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Monday, March 25, 2013

Gold: Fear And Panic Headed This Way

Cyprus Police Ranks
Cyprus Police Ranks (Photo credit: eucy)
By Seeking Alpha

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
Chicago, Mar.25, stock watch .- It definitely feels that something of a significant nature occurred last week on the Island of Cyprus. The financial event that some people call "The Euro's Lehman Moment", shattered the financial markets early in the week with the announcement of an intent to levy close to 10% on Cypriot savings deposits in order to save two of its largest banks and meet financial requirements to obtain a bailout package worth 15.8 billion euros approved by the IMF.
The general consensus early in the week was whether Cyprus really matters in the overall size of the eurozone. Cyprus is the fifth member equivalent of approximately 0.2% of the eurozone. The initial impact may appear insignificant, but the potential political and economic implications long-term are far deeper than what we can imagine.
In a recent article Barbara Kollmeyer of MarketWatch.com reported, "In our opinion, there is a good case to say that the Cyprus crisis may blow over in the near-term, but the long-term breach of faith between Euro area policymakers and regional depositors will remain (even if the insured's are ultimately made whole). Despite the muted reaction so far, Europe has reminded investors that there are significant problems behind the curtain."
After the markets closed on Friday, Cypress officials passed a law for capital controls on it's banks and create a "solidarity Fund" to pool assets in order to meet the financial conditions needed (5.8 billion euros), and pass the vote required for a eurozone bailout.
The real reason behind this economic measure is to limit or control the potential run on the region's banks from spreading the contagion across the eurozone which could have far deeper devastating global economic repercussions beyond Cyprus.
Cyprus has agreed with EU/IMF lenders a 20-percent levy on deposits over 100,000 euros ($130,000) at leading lender Bank of Cyprus and a 4-percent levy on deposits of the same amount at other lenders, a senior Cypriot official said on Saturday.
It appears the measure to levy on bank deposits clearly gave way the true intentions of how the eurozone leaders were planning on providing a replacement formula for economic stimulus under the previous name of Quantitative Easing (QE) . This is a panic strategy that failed and could result into increasing the velocity of money printing (Inflation), and the inevitable destruction of the euro as a currency. It does not matter what name you call it. It is nevertheless stealing the purchasing power or imploding the value of a currency.
According to legendary trader James Sinclair and Founder ofjsmineset.com,"The IMF has now put itself into a very difficult position. The IMF must now support Cyprus, even in the face of the rejection of the attempted confiscation of partial bank deposits, or let the Cyprus banking system seek its own solutions to its banking problems, which would be Russian Corporations, or Russia itself." Sinclair continued, "This now rejected proposal of a tax on depositors was a total shift in strategy that had existed so far in the rescue operations of banks. If you change your strategy, you break a promise because you have acted in a certain way where all other major nations are concerned."
Russia, whose citizens have billions to lose in those Cypriot banks, called the EU a "bull in a china shop". The panic and fear button should be felt and reflected in what appears to be an urgent reason for its citizens to implement an aggressive shift and strategy to accumulate physical gold bullion. This is the only way left to protect the integrity and value left of their currency, as well as personal protection against government fiat confiscation.
Sinclair also predicted on KWN: "Cyprus cannot, will not, absolutely must not leave the euro. They know that quite well. So the break of the euro market down into the 1.28 area must have sent shock waves through decision-makers in euro land. Cyprus must be rescued because they cannot be allowed to leave the euro. In the end, however, all of this will create a demand for other alternative ways of being able to support the value of money, and gold will benefit enormously from it."
I touched upon this issue in a recent article I published on Seeking Alpha. In this article I said, " The eurozone crisis is a much deeper problem that could affect the global economic balance and potentially put the global economy back into a recession. This could trigger panic buying in the gold market that could cause hyperbolic moves in the yellow metal over a short period of time."
Let's take a look at the gold futures and the GLD SPDR Gold Trust Shares derivative contracts and see if we can identify some live trading opportunities for next week.
The April gold futures contract closed at 1608. The market closing below the 9 day MA (1615) is confirmation that the trend momentum is bearish. A close above the 9 MA (1615) would negate the weekly bearish short-term trend to neutral. With the market closing above the VC Weekly Price Momentum Indicator of 1605, it confirms that the price momentum is bullish.
Look to take some profits, if long, as we reach the 1621 and 1632 levels during the week. Buy corrections at the 1594 to 1578 levels to cover shorts and go long on a weekly reversal stop. If long, use the 1578 level as a SCO/GTC (Stop Close Only and Good Till Cancelled order).
If this week's lows in gold are not violated by closing below 1590 on a weekly basis, we can build a strong argument that the lows are in and the foundation is in place to support a bigger and stronger move to the upside.
If the lows of this week hold, it will support a rally into the following Fibonacci targets short-term:
1. 1656
2. 1681
3. 1711
A close above 1711 puts into perspective the upper end of the target zone of 1809. A weekly close above this level would set the stage to challenge the highs made in September 2012.
The GLD SPDR Gold Trust Shares closed at 155.55. The market closing below the 9 day MA (156.34) is confirmation that the trend momentum is bearish. A close above the 9 MA (156.34) would negate the weekly bearish trend to neutral. With the market closing below the VC Weekly Price Momentum Indicator of 155.62, it confirms that the price momentum is bearish.
Look to take some profits, if long, as we reach the 156.36 and 157.17 levels during the week. Buy corrections at the 154.81 to 154.07 levels to cover shorts and go long on a weekly reversal stop. If long, use the 154.07 level as a SCO/GTC (Stop Close Only and Good Till Cancelled order).
If this week's lows in gold are not violated by closing below this level on a weekly basis, we can build a strong argument that the lows are in and the foundation is in place to support a bigger and stronger move to the upside.
If the lows of this week hold, it will support a rally into the following Fibonacci targets short-term:
1. 160
2. 163
3. 166
A close above 166 puts into perspective the upper end of the target zone of 175. A weekly close above this level would set the stage to challenge the highs made in September 2011.
TRADING DERIVATIVES, FINANCIAL INSTRUMENTS AND PRECIOUS METALS INVOLVES SIGNIFICANT RISK OF LOSS AND IS NOT SUITABLE FOR EVERYONE. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Additional disclosure: The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed herein constitutes a solicitation of the purchase or sale of any futures or options contracts. ...
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