Larry Baer's Technicals: Gold Rush Back On With QE3, Dollar Trending Lower & Treasury Yields Surging

September 17, 2012

Technical signs point to a potential boost for gold prices, with additional support offered by QE3.

 

Disclaimer: Futures, options and forex trading is speculative in nature and involves substantial risk of loss. These recommendations are a solicitation for entering into derivatives transactions. All known news and events have already been factored into the price of the underlying derivatives discussed. From time to time, persons affiliated with Zaner, or its associated companies, may have positions in recommended and other derivatives.

 

Gold has rallied significantly in the last six weeks, after lower-to-sideways price movement for most of 2012, looking as if it may be poised for another major move to the upside.

This move upward may get strong support from another round of inflation, or even hyperinflation, causing gold, silver, the S&P 500, high-grade copper and other commodities to rally. The Federal Reserve’s announcement of a third round of economic stimulus (QE3) may fan the flames of inflation further, causing the U.S. dollar to plummet and spurring commodity prices even higher. I would also be very surprised if QE3 was the last of the Fed’s economic interventions.

Gold

The trend is up and I have a fresh buy signal (issued 9/13) on the daily chart for gold futures. Gold has already established that it is in a longer-term uptrend, and has issued five buy signals since the trend changed to up at the end of July. Also, gold is super-trending on the daily chart, which I define as a market that is trending above its nine-period SMA.

 

Gold Daily Chart

Sector Performance: June 2012
For a larger view, please click on the image above.

 

On the weekly chart, the trend has recently changed to the upside for gold futures. This is the third week following the trend’s change to the upside and gold is entering a pivotal area.

Gold is displaying a formation that suggests that we may have one or more week of follow-through to the upside. It is too early for gold to establish that it may be in a longer-term uptrend on the weekly chart, so we will have to wait to see what happens. However, I did note that while the trend was down for gold on the weekly chart, it was never able to establish that it was in a longer-term downtrend, which is, in my opinion, significant.

 

Gold Weekly Chart

Sector Performance: June 2012

For a larger view, please click on the image above.

 

 

The trend has been up for gold futures on the monthly chart for years now. Gold issued a buy signal in August and is beginning to super-trend once again. Gold hasn’t super-trended on the monthly chart since 2011. Gold has been making higher lows the last three months, another bullish indicator. The upside potential for gold on the monthly chart looks to be around the $1840 level and has strong support at $1669.

Gold Monthly Chart

Sector Performance: June 2012
For a larger view, please click on the image above.

 

I feel it’s also worth mentioning that hedge funds Paulson & Co. and Soros Fund Management increased their exposure to SPDR Gold Trust to 21.8 million shares and 884,000 shares, respectively. Paulson & Co. now has 44% of its $24 billion fund exposed to gold.

Silver

Silver futures (December) also suggested a fresh buy signal on the daily chart on Sept. 13. The trend is up for silver on the weekly chart, and silver indicated a king’s cross countertrend buy signal last month on the monthly chart. The king’s cross is my attempt to account for why, shortly after a change in trend, a market often puts in its extreme. What I discovered is that the trend had not actually changed; rather, it was just an event—a news event, short or long covering, etc.—that caused a correction. After this “event,” the market would often turn around and resume its previous trend.

Silver Monthly Chart

Sector Performance: June 2012

For a larger view, please click on the image above.

 

U.S. Dollar Index

A lower U.S. dollar tends to bolster commodity prices, and the recent weakness in the American currency has added support to gold. On the daily chart, the trend has been down for the dollar since July and confirmed to me that it may be in a longer-term downtrend in mid-August. The dollar has once again resumed its super-trend to the downside and has been generating sell signal after sell signal on the daily chart, giving a total of six signals in the past six weeks.

U.S. Daily Index Daily Chart

Sector Performance: June 2012
For a larger view, please click on the image above.

 

 

 

On the weekly chart, the trend has just changed to the downside and the dollar has closed below its 50-period SMA, a bearish indicator. We still have some time before we are able to confirm whether the U.S. dollar may be in a longer-term downtrend on the weekly chart.

Although the trend is up, in the last two months the dollar closed below its 100-period, 50-period and nine-period SMAs on the monthly chart. Closing below these support areas illustrates the dollar’s current weakness. The dollar also indicated a king’s cross countertrend sell signal last month (August) on the monthly chart.

U.S. Dollar Index Monthly Chart

Sector Performance: June 2012
For a larger view, please click on the image above.

 

30-Year Treasury Bonds

The 30-year Treasury bonds issued a king’s cross countertrend sell signal on the daily chart on Sept. 5, which is still holding strong, and now the trend has changed to the downside. However, this puts us in the possibility of having a king's cross buy signal as well. For at least the next week, if we close above the previous day's high, we will have king's cross buy signal.

For another round of commodity price inflation, and specifically a major rally for gold, it’s my opinion that the yields on the bonds and notes need to increase. An increase in bond yields, which means a plunge in bond prices, may indicate a potential big move for gold. The 30-year T-bonds’ king’s cross sell signal came after a major retracement, and since it was issued, the bonds have dropped and closed below major support levels, including its nine-period, 20-period, 50-period and 100-period SMAs.

On the weekly chart, the T-bonds have been looking top-heavy for some time, and it appears as if the trend will now change to the downside. Now that they have taken out their August lows, the bonds and notes may continue to follow through lower, and gold prices may see significantly higher prices.

30-year Treasury Bonds Daily Chart

Sector Performance: June 2012

For a larger view, please click on the image above.

 

 


 

Contact Larry Baer at [email protected] or (312) 277-0112.

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Futures, options and forex trading is speculative in nature and involves substantial risk of loss. All known news and events have already been factored into the price of the underlying commodities discussed.

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