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Gold Pulls Back but Still Looks Feisty

25 comments

Despite yesterday’s weakness in gold, technical signs remain as bullish as they’ve been in months.  In the chart below, notice how the rally off last Thursday’s low exceeded two prior peaks (#1 and #2). This surge represents a bullish “impulse leg,” according to our Hidden Pivot System, and the last time one occurred, back in April, it predicted a $100 surge. This time, however, the impulse leg looks even more promising, since the two peaks exceeded were more challenging than the ones surpassed last spring. The implication is that once the rally has been fully corrected, August Gold will take another leg up that is equal to or greater than the $81 leg just completed.  In theory, however, before this happens, the futures would need to pull back by at least $16 to be fully recharged.  Tuesday’s $28 pullback more than met that requirement, and although there could be more backing and filling in the days ahead, from this point forward August Gold is good to go for an $81 thrust.

To be sure, there are cautionary flags out at the moment, since the recent bear market low at $1179 exceeded a key Hidden Pivot support of ours by $40.  This suggests that weakness will return during the summer. However, we’ve learned to keep an open mind concerning our technical indicators and to never chisel our expectations in stone. More immediately, though, gold looks like a bull play on a time horizon of about 5-7 days. Assuming yesterday’s 1238.30 bottom survives, the countdown for the $81 thrust would begin at exactly 1259.10.  Getting long at that price would still be risky, however, since placing a stop-loss in the obvious place – i.e., beneath yesterday’s 1238.30 bottom — would imply  entry risk of more than $2000 per contract. In practice, we would use our proprietary “camouflage” trading method to get aboard, with the goal of reducing theoretical entry risk to about $40-$50 per contract.  If you’d like to find out more about this tactic, click here.

Please do not ask trading questions!

  • paul July 12, 2013, 10:13 am

    I’m late on this comment but after reading the article and sifting through the reader comments it appears the view here is isolated mostly to the USA.
    One may wish to start thinking globally and include world demand into your criteria of assessment otherwise you may get caught behind the curve.

    &&&&

    On the one-minute charts that we pore over, Paul, one is never going to be more than mere seconds “behind the curve.” RA

  • Rich July 8, 2013, 1:57 am

    Just a Sunday Eve heads up.
    Both SPX and XOM went above 50 day, which is above 200 day moving averages.
    In the old days that used to mean an uptrend.
    Maybe this time is different.
    In particular, XOM, the world’s largest industrial corporation, is approaching Oct 2012 and Oct 2007 highs of 93.67 and 93.69 (all-time high) respectively as MENA are at war for the umpteenth time, creating bottleneck crude shortages.
    Meantime, most people want to short sell the heck out of this stealth market uptrend. Big4 still long Crude, Petrochemicals, Refiners and SPX…

  • gary leibowitz July 6, 2013, 3:15 am

    My stubborn insistence that we are still in a correction will be tested Monday. If we don’t see a retrace of all the gains made today than I will conclude the lows of this recent move will not be much lower than 1575. My time horizon for the low is the week of July 15 – 19.

    I could of course be wrong about this correction and we could already be embarked on a new leg up.

    I am in agreement with Rick in that Gold should be near a bottom and there should be a nice rebound. I think Gold will not go anywhere till end of 2015 (range bound from 1600 to 1100).

  • Andrew Gutterman July 5, 2013, 7:29 pm

    Starting to look like gold is just going to go down, without the usual serious rallies in between. Dollar traded at a new 52 week high today, that’s not good news for gold. If the dollar is on the way to its strong upside breakout then gold is toast.

    Next week should be interesting!

    Andy

    • Cam Fitzgerald July 6, 2013, 12:05 am

      Agree Andrew. Gold is toast.

  • BKL July 5, 2013, 4:32 pm

    Measuring whether an economy is inflating or deflating usually boils down to measuring one or two inputs. One of those inputs is nearly always the projected number of consumers and their age. Demographic trends move glacially, and there is not much that governments can do to change them overnight.

    Demographic challenges require a vigorous political response. That response mechanism is broken in the U.S. We can’t even decide whether to say a prayer before school starts.

    Then you get into resource and environmental inputs.
    Water, oil, copper, soil; we have never before placed such demands on the environment. And we calmly predict that we can increase those demands exponentially, ad infinitum!

    If any of those inputs fail, we fall into a depression. That’s if we have enough EMPLOYED consumers for it to even matter.

  • Jill July 4, 2013, 7:12 pm

    Futures are on the moon today, July 4, after dovish comments from ECB president on interest rates.

  • Andrew Gutterman July 4, 2013, 3:18 pm

    My prediction is gold rallies to about $1350 before turning down once again, on its way to $1150 or quite likely a lot lower. Outside of an an event like nuking Iran or similar gold is in a bear market.

    On a couple of other issues one of the endless newsletter emails I get was touting the fact that the FED just reported that the household debt service ratio is at a new low (30 years of data) so therefore consumers are going to borrow, borrow, borrow and spend, spend, spend. What the raw data does not take into account is if you clip off the top 20% of incomes and their debt the chart says the opposite. Everyone else is in far worse shape today than at any other time in history. Try and find THAT chart.

    Then there is the robust housing market I keep hearing about. I have firsthand experience with that. Two of my stepkids are involved in either selling or buying a house. Both transactions depended on a buyer who could not qualify for one side of the transaction. These are relatively high income people with not so great credit.

    I’ve concluded that the published statistics are hiding the rot that is in front of us. One of my favorite data sites had this to say about the latest revision of the first quarter GDP report:

    ” In this report real per capita disposable income contracted during the quarter at an astonishing -9.21% annualized rate.”

    I think the falling gold price is telling us something a lot of us don’t want to hear: Deflation is coming, and its going to overwhelm the economy. And there’s not a damn thing Bernanke or anyone else can do about it.

    Andy

    • mario cavolo July 5, 2013, 5:05 am

      Right on the mark Andrew, official stats are conveniently generalized and don’t give accurate realistic picture of anything. In the US, the top 20 maybe 30% bracket are doing great, the lower 70-80 are struggling more and more…the top 1% are on another planet after having raped and pillaged the economy and society…..Cheers, Mario

      plagued

  • gary leibowitz July 3, 2013, 8:37 pm

    The arguments of the 70’s could have been used to expect decades of economic decline. I don’t argue with the outcome, only the timing. The FED never intended for the QE bond purchases to be an accelerant of economic activity. I would argue they purposely held down growth to allow the financial institutions the ability to heal with very low rates. It has worked so far. The second step is to allow the natural forces of greed to take over. The tapering of those monthly purchases will do just that. it has already allowed the yield spread to widen. Are you arguing that the wider spread will not spur lending? It will allow banks to reduce their standards, while the consumers will most likely front end their mortgage purchases in anticipation of higher rates.

    The argument about our standard of living is an old one. I again don’t discount it, just the timing. We have been on a steady but downward path for decades.

    All government, corporate, and private data support the notion that the last 6 months has seen slow but steady improvement on all fronts. I don’t argue with Wall Street. I never stated it will eventually work, but for now everything is on track.

    I never subscribe to the notion that since the markets are enjoying a bull trend it has to be disqualified based on the manipulative nature of world governments. All markets throughout time have been manipulated to “try” and keep the system going. Can politicians actually stick to an austerity promise going forward? I doubt by its very nature it can. So far though banks are getting stronger, rules are being enacted to try and prevent another bank run (increasing reserves). Spending is being reduced on the government level.

    I bring all this up, not to convince you of the future, but to make you realize the past 5 years can’t be just smoke and mirrors. In the end no matter how the world gets manipulated you can’t ignore the consumer. If everything was so bad spending, borrowing, household worth, discretionary practice would all be reflected. So far we are enjoying low wages with relative low costs, higher net worth (housing value), cheaper lending rates, steady employment, You can’t view all as a one-sided nightmare. There has been a lot of good results from what you would term bad policy. If it isn’t true than the world has figured a way to mask corporate earnings, massive unemployment, people thrown into the streets, etc… I look around me and I see an improvement that reflects the government data. House prices, jobs, spending, etc.. in my neighborhood has gone up. Is that not true by you?

    I think we will have this discussion with some real hard data points to back it up in a couple of years from now. Just because you are high up and can see the water fall doesn’t mean the people in the canoe are aware.

    • Rick Ackerman July 3, 2013, 11:34 pm

      As usual, where to begin? Before I tune out this forum and your further comments for the duration of the holiday weekend, let me state only that the banks are in fact NOT getting better. It only seems that way when you delude yourself, as you evidently have, into believing that the $3+ Trillion of crap on the Fed’s balance sheet is somehow “off” the balance sheet of the banking system whose insatiable greed the Fed was designed to serve.

    • gary leibowitz July 5, 2013, 8:19 am

      Rick, I don’t argue that the real liability on banks is much greater. I know that the toxic derivatives they still own will cause a major problem if there was another financial crisis. The “real” exposure each of the big 5 banks have is a known entity. Just because rules allow them to hide this from their balance sheet doesn’t fool anyone. Anyone can calculate their true exposure. That said the price of their shares have to include the risk involved. If their was no hidden liabilities their stock price would be much higher.

      My point is that this exposure was known 5 years ago and they are getting stronger. Do you think all banking analysts are idiots and don’t calculate the risk going forward? You assume another Black Monday will cause the banking system to fail. It might very well happen. My point is that 5 years already went by without a banking crisis. What has changed TODAY that makes you believe it will happen soon? In my mind we are in the eye of the storm. I do not see anything on the horizon that would cause me alarm on a crisis developing immediately.

      Cause and affect. I need some arguments or linked data points that would make me conclude it will happen soon. I don’t deal in abstracts. If you have a good argument to show me why this year will be a critical turning point for disaster I am willing to listen. If banks now have the ability to make more money off lending than anytime over the past 5 years I would call that a positive. You do know that the spread on the bond yields is a strong positive for banks. What offsets that to make it a net negative?

    • gary leibowitz July 5, 2013, 8:33 am

      I have a scenario for you that could cause the next debacle. If the jobs report is very strong the 10 year note will immediately reflect a change in economic stimulus. If it goes to 2.9 to 3.0 percent in a quick fashion the market will react very negatively. The charts show that as a strong possibility.

      Not playing devils advocate but want to point out I understand and am willing to change my position “if” the market telegraphs it. The market will not crash the day the 10 year note spikes. The individual investor has a great advantage if he/she is looking for these signs of warning.

    • gary leibowitz July 5, 2013, 5:07 pm

      The street finally believe Bernanke – the obvious, tapering this Sept. 10 year note has to be watched.

      I seem to be the only person that believed the market will drop because of too good economic activity. I stated this 19 months ago as the reason for the next bear cycle. If you still insist these numbers are fake you have to show me the trail. To me the obvious conclusion of the Fed holding down rates, and propping up the financial segment is a return to the “good old days”. I still believe we have another drop followed by a one month rally.

      Not exactly sure if the top becomes “the” top, but I will let the street telegraph the news for me. 10 year note can’t get in the danger zone. if it does all bets are off on a normal cyclical bear.

    • KevinR July 6, 2013, 3:27 am

      Sure seems that’s exactly where it’s headed in fairly short order. Closed today at 2.74%.

      Can someone please explain what happened a couple of weeks ago in China when the interbank lending went from 3.3% to 12.33% in only a few days, then it went back down. Anyone know what the current rate is now? Something really fishy going on IMHO.

    • mario cavolo July 6, 2013, 4:36 am

      Hi Kevin, worries about defaults in China’s shadow banking system. In China, the unofficial cash economy (the shadow economy) is massive, somewhere in the range of 50% to 100% of the actual GDP reported economy (In the U.S., its 20% of the actual GDP reported economy). So it would make sense that a world of shadow lending flourishes in such an environment, typically loan of shorter duration and higher interest, its gotten a bit rough lately, but IMHO, on a relative scale just surface shenanigans…Cheers, Mario

  • Rick Ackerman July 3, 2013, 4:49 pm

    The ‘debt drain’ is not merely undiminished but growing geometrically in power. Notice, for one, that America’s standard of living is eroding at an unprecedented rate. Grandpa’s nest egg is being sucked into a healthcare/assisted living sinkhole, baby boomers are suddenly finding themselves unable to retire, and kids are graduating college $100k in debt and having to work for $10/hour. These are symptoms of a deflationary black hole that will eventually discharge nearly all debts through the mechanism of bankruptcy.

    Meanwhile, few economists or politicians have been able to face up to the stark reality of Baby Boomers’ Medicare and Social Security benefits being piled on the backs of debt-ridden college grads with poor job prospects. That is our social and fiscal future, and it could not be more grim. For in fact, deflation is not manifest in falling wages and prices, which would make it more obvious, but in the precipitous decline of our standard of living. Even the housing inflation the Fed squandered trillions to create has brought a hugely deflationary offset, since most who re-financed mortgages at artificially suppressed rates had to put a big chunk of their savings into their homes so that they could qualify with 20% equity. All of that money is now tied up in an artificially sustained real estate market, unavailable for capital investment.

    The fraud and dead-endedness in all of this is so blatant that it’s a wonder why so few can see, at this late date, that the emperor is wearing no clothes.

    • Jason S July 5, 2013, 7:59 pm

      Rick, it doesn’t have to end in mass bankruptcies; we could always reinstitute indentured servitude. It will be just like welfare but without all the free time to play video games on your free Obama phone.

  • gary leibowitz July 3, 2013, 3:21 pm

    The recent move in crude probably has more to do with geopolitical factors.

    “Crude oil advanced, with West Texas Intermediate surpassing $100 a barrel for the first time in nine months, on shrinking U.S. stockpiles and concern that political turmoil in Egypt may disrupt Middle Eastern supply”

    The employment data so far is in line with expectations. The 10 year note is still under 2.5 percent. Commodity prices should stay depressed since there is no indication they are about to break out. Oil and Gold have more of an emotional play than most. Tensions around the world will keep them in play.

    I think the notion that deflation is ahead of us begs the question where were we for the past few years? I think deflation was a major factor in keeping the world economies from getting a foothold. The debt drain has been slowed by central government planners. the real problem will be when real sustained economic growth takes off. The FED is trying to balance a slow growth policy and keep inflation at bay. So far, so good. it will not last forever. The best laid plans….

  • Freddie July 3, 2013, 1:17 pm

    So currently getting Long at Ricks tout price is working well, for the moment……

  • Freddie July 3, 2013, 1:11 pm

    Actually, London Traders run the tables all the way down to 1236 and back to 1250 in an hour. So alot of stops have been taken out in thin trading, so this is a classic bank proprietary desk setup — which way? Dollar is in the red this moment and GC at 1246.

  • Freddie July 3, 2013, 12:58 pm

    One key element in GC trading this week is the holiday in the USA and the very low volume, so a thin market can be jacked up and down quite easily as we can see overnight ES down 20 points. Barrick Gold and Newmont Mining have laid off hundreds of employees this week. This does not mean we cannot test $ 1150 level or lower in the upcoming week, before the reversal upwards. The $ 1245 level this morning has not moved all night which shows me the London traders are not attempting to bid up gold past $ 1260, otherwise it makes more sense it would have blasted through resistance the night before on the relief rally, but stalled in London immediately at 1266. So this is definitely a pivot, but what volume is going to turn it either way is the question — the jobs report on Friday with thin trading ?? If its very low under 100,000 then that will be the boost for bulls, if high an affirmation for bears. Unless today in thin trading the bears can break it down …….but the support at 1243, 1232, and 1226 seems very strong at the moment…..

  • mario cavolo July 3, 2013, 6:05 am

    Well, while the historical gold price manipulations have taken a back seat for the moment, I’m not surprised one way or the other “those of interest” would craft whatever is necessary for crude oil to break to the upside not the downside, the fundamentals be damned!…or perhaps I should naively believe all is fair, balanced, reasonable and just in the world run by our overlords…

    Cheers, Mario

  • Nitram July 3, 2013, 4:20 am

    http://finance.yahoo.com/q?s=clq13.nym Crude pushes above $100: This can’t be good news.

    &&&&&

    Isn’t Clusterfuck Nation’s Kunstler the one who says America isn’t structured to do business with oil at $90? RA

    • Cam Fitzgerald July 3, 2013, 10:13 am

      I agree Nitram. If what you are suggesting relates to the relatively strong correlation between gold and oil on a commodity basis then we might infer a pullback in crude could take gold down to much deeper lows.

      This was initially what I expected to happen over the coming months given the decline of gas consumption in the US, the growing increases in crude supplies and large volume of inventory on hand.

      The weekly chart does not yet give me reasons to believe that the wedge is a confirmed breakout although it is damn close (but if it is….look out above for gold and expect inflation to finally rear up in the coming year).

      For the moment I am still erring on the side that oil will decline in the absence of some geopolitical event but certainly we should be watching closely now as it looks like it could go either way.

      There is some added credence to the case that the whole commodity sector might explode to the upside though. What is most notable is how far many of the objects have declined into oversold territory. Corn is but one example as is Platinum, Copper, Coffee, Cotton, Sugar, Uranium, Oats, Soybean Oil etcetera. Is this a price setup for a rise into the fall perhaps?

      The question we might ask is this…..are the declines in the commodity sector indicating investor fears that deflation lies ahead or are they perhaps signaling that equities are about to fall (inverse correlation theory) and that now is the time to take a serious look at buying gold at what may indeed be a genuine bottom?

      To be honest, the case for commodities to rise and thus confirm the bottom for gold is actually much stronger now than the alternate case for deeper declines however with so much doubt about the impacts of interventionist policy on equity markets it is not an easy call to make.

      My best suggestion therefore is to pay closer attention than usual to Fed signals as the summer unfolds with particular focus on economic strength numbers coming out of both the US and China. Politics now plays the largest role in market responses defying fundamental analysis at every turn.

      Anything that tells us that a change in direction of the trades is at hand will assist in determining whether we will indeed see equities in decline while commodities begin to rise. Certainly the indicators that stocks are overbought and oversold may be implying that outcome however as I say I continue to have reservations related to ongoing interventions and would not be prepared to jump until a trend is confirmed.


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