Model Portfolio: Short signal (7/31)
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.
GH Garrett – Veteran Commodity Watcher (7/31/14)