Model Portfolio: Bullish (Long signal = 6/27)
Technical Read: Spot gold prices broke out of range bound trading channel (approx. 3 weeks) at the end of the week. This is very positive for the yellow metal and signals higher prices are ahead. I would like to see the breakout to be more pronounced in future trading. Gold continues to benefit from limited conviction on the sell side due to the constructive news setup. The Mummy trading signals continue to be on the right side.
- Armed clashes in the Middle East are now a news staple with Iraq (ISIS offensive) and Israel/Gaza action now on the top of the list. An armed Israeli military incursion could be the next escalation. This is supportive for gold (uncertainty).
- The recent release of the Federal Reserve minute’s puts a rough time table for the central bank to phase out its controversial asset purchase program (subject to change) yielded a mixed story for the yellow metal. The Fed withdrawal could be potentially deflationary (bearish) but the coming uncertainty of whether they will do it could be supportive (bullish). I believe Yellen was chosen because she was the candidate perceived to be the least likely to change the Fed accommodative stance. For now this is a neutral for gold.
- Shares of Banco Espirito Santo tumbled as they missed debt repayments on some short-term instruments. This was a contributing factor for jittery global equity market trading this week. Portugal is a small country and the concept of a shaky European banking system is not exactly new ground. The key will be if this event leads to a spreading of stability concerns. This is mildly bullish.
GH Garrett – Veteran Commodity Watcher
Technical Read: GLD moved to levels not seen since mid-April. This price breakout indicates the trading uptrend is still in place and puts our 6/27 buy signal in positive territory one day after the call.
What is next? The current conflict in the Mid-East is very supportive for gold, and it is not likely to end soon. The Iraqi central government seems be unable to best its ISIS foes. Bagdad’s two best options for help are the US and Iran. Both options are flawed. Post-Obama’s election, US policy has carefully cultivated a theme of exiting Iraq. Iran is the other side of the coin. If they establish a foothold, Tehran may not be too keen to leave (gray hairs will remember the Soviet Union’s reluctance to leave Eastern Europe after WWII). The government in Baghdad has a grim future.
It will take a lot of stomach for gold bears to aggressively sell off the yellow metal against a back drop of 24 hour cable news featuring violence in Iraq. This is especially true if the government in Bagdad appears to be failing the stability test. — GHG
Technical Analysis: The quick post signal change signal (L) was posted on the last hour of Friday trading. The model portfolio is now long. In the trading action following the June 19 pop, the gold market held up well and featured limited selling (so no real give back). The risk reward ratio is now favorable again.
What is next? The trading trend is still up and we have support a nearby levels. It is time to prepare for the mummy to start moving up. The Iraqi civil war news is going to be supportive though to what degree, we will have to see. This week will be truncated (July 4th, no trading), potentially limiting selling appetite again. -GHG
Technical Read: First is the correction. Last comment, I showed the previous “eL” (exit long) on the graph occurring on June 19th (correct) but in the text I erroneously dated it as June 17th (incorrect). Be advised the exit was on the 19th. The “L” (buy) was on June 5th (this was a good trade). So far the exit long signal (Flatland) has been good, as volatility has been bleeding out of the market. Missing this is positive as it can cause option positions to have premium decay. This week’s trading has also featured something else: a lack of selling. As we go into Friday (typically the Bull’s friend) it will be interesting to see if buying picks up or not.
What is next now? The Iraq quasi civil war is now a known event (thus no longer a surprise) and the gold market has factored it in. Early stage conflicts normally feature escalation and this appears to be happening with reports of Iran sending military advisors in and Syria employing airstrikes to support ISIS. Kerry (speaking from the safety of Brussels) advised for regional participants to insure “that nothing takes place” that could act as a flash point for further sectarian division. The unrest is limiting selling in the gold market as bears do not wish to be caught short should something happen.
Technical Read: The June 17th exit long (eL) signal is the dominant feature of today’s technical read. The massive rise on that day triggered the risk reward statistics to move the model portfolio to neutral on that day. The June 17th exit is probably the ‘easy money’ big trade of the month. To use a metaphor, we have all heard of the infamous night-of-the-long-knives. Going forward we are likely to see trading resembling night-of-the-SMALL- knives as volatility bleeds off from the gold market. The Conquer the Mummy website Is optimized for options trading (which decay with time) so the best course is not to be too eager to get back in, at least not until signals give a more favorable risk/reward reading. Remember the philosophy of this site: Thump the Mummy and get out, do not hang around to be grabbed and crushed.
What is next now? The civil war in Iraq (featuring the ascendancy of the Sunni ISIS movement) is no longer a surprise and the gold market has moved decisively to factor this in. So at this point, I am looking for the next catalyst to move the market. This week Secretary of State John Kerry is meeting with Kurdish leaders, reportedly to convince them to join a plan to overhaul the current Iraqi government. What the Kurds seem to really want is increased autonomy. Secretary Kerry is a very bright person but I fear he may fall into the trap of simply telling the Kurds what he wants them to do as opposed to trying to work a deal that is stable over a long time horizon. A sizable portion of arrogance can negate intellect.
Market wisdom: Remember the old market adage about “bulls can make money, bears can make money, but hogs get slaughtered”. Do not get too eager to reenter. — GHG