Model Portfolio: Short Signal (7/31)

Technical Read:  Spot gold managed a drifting rally this week but there was not much gusto (especially just ahead of a three-day weekend). The breakdown from the upward trending channel is the last technical event of significance.  Current readings are still bearish. I would note that (at least for the mummy site) this trade is getting long in the tooth. I hope to generate some type of signal this week.  If Labor Day passes without much excitement, I would think selling would reappear.

Backdrop:

• This week (Friday actually), British Prime Minister David Cameron announced an increase in the country’s terrorist threat level to “severe” (the second highest level). One would think that would be good for gold, but the GLD fund actually closed down for the day. Maybe yellow metal watchers were calmed by Obama’s news conference comments that seemed much less urgent.
• According to Eurostat, consumer prices rose just .3 year to year. The number was in the expected range but none the less at a five-year low.  My read on this is Europe is losing the race against the specter of deflation.  If decreasing prices gain the upper hand, we could end up with a depression.  This would be deadly for the highly fine-tuned economies of the West. And gold prices too.
• I am just pilling on. I saw reports that Eurozone PMI (purchasing managers index) ticked down in August. July unemployment for the region came in at a pasty 11.5%.

GH Garrett – Veteran Commodity Watcher