A Market Timing Report based on the 12-27-2013 Close published Sunday December 29th, 2013
Gold has moved up this past week in the face of rising interest rates. This could be due to several factors. First, gold selling has been going on for months, so sellers may finally be exhausted. Second, the cost of the marginal ounce of gold produced is somewhere around the low of 1190, so supply will fall below there. It then becomes a support level. Third, inflation is actually picking up in places like Japan, which is highly unusual for that country, hitting 1.2% after years of deflationary pressure.
The Japanese government is attempting to stimulate growth by forcing assets into equities, just as our Fed has done, as well as cheapening the yen which makes Japanese companies more competitive worldwide. If the Japanese government keeps rates very low while inflation increases, real interest rates fall and gold becomes more attractive.
There is another important issue in the U.S. The Fed’s taper turned out to be a mini-taper, which meant to the gold market that there is the distinct possibility that inflation could kick up prior to sufficient Fed tapering of the QE program. There are only two ways to get to higher gold prices, but they both end up in the bottom line of LOW real interest rates.
Remember that we’ll follow the chart in the end and no theory will prevent us from taking action and selling should gold break down to new lows. That is my plan. Decide what works for you. If you have no gold, it is a buy here with a stop below the 1190 London spot price.
Here’s the chart:
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Look for updates on the main chart tracking pages this week as I feel they are needed and comments via Twitter.
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