Model Portfolio Status: Short signal (7/31).

Technical Read:  Spot gold continues to be unable to regain the $1300 level (the most recent attempt to stage a rally was today). Currently, the weakness is more of a “drip-drip” affair not a powerful decline. From a technical analysis stand point, a turn-around does not seem at hand.

Ambiance Backdrop:

• Stocks fell back today, with the S&P 500 putting in its lowest close in 2 months. Economic data has generally been supportive (unemployment ticked down to 6.2% in July and consumer sentiment at 81.8), but the looming consideration of the Fed exiting its asset purchase program is going to be a specter in the future. Can the financial markets weather the rise in interest rates? The question is going to revolve around deflation. Will it come knocking? If deflation does materialize gold will not be unscathed.
• The geopolitical back drop is still supportive. Unrest in the Middle East and the Ukraine gives gold sellers a pause but the associated strength in the dollar (the US Dollar Index has climbed steadily since June) has partially negated this.
• 10 Year Note rates appear to be base building at higher levels than the lows of May. If interest rates manage to rally, this will not be favorable for gold.

GH Garrett – Veteran Commodity Watcher (8/05/14)