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.
Technical Read: Spot gold failed to hold the (approximate) $1300 support level, violating it for the 3rd time in three weeks. Today’s violation was the most significant of the set. Short-term traders should not have been long (as our previous signal was “exit long”, 7/24). Today’s move to bear trend indicates we expect more downside. The basic technical reasons are support violation and increasing negative momentum. The case for a continued breakdown is bolstered by proprietary ConquertheMummy.com models indicating further weakness is likely.
The most significant external event today, was the severe breakdown in US equities (Dow -300, S&P 500 -39). Several high profile traders had previously noted concerns that stocks were giving technical signals that a (bearish) trend change was probably in the working. The jumpy (read: “sell first and ask questions later”) nature of stock traders combined with the news of Argentina default risks (added to the other geo-political) plate proved too much for the bulls. So how is this going to affect gold? The knee-jerk reaction is that equities liquidation could bolster the yellow metal. But if the initial analysis indicates a sell-off in stocks is deflationary, there could be negative ramifications for the price of gold as well. At least in the initial phases.
Technical Read: Spot gold fell during Thursday’s trading, giving up previous gains on the recent bounce. The 7/21 bullish signal (that cited waning selling momentum) appears to have been premature. I am going to reexamine some of my parameters and make adjustments to get back in rhythm with current trading. For now, neutral is the correct position.
Technical Read: Spot gold prices staggered as overseas selling put the yellow metal on its heels from the start of trading. The selling was potent enough to reverse the recent uptrend. A breakout from a relatively flat trading range is a pretty good signal, making the reversal down back through the range potentially devastating. Spot gold closed down $32 hitting nearby stops short-term traders, including the Mummy website. The trade is classified as loser as the long exit is lower than the entry. The good news is losses were substantially lessened (approximately 2 to 1) as we signaled a long trend near the bottom of the recent multi-week range. The position shift today to neutral puts us in a good position, more weakness and we are clear of it. It is unlikely there will be an immediate upside reversal. It is too early to consider shorting the market.
Ambiance Backdrop:
Not a lot has changed in the gold trading backdrop. Both the Dollar and longer-termed interest rates were well behaved. Stocks climbed today but with the S&P 500 capping its gains a 10 points, it was not particularly eye opening.
The Israeli-Gaza air ware did not escalate into a full ground war. The aerial duel of airstrikes versus rockets is still on.
With a weekend ahead and limited fundamental news changes, it will be interesting to see if the bears can push gold down much lower.
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.
Ambiance Backdrop:
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.
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.
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
“Use nonlinear research to help determine the future direction of the S&P and trading can become much less complex.” GH Garrett
