Futures Market - Gold Highlight #2
Retest low of gold market identified to the very day prior to sharp rally.
(COMMENT #s 228, 232, 248, 276)
UPDATED 19980317
COMMENT 1998-228
1. Don't become too bored with the market on page 318 of "The 1998 $upertrader's Almanac - 1st Half Edition".
2. Note on this page how the downside tendency is now ending.
3. This market should soon join its brethren to the upside.
UPDATED 19980318
COMMENT 1998-232
1. The market in COMMENT # 228 closed weak yesterday and is due lower this morning.
2. Basis the June contract, the market is attempting to close a gap the bottom of which is at 29030.
3. Today is the 34th trading day since the high a little over a month ago, so an upside reversal appears near.
UPDATED 19980324
COMMENT 1998-248
Here's an insightful quote from Futures World News this morning;
1. "After the break down to the $287 level basis April gold, traders saw they could not push the market any lower.
"I think what you're seeing is some fundamental physical demand underneath the market. (On) every major break, the commercials do re-enter the market at these lower levels and support the market."
"Because of this, obviously a market that can't go down will, over time, congest and build up pressure and then explode to the upside in a short-covering rally. That's exactly what you saw happening yesterday."
2. The low of 980318 was made on the NEWS that the Belgian Central Bank sold 130 tons last year.
3. The major low of last July was made on the NEWS that the Australian Central Bank had dumped virtually all of its gold reserves.
4. Note that the anticipated price action cited in the quotation is unrelated to the NEWS surrounding the market or that is expected to affect the market. It simply speaks to an imbalance between strong hands / weak hands.
5. The strong hands are forcing the weak hands to exit. This is how markets work. The victorious vanquish their victims. Life turns to death and decays. It is the process of trading. Happens all the time.
6. COMMENT # 232 was released the day of the gold bottom and price has since rallied nicely.
7. Should be enough to more than pay for your "Cycles Book" for the next decade or so!
UPDATED 19980406
COMMENT 1998-276
1. There have been 2 major bottoms in the gold market so far this year;
2. First was the major 18 year low of 980112.
3. Second was the retest low which retraced almost 75 percent of the 12 trading day, $28.00 or so rise in January.
4. The first low was highlighted in COMMENT # 9, especially in Point # 5 of that COMMENT, and was reviewed in COMMENT # 27, Point # 11.
5. The second was highlighted in COMMENT # 232 which was posted the very day of the retest low.
6. At the time, the sentiment and media stories were quite BEARISH regarding the prospects for the metal.
7. You may recall stories of Belgian central bank selling at the retest low (see COMMENT # 248).
8. It is in this light that we want to turn to a Wall Street Journal article of this morning which states;
"Last month, Belgium announced a gold sale of 9.6 million ounces, but then added that its long sales program was finished and that gold should play a part in ECB's reserves. Bank of Italy governor Antonio Fazio has said the ECB should put 30% of its reserves in the precious metal. Jean-Claude Trichet, governor of the Bank of France and a nominee for the head of the future European bank, also has endorsed the idea of putting some gold in the new bank's vaults. The pronouncements have eased some of the doomsday predictions in the metals markets."
9. Pardon me, but I VERY THOROUGHLY scour the media pages searching for such insights and remember NO such stories regarding the price of gold near either of the lows cited in this COMMENT.
10. In fact, although commercial interests as reported in the bi-weekly Commitment of Trader's Report were very long (implying they knew of the information reported this morning in the WSJ and how bullish it would be for the gold market when released), the main information relied upon in these COMMENTS to signal the reversal was the monthly/weekly "Inversion Cycle" alignment cited in COMMENT # 9 and the "Divergence of the Year" information listed on page 279 of "The 1998 $upertrader's Almanac - 1st Half Edition" (also cited in COMMENT # 9).
11. The point of this discussion is the story of how the NEWS mirrors market price and does not, usually, LEAD the market.
12. At the market lows, we couldn't escape the BEARISH stories of central bank selling.
13. Now that gold has rallied over $ 30 and the rally is apparent to all (meaning that the central bank selling stories of the first quarter have missed the mark), the story has changed to explain the market's rise through the exact same factual circumstances.
14. But this fundamental NEWS has come too late to allow investors to position themselves near the market lows.
15. Note the FWN observations in COMMENT # 248.
16. In my opinion, if one's objective is to buy low / sell high, it is not logical to expect that NEWS can be relied upon to provide the insights needed to form a conviction regarding WHY a market might be reversing trend.
17. In relation to Judge Lhevine's and Daniel Driscoll's comments, it would seem that, if one were to choose whether fundamental NEWS or technical analysis has done more damage to traders / investors over the years, the weight of the evidence would undoubtedly come down on the side of fundamental analysis and NEWS as the culprits!
18. Further, the reader should not limit this observation, sounded repeatedly in these COMMENTS with specific and current examples, to the derivatives markets. They apply equally well to equities, both in their individual and aggregate capacities.
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