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Monday, May 14, 2012

Bull Market ‘Not Over’ but Speculators Turn Bearish | Resource Investor

Bull Market ‘Not Over’ but Speculators Turn Bearish | Resource Investor

www.TheSilverPrice.info

The price of gold and gold futures dropped yet again Monday morning, recording the seventh drop in nine trading days in May so far as industrial commodities, global stock markets and the euro currency all sank amid Athens' failure to negotiate a new coalition government.

Silver bullion also fell hard, touching $28.44 per ounce and losing 8.9% from the start of this month.

The price of Spanish government debt today fell yet again, pushing 10-year yields above 6.2% ahead of an auction of new bonds later today.

Greek public-sector salaries and state pensions may be unpayable "from the beginning of June" says a letter from stand-in prime minister Lukas Papadimos to party leaders, republished by Ta Nea, after May's tranche of the international bail-out was cut and tax revenues came in below target.

"We do not think the gold bull market is over," says a note from Morgan Stanley analysts, even though "gold has moved lower and is trading at levels not seen since December 2011."

Viewed on a technical chart analysis, "Damage has certainly been done [but] we do not think it is irreversible," they add, pointing to a sharp rise in speculative "short selling" by gold futures traders now expecting prices to fall further.

"The last time positioning was at these levels, prices embarked on a move higher, rallying to near $1800 per ounce. We are buyers of gold here."

The rise in speculative short-selling of gold futures is "disconcerting" however, says Marc Ground at Standard Bank, because "while investors have over the past few weeks appeared cautious of running too short on gold, this fear seems to have evaporated."

Over in the currency markets – where the euro fell to new 4-month lows vs. the dollar at $1.2860 – "We continue to target $1.20 for euro/dollar," says Ground's colleague, currency strategist Steve Barrow.

"Whether this takes time, or comes in an instant, could depend on the outcome of Greece’s political impasse."

Energy, metal and food prices all sank once more Monday morning as European stock markets lost more than 2% of their value, with Madrid losing 3% and Athens dropping 5.3%.

At the weekend Swedish central banker Per Jansson said that "of course the question [of a Greek exit] is discussed." Irish central bank chief, and fellow European Central Bank policymaker Patrick Honohan told journalists that "technically, it can be managed."

"We wish it to be possible for Greece to remain in the euro but Greece must live up to its commitments," a spokeswoman for the European Commission said Monday morning.

Major Bottom In Precious Metals Could Occur This Week | Commodities And Options | Minyanville.com

Major Bottom In Precious Metals Could Occur This Week | Commodities And Options | Minyanville.com

www.TheSilverPrice.info

Normally catching a bottom is not difficult. Bottoms tend to occur instantly while market tops form during a process. Yet, I’ve found that bottoms of long-term significance do not occur instantly. Like tops, they take time to develop. For example, think about late 2008 to early 2009. Commodities hit their price low in December but the bottoming process began in October and wasn’t complete until May. Emerging markets hit their low in November but the process began in October and ended in March.

Returning to the present, we see that gold and silver look set to retest their late December lows. My firm's work leads us to argue that the metals will successfully retest their lows and soon emerge from what in the future will be considered a major bottom in line with 2008, 2005, and 2001.

We begin with a daily chart of gold which shows its daily closing prices and a volatility indicator. The percentage figure refers to the percent bullish reading from the daily sentiment index. As we noted recently, each bottom in god (except 2008) has come during a period of low and declining volatility. Volatility is currently at a nine-month low while only 7% of traders are bullish on gold.

Next, let’s take a look at the current Commitment of Traders Report for gold, which shows the commercial short position and open interest at the bottom. The current commercial short position has reached a three-year low while open interest recently touched a two and a half year low.

Moving to Silver, we see the metal is nearing significant support at $27. Silver closed at $28.93 and has a bit of room to fall before testing $27 and the 600-day moving average, which has been an important pivot point since late 2008. The current daily sentiment index is 16%. We think, with another day or two of weakness in silver, the daily sentiment index would decline to single digits. We also want to note that $26 is the 50% retracement of the entire bull market.

Silver, unlike gold, has seen more interest recently as open interest has increased since late last year. However, open interest would have to rise 40% to reach the old high. Commercial traders are net short 17.9K contracts, which is within a whisker of the 10-year low, which was reached at the end of last December.

We remain encouraged that a bottom is developing in the mining equities. Below we show a weekly chart of Market Vectors Gold Miners ETF (GDX). Last week GDX bounced from $41, which is the 50% retracement from the 2008 low to 2011 high. Forty-one dollars also marks the strongest pivot point since $52. Furthermore, GDX’s volume was very close to a three-year high. Note how strong volume has market past bottoms.

Read more: http://www.minyanville.com/trading-and-investing/commodities-and-options/articles/precious-metals-market-bottom-market-top/5/14/2012/id/40976#ixzz1urPc1G2b