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TCI Signal on Gold -April 2013

The price of Gold is crushed but the bear market seems to be coming to an end..

The price of gold crushed on Monday the 15th of April in levels below 1,340 USD per ounce. This current bear market has started on October the 4th 2012 when the gold price closed at its peak of 1,791.8 USD per ounce. Today and as the gold price reached 1,320 USD it seems this bear market moves too fast lately. Using TCI analysis we are going to investigate if it is time for a bear marker rally.

TRADING SIGNAL MARKET CURRENT PRICE TARGET  STOP LOSS

 GOLD (USD)

$1,350 per ounce

(4/15/2013)

$1,459

$1,419

Stop-Loss:

$1,319 per ounce

But first let’s evaluate the results of our previous trading signal on Dow Jones Industrial (April, 22 2013)

The Previous TCI Trading Signal on Dow Jones Has Been Proved Accurate

Our previous signal on Dow Jones Industrial has forecasted a bull market that will last until the 5th of April 2013 / 9 April 2013. Actually the bull market has lasted 3 more days than we have expected. As concerns the target we have placed (in points), that was met with considerable precision. We have placed a target price for Dow Jones Industrial at 14,850 points while Dow Industrial had a high close at 14,865.14 and an intraday high at 14,887.51, both in the 11th of April 2013.

»The Trading Signal is here

Here is what happened:

Table: Dow Jones Industrial (March, 22 – April, 15)

Date

Open

High

Low

Close

Volume

26-Mar-13

14,447.75

14,561.54

14,447.75

14,559.65

960,300

27-Mar-13

14,559.65

14,559.65

14,439.55

14,526.16

926,800

28-Mar-13

14,526.16

14,585.10

14,520.86

14,578.54

1,537,100

1-Apr-13

14,578.54

14,605.72

14,531.48

14,572.85

914,000

2-Apr-13

14,572.85

14,684.49

14,572.85

14,662.01

984,200

3-Apr-13

14,662.01

14,683.13

14,525.36

14,550.35

1,271,400

4-Apr-13

14,550.35

14,625.24

14,538.72

14,606.11

1,047,900

5-Apr-13

14,606.11

14,606.11

14,434.43

14,565.25

1,312,500

8-Apr-13

14,565.25

14,613.48

14,497.80

14,613.48

1,066,800

9-Apr-13

14,613.48

14,716.46

14,598.50

14,673.46

1,285,800

10-Apr-13

14,673.46

14,826.66

14,673.46

14,802.24

1,205,200

11-Apr-13

14,802.24

14,887.51

14,785.36

14,865.14

1,445,700

12-Apr-13

14,865.14

14,865.21

14,790.57

14,865.06

1,195,700

15-Apr-13

14,865.06

14,865.06

14,598.58

14,599.20

1,616,800

Gold Price from a Fundamental Point of View

There are two fundamental reasons behind the recent drop of gold. First, it is the weak economic data derived from the Chinese Economy. And note that China drives the global demand for gold during the past decade (jewellery and investment gold). The Chinese economic weakness caused future-demand-drop-fears in other markets too, and especially as concerns other metals and energy. But there is another important development regarding the recent drop of the price of gold. The intention of the Cypriot government to sell gold (worth $500 million) in order to improve its public debt ratios created the concern that more troubled economies will do the same in the future. As concerns the South of Europe, Italy, Spain and Portugal are holding great gold reserves. 

Here are the Countries with the greatest Gold Reserves

Table: Countries & Gold Reserves

 
Economy Gold
(tonnes)
% on Total Reserves
 United States 8,133.5 76%
 Germany 3,391.3 73%
 International Monetary Fund 2,814.0 N.A.
 Italy 2,451.8 72%
 France 2,435.4 71%
 China 1,054.1 2%
 Switzerland 1,040.1 11%
 Russia 957.8 9%
 Japan 765.2 3%
 Netherlands 612.5 60%
 India 557.7 10%
 European Central Bank 502.1 33%
 Taiwan 423.6 6%
 Portugal 382.5 90%
 Venezuela 365.8 75%
 Turkey 359.6 16%
 Saudi Arabia 322.9 3%
 United Kingdom 310.3 16%
 Lebanon 286.8 29%
 Spain 281.6 30%
 Austria 280.0 55%
 Belgium 227.5 39%
 Philippines 192.7 12%
 Algeria 173.6 5%
 Thailand 152.4 4%

Source: Wikipedia

Now here are the greatest gold reserves per capital.

Chart: Countries & Gold Reserves per capital

United States hold the largest Gold Reserves (8.134 tonnes)

Other precious metals like silver and platinum and many mining shares from around the world were hit also in the past couple of days.

What TCI suggest about the Current Course of Gold

In order to evaluate the upcoming course of the gold price we are going to use the TCI+ model, There is a difference between our two models (TCI and TCI+). TCI+ takes into consideration statistical data from multiple currencies and not only from one single currency (USD). The TCI+ data table below is based in the price of gold as measured in 5 different currencies (USD, EUR, CHF, GBP and JPY). By this way we are able to eliminate the currency factor and produce more 'globalized' results.

In the upper area of the following chart we can see a Line Chart of the price of gold (USD) during the past 20 years (from January 1983 to April 2013). The red line is the moving average of 180 days which is setting up the master trend for gold. The moving average of 180 days is found today at about $1,688. In the lower area of the chart we can see the respective indications of TCI+ throughout the past 2 decades.

Chart: The Price of Gold 1983-2013 and TCI+ Indications

 Trading Signals: TCI+ on Gold

If we focus on the bear markets of the past 20 years, we may conclude that the levels of TCI+ below -15% are considered high oversold levels. These TCI+ oversold levels have been followed in the past by great gold price rallies. Note that in the 15th of April 2013 TCI+ was found at -14.0% and that means that the bear market is probably coming to an end.

TCI+ Data Table

In the following table we may see the price of gold during April 2013 and the respective indications of TCI+:

Date Gold (USD) MA 180 TCI+
3/1/2013 1,582.3 1,673.26 -3.83%
3/4/2013 1,574.3 1,673.28 -4.35%
3/5/2013 1,579.8 1,673.31 -4.10%
3/6/2013 1,574.0 1,673.31 -4.16%
3/7/2013 1,579.5 1,673.43 -3.06%
3/8/2013 1,581.8 1,673.33 -1.60%
3/11/2013 1,579.0 1,673.26 -1.18%
3/12/2013 1,594.0 1,673.13 -0.84%
3/13/2013 1,589.3 1,672.99 -1.43%
3/14/2013 1,586.0 1,672.89 -1.05%
3/15/2013 1,595.5 1,672.94 -1.38%
3/18/2013 1,603.8 1,673.05 -0.89%
3/19/2013 1,610.8 1,673.13 -0.95%
3/20/2013 1,607.5 1,673.30 -1.17%
3/21/2013 1,613.8 1,673.62 -0.88%
3/22/2013 1,607.8 1,673.69 -1.21%
3/25/2013 1,599.3 1,673.74 -1.18%
3/26/2013 1,598.0 1,673.81 -0.59%
3/27/2013 1,603.0 1,673.97 -0.14%
3/28/2013 1,598.3 1,674.05 -0.64%
3/29/2013 1,598.3 1,674.17 0.58%
4/1/2013 1,598.3 1,674.31 0.70%
4/2/2013 1,583.5 1,674.31 0.41%
4/3/2013 1,574.8 1,674.17 0.43%
4/4/2013 1,546.5 1,673.77 0.20%
4/5/2013 1,568.0 1,673.49 0.55%
4/8/2013 1,575.0 1,673.25 0.58%
4/9/2013 1,577.3 1,673.01 0.72%
4/10/2013 1,575.0 1,672.87 -0.07%
4/11/2013 1,565.0 1,672.69 -0.29%
4/12/2013 1,535.5 1,672.33 -2.23%
    1,671.49 -6.76%
    1,670.32 -10.90%
    1,668.94 -13.35%
    1,669.24 -13.78%
    1,669.53 -14.56%
    1,669.79 -14.60%
    1,670.20 -15.24%
    1,670.59 -15.20%
    1,670.97 -14.88%
    1,671.30 -14.82%
    1,671.63 -15.28%
    1,671.81 -15.96%
    1,671.99 -15.93%
    1,672.03 -16.03%
    1,672.06 -15.54%
    1,672.09 -15.15%
    1,672.11 -15.18%
    1,672.19 -15.65%
    1,672.26 -15.32%
    1,672.40 -15.12%
    1,672.29 -14.89%
    1,672.13 -14.37%
    1,672.02 -13.60%
    1,671.84 -12.66%
    1,671.48 -13.11%

Given the TCI+ analysis it seems that the purchase of gold in the levels of $1,320 to $1,350 per ounce can be proven really profitable for trading. The first target is $1,419. The second target is $1,459.


◘ Giorgos Protonotarios, Financial Analyst

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