tons on Nov. 5, the lowest since April 2010.
So even though gold prices are trending lower, we seem to have hit a bottom in holdings in the GLD and other ETPs. I think that's REALLY interesting.

(Updated chart)

Yesterday, gold cracked support at $1,268 -- October's closing low. It is bouncing this morning, but not much (so far). If gold breaks support level 1, it should test its last real support at the Oct. 15 intraday low of $1,251. Beyond that it looks like a pretty straight shot down to the $1,200 level. 

I would expect $1,200 to hold on a closing basis.  But that test could be scary. It could also be one hell of a buying opportunity.

And this is happening against a backdrop of what appears to be a bottom in physical holdings in the GLD and other ETPs.

One more puzzling thing:  Last week, I got strong buy signals on select gold miners. Sure, those signals could be wrong. But I'm more inclined to think those signals are just early. In that case, I would add to those positions at lower prices.

But where will those lower prices be? As the saying goes, the best place to pick tops and bottoms is on Miami's South Beach.

China Slowdown?

One of the things driving gold is fear of a slowdown in the China economy (because China is such a huge buyer of gold). There is some fear that Chinese authorities may cut their GDP growth target to 7% from 7.5% this year. So that's a bearish force on gold, in my opinion.

But judging from recent reports of purchases of iron ore, copper, grains and more in China, it's NOT slowing down. Those fears may be misplaced.

We can talk buying by the exchange-traded funds and China all day, but what really seems to be pushing gold lower is strength in the US dollar. The dollar rose against all major currencies yesterday, though the US dollar Index settled the day nearly unchanged. It's testing overhead resistance. What happens next?

(Updated chart)

The US dollar is looking strong. That's partly due to an improving US economy. However, I also think the broad US stock indices hit a short-term overbought condition, and now traders are grabbing gains, and in effect, using stocks to buy US dollars.

So that's hard to read in the short term

A strong US dollar generally weighs on commodities.  One commodity is going against the trend, however ...

(Updated chart)

What causes this? In a word, "snow." It has become a trend recently for natgas to make a weather-driven rally but then fail to hold onto gains. So, as weather warms back up later this week, look for prices to come back in.

If prices DON'T pull back when the sun comes out, we may be looking at a potential breakout in natural gas.  This breakout could come from an inverse head-and-shoulders pattern, but it's too soon to tell. If it does happen, it would give us a target of $4.80 or so on natural gas. That would be quite a move, so stay tuned.

All this said, my best idea in natural resources is something else. I'm saving that for my Gold & Resource Trader subscribers in an update later this week.

Other interesting reads:
Good luck and good trades today.

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