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It's Game Time For Gold
Although the minimum target for this rise has already been met (1238-1244), the potential for Gold to rise to $1251-$1272 with an ideal level of $1251 before we top and decline remains in play. A close below 1198-1207 would favor the high is in place for January.
Regardless, a short term cycle peak is due Jan 19th (plus or minus 72 hours) and a pullback to very early February, with another price push higher into mid-February on the heels of the Chinese New Year is still viable.
Will Super Mario Save the Eurozone?
Can he (or anyone for that matter) save the day. The Governing Council of the ECB meet in Frankfurt on January 22nd, and as usual this is followed by a press conference at which ECB President Mario Draghi will be asked for fresh comments regarding the economic climate and prospects for the future in Europe.
As background, the inflation rate in the Eurozone has gradually moved lower since 2012, and crucially has remained below the European Central Bank key 2% target. The European Commission recently released the results of a poll that shows a diminishing number of those living and working within the Eurozone (getting close to zero now) expect inflation within the next year, and for the first time since October 2009 when the effects of the 2008 financial crisis were still fresh and being felt by all, recent figures show that consumer prices were on average lower than 1 year ago.
Mario Draghi has tried to pacify with a pledge to 'do whatever it takes', and now more than ever he will be expected to take some form of action. However, with interest rates already negative and a quantitative easing program already in place, just what action can he take to spur the economy into life? Will flooding the Eurozone with more money have the desired effect? I'm not so sure.
The situation is further complicated by on-going problems in Greece, and with Greek elections taking place on January 25th, Mr Draghi may have his hands tied until the results are in, and is probably going to disappoint the markets on January 22nd as a result.
The Greek situation is a tough one to resolve. Greece was hit hardest in the Financial Crisis as it had over-extended itself with regards to loans, and now struggles to make repayments. As of the end of 2013, Greece's debt to GDP ratio was 175% i.e. the total amount of money generated by the Greek economy each year amounts to just over half of the debt it needs to repay. As with the rest of the Eurozone, unemployment (especially among the under 30's) is at very high levels, so the prospects for increasing GDP in the short term is not so good, and the Greek government is left with no choice but to make more and more budget cuts in order to qualify for balloon payments from the EC and IMF that allow it to remain solvent.
Should the Syriza Party gain power on January 25th, we are likely to end up with a Euro debt default and potentially Greece's withdrawal from the Eurozone altogether i.e. an immediate massive reduction in the Euro monetary base.
Over the last 2 years Europe has wondered just what action Mr Draghi would take, given that he has so far done little despite stating he will do 'whatever it takes', so perhaps he has been saving the giant QE program for just such a situation and will balance this impending reduction with billions of new money hot off the presses? We will soon find out.
The point of the above issue is to show that in the face of low monetary demand and high risk debt in the Eurozone (deflation), people have been abandoning the Euro in droves and looking for safe haven elsewhere. Remember, people act in anticipation of forthcoming events rather than waiting for an event to happen before taking action, and a quick look at the Euro FX chart shows that the trend is very firmly down.
This last week the Euro decisively broke 9 year resistance, and looks like it is heading lower fast. Only a move back above 1.25 would delay the collapse, a collapse that is surely coming anyway as the Eurozone situation worsens. And if Euros are being sold, just what is being purchased with the proceeds? Pounds? Rubles? Yen? Gold?
The biggest beneficiary of proceeds from the sinking Euro has without a doubt been the US Dollar - the world reserve currency. Should Mr Draghi say the wrong thing, or fail to placate the markets this time, we could be seeing a HUGE move lower in the Euro and higher in the US Dollar, a move that would either heap pressure on the price of gold, or gold joins the US dollar higher. If not, it may just be what tips the balance back in favor of the bears in the gold market. If yes, then gold can continue higher into Mid February/March with a price tag somewhere in the 1322 area.
Gold Chart Pattern
The resistance zone (2nd target) for this week is 1238-1244 and 1251-1261 on the 8 hour chart. You should note that we have already fulfilled the minimum price for this 2nd target for this week as 1244 was reached today. The only other significant price target is the 1272 area but I think that is going to be the February time frame. Certainly that will change if we close above 1262.
Once this pattern completes, I expect us to pull back into the beginning of February from where another thrust will develop in line with the Chinese New Year.
Although it is not my primary expectation, if at any time we breach $1272 and sustain trade above that level, and we then break through $1280, I would be looking for higher targets in gold and silver with 1322 in gold and 1850 in silver being the next significant price points.
 
Gold Hourly Chart
On the gold hourly chart, we’ve reached weekly resistance (1238-1244) and while its not impossible to spike to 1250-1255, we should now be on watch for a pullback that begins into Thursday evening. Targets would be the 1217-1226 or 1204-1211. Price has taken out the December High (1239) and odds favor gold pullback. A close above 1244 opens the door to 1251-1261.
Cycles
The next short term cycle turn is due Jan 19th (plus or minus 72 hours). On the daily chart the 1255-1272 area is the next significant resistance. The short term cycle window for a high opens on Friday and runs into the close of next Wednesday. While 1238-1244 could be the high, odds are highest in the 1251-1272 when we look at the daily chart. The other thing we need to be aware of is the S cycle also warns of an odds favored top near this time frame. Finally, it is interesting that the 1272 weekly reversal price is also where the 200 day moving average has arrived at. The 1272 area then would be a logical place for a price high. The 1255 area is also an inflection point as the Elliot Wave boyz target that area and a close above 1256.30 would favor a wave extension higher. That would most likely lead to a 1272 high. If the seasonal is on for gold odds favor it moves higher into Mid Feb/March where the 1322 area would be the most favored target for a Q1 2015 high.
Silver
The 8 hour chart shows silver on the verge of a big breakout if it can close above 1738-1760. That would suggest prices are heading toward 1850. Support is 1620-1650. As long as price is above the upper green channel line, the potential to break out is in play. A close below 1620 would drastically reduce the upside potential.
Keep in Mind the control boyz are watching.
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