Zak Mir Midweek Missive – All that glitters is not gold!

I would hazard a guess as far as the major markets are concerned currently, be they currencies, indices, bonds or commodities, that just about the most difficult amongst them to make a call on at the moment are the precious metals. Ironically, among Gold, Silver and Platinum the difficulties arise for differing reasons… 

As far as Gold is concerned we have a market backdrop that is presently complicated by a multitude of macroeconomic factors, most notably the so called “currency wars” that are being waged and presently being “won” hands down by Japan given the continued sharp depreciation of the Yen into 2013. The most painful aspect here as far as bulls of the metal are concerned is the way that even though one of the biggest money printing / QE operations imaginable is on the horizon, unlike in recent years when “Helicopter” Ben has fired up his magic printing machine, there has been absolutely no positive response from Gold, nor indeed as a response to what is going on in Japan. Indeed, one would shudder to think just where the Gold price would be were it not for what has been described as an exercise in trying to ignite inflation was not on the cards in Japan. Remember the Japanese are trying to achieve an inflation target of 2%, against a background of stubborn deflation that has been entrenched for over two decades now.

The technical position of Gold is no less of a conundrum, well to me anyway! Going into this month, we can see the double bear trap below the 200 day moving average (currently at $1,663) likely flushed out enough bulls who, steadily, after hoping and praying that the decade long super cycle rally was about to resume, finally folded their cards and sold up. The 200 day line is usually the place where this type of wholesale exiting would be expected to happen.

Without wishing to fudge the issue, it appears that even though Gold has broken last year’s uptrend line at $1,657, it may still be worth remaining in “buy on dips” mode, for at least a couple of reasons. First, this market  is still above the former May – August 2012 highs between $1,620 – $1,630, and as things stand we have new support above former resistance, the sign of a strong market. Secondly, given the Japanese story, the rebound in equities and of course the alleged soft landing story for China, the best call here is that Gold will play catch up back towards the $1,800 zone of 2012 resistance by the middle of 2013. Only if it does not get there by then should we start to worry.

Part of the reason I do not yet wish to throw in the towel on Gold currently is also because Silver is that much more positive on its daily chart. For instance, we still have this particular market holding above its 200 day moving average at $30.64, and above the 2012 uptrend line from June – far better than the equivalent position of Gold. It is something that lends itself to the conspiracy theories I have read on t’internet recently of Gold being manipulated negatively. But at least what can be said as far as Silver is concerned is that while there is no end of week close back below the big $30 level one would be quite confident that being long and targeting a minimum return to the November $34 plus resistance zone was appropriate over the next couple of months.

As far as Platinum is concerned, we are at the other end of the scale as compared to Gold and Silver in terms of the price action with the metal near the highs of the past year and January’s news regarding Amplats restructuring in January – effectively cutting world production by 7%, being just what the doctor ordered for the bull argument.

Indeed, it may pay here to go with the flow as far as the overall rising trend channel on the daily chart is concerned, as well as the way that January support at $1,659 came in $12 above former December’s high at $1,647. This support above former resistance has to be regarded very positively and implies to me that we are justified in targeting as high as the 2012 price channel top at $1,850 on a 2-3 month view while the $1,650 zone is held as weekly close support.

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