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: Spot gold prices have been largely range bound since the 6/19 blow-off advance. The good news (from the Mummy perspective) is that prices are higher than the 6/27 bullish trend change signal. The bad news is that the yellow metal trading has a leaden feeling to it with upside moves being hit with bouts of selling. The trading trend is still up.
What is next? The National Federation of Independent Business reported that its Small Business Optimism Index weakened 1.6 points (to 95) in June. This metric is usually viewed as a leading indicator and underscores some recent apprehensions that stocks may be overdue for a dip. Right now these expectations are largely a neutral for gold traders. The Israeli military announced that it had launched approximately 200 air strikes to blunt militant rocket launching efforts from the Gaza strip. The Palestinian population is predominately made up of Sunni Muslims and thus may have been emboldened by the by the success of the ISIS movement in Iraq. There are rumors that further action by Israel’s forces may feature a ground attack (round 2?). This is going to put a bid under gold prices, especially heading into a weekend. –GHG
Technical Read: Spot gold prices fell as Mid-East violence concerns took a back seat to US economic data today during pre-holiday. The technical damage was limited as the yellow rebounded somewhat by the close of trading. The near-term trend is still up and prices are still ahead of the 6/27 close (the last buy-trend signal). The model portfolio is still long. At this point, I would categorize today’s move as a temporary reaction, not a trend change.
What is next? The jobless data from the Bureau of Labor Statistics came in stronger than expected (288k for June, expectations were lower, closer to 220k). The number led to a jump in interest rates (the 10-yr yield briefly punched to monthly highs). By the close of the day, yields were off their intra-day apex prices. Significant upside changes in interest rates are bearish for gold prices at these levels.
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
Technical Read: The uptend detected earlier proved to be a catapult for gold prices as nervous bears ceased selling and rising prices triggered buy stops (i.e. more buying) leading to a hyperbolic one-day price move. The action triggered a “exit-Long” signal for the model portfolio today, moving it to neutral (aka “flat”). Please be advised an “e-L” does not mean the uptrend has reversed but does indicate 2 events. A) The model portfolio is now neutral and B) the risk/reward ratio is no longer favorable for a bullish position. No GLD watcher should be mystified at an exit after a daily net-change of over $4.25. This was an excellent (profitable) ending for the June 5 entry. Taking a profit is generally a good thing. The mummy got thumped.
What is next now? The bears were simply routed as we approached a weekend with increasing signs that things are not going well for the government in Bagdad (i.e. reports of ISIS flags flying over a “key” refinery and US military advisors gearing up for deployment). We will continue to monitor events, being “flat” can be a good thing if gold becomes overly news oriented here.
Technical Read: Prices are advancing off the closing low of June 2 and the bullish model portfolio change (June 5). Previous oversold market provided support for the bulls. Trading action on June 15 was disappointing but not a trend change yet.
What is happening now? Problems in Iraq are providing most of the buzz though there are questions as to just how much of an oil disruption is ahead. To people who lived through the Vietnam era, the rapid advances of the “ISIS” group rings a bitter bell of remembrance of how quickly South Vietnamese forces caved in the face of the last North Vietnamese big push. Anyway, the news backdrop is supportive.