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Dollar Weakens, China Stumbles, Equities Falter
There should be no mystery why gold rose today. The dollar weakened considerably as did all world equities markets after soft numbers out of China.
China dragged down the Nikkei Index in Tokyo, which in turn strengthened the yen against the dollar. In fact, the Nikkei plunged by 7%. Traders in Asia, who had become accustomed to a soaring Japanese stock market sought safe haven in the yen, which is the inner dynamic of the dollar's fall and gold's acting once again as a safe haven. It was the classic "risk-off" session for gold.
China's manufacturing data triggered the volatility. China has been slowing in general in all sectors, despite official protestations. Now, the sluggishness has turned into contraction. Chinese data is not to be trusted, although reporting is getting better. There is still too much "progress in the name of the glorious state economy" piety and praise. When things look good from an outside vantage point, they look phenomenal in the eyes of Chinese officialdom. When things are getting bad - as they are now - China sees it as a teenie-tiny blip on the radar. Make no mistake, China is slowing down because its biggest market, Europe, isn't buying China's stuff at a rate that can propel the Chinese economy at 4 to 6% growth.
If you are truly interested in China's performance, you might, in lieu of purchasing it at $125,000 per year, do a search for China + Beige Book, or Chinese Beige Book, or some such. Some enterprising Westerners are doing a series of boots-on-the-ground surveys of business, labor and importers and exporters in China. Word has it that their numbers are better than the Chinese government's published data.
Yesterday's turbulence that was caused by Ben Bernanke's oscillation on where QE3 is heading should tell us that, as the program does skid to an eventual end, we will will see instability in all markets whether metals, other commodities, currencies, equities or bonds.
With gold's price off about 18% this year, it looks like a strong bargain when safe haven money-parking is called for.
A big question is this: if Europe is dead in the water, except for occasional chirps from Germany, and China's strongest sector - manufacturing - is contracting, can the United States, Canada, and a few vibrant emerging economies like Brazil carry the world out of recession?
Wishing you as always good trading,
Gary S. Wagner - Executive ProducerMarket Forecast:As we have spoken about on many occasions, gold is extremely sensitive to moves in the global equities markets. Recent weakness in the US stock market has prompted some investors to move into a ”risk off” trading mentality. This risk off mentality coupled with short covering was cited as major proponents to the sharp upside move witnessed today. However this most recent move must be tempered with the fact that there is strong resistance in gold at $1400 per ounce, and 1412. On any given day pundits and analysts will cite various economic data as their explanation for the recent move in precious metals markets. Today there citing China manufacturing data, European Union’s weak economic data and the Japanese equities markets under severe pressure falling 7% on Thursday. However whatever the causes are on a technical basis a break above 1412 could signal a return to a bullish rally, and a break below 1340 could signal further downside pressure.
Market Sentiment: Possible bottom at 1320 current resistance at 1412 your 1400 short should be covered (1370 to 1390)
From the week of 05.17.2013 COT LINK See previous weeks in Historical Commitments of Traders Reports. |
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Gary S. Wagner - Executive Producer