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The Gyroscope Conundrum                            

Losing balance is easy as pie. 


According to a Kitco article, Dan Pavilonis, senior commodities broker, RJO Futures, is bearish on gold prices for next week. Gold has a bigger, overarching trend that will ultimately cap gains, Pavilonis said. "Interest rates are going up and the dollar is going up That's not good for gold," he said.


Let's take a look at those statements. 


Baseline interest rates have not budged for years now and the Fed is showing no inclination to raise them. And, while the dollar is up 0.12% today, since early/mid July it has been declining steadily from its high of 84.75. Meanwhile, in the last 30 days, gold has gone from 1250 to 1312. Is this Pavilonis reading the same charts as we are? 


Our take is that there are many analysts who have no clear way to interpret the news that sporadically erupts from maverick Fed officials. The officials who have driven gold to a standstill this week are generally not voting members of the FOMC. And for the most part they are, to borrow a Yiddish word, fertummelt - all confused and muddled. 


Cleveland Fed President Sandra Pianalto, who just announced her retirement, said Wednesday there has been "meaningful improvement" in the labor market and that tapering may be warranted if it continues to strengthen. As we have said so many times: in the last 6 months, the unemployment rate has gone down only 0.3%. In what world is that meaningful? 


And let us now turn to China, which can't figure out how to persuasively lie with statistics. 


China's industrial output growth improved nicely in July, data from its National Bureau of Statistics showed. China's industrial value-added output for July expanded 9.7 percent year-on-year, as compared to the 8.9 percent growth recorded in June. The growth is the highest in the past five months. For the year-to-date period, or the first seven months of the year, industrial value-added output rose 9.4 percent from a year ago.


Imports were up 10% and exports were up 5% in the same period. 


Meanwhile, China's CPI came in unchanged for July, while producer prices declined for a seventeenth consecutive month, giving the central bank more space to loosen monetary policy amid sluggish growth. The consumer price inflation was at 2.7%, unchanged from June's four-month high, data from the National Bureau of Statistics showed.


What's wrong with this, you ask? Everything is growing, growing, growing. But, magically, inflation is stable. More goods, more jobs, more money chasing products and inflation is flat? 


Speculation the Fed could start tapering its $85 billion monthly bond purchases as soon as September knocked gold to a three-week low early this week. But as the light trading week wore on, many analysts began to reckon that there was no consensus among Fed policymakers about the exact timing of when to end the program. 


Government data today showed U.S. wholesale inventories unexpectedly fell for a second straight month in June, prompting economists to trim their growth

estimates. (The U.S. is China's largest trading partner - think about that in the context of Chinese growth as they portray it over there.)


The S&P 500 index was off a bit - 0.3 percent. Investors found few reasons to buy with equity prices near record levels. Everyone is skittish in August when many players are vacationing, specially the important ones.


We may be seeing some flight to safety in gold and to a lesser degree in silver. The equities are pumped up pretty high. How much higher can corporate profits go in a world still limping from the after effects of the recession? And how well will precious metals sit with investors who might grow wary of an equities bubble? 


Wishing you as always good trading,


Gary S. Wagner

Executive Producer

Market Forecast:

This week’s price ascent which moved gold back over $1300 per ounce is significant. When we consider that just last month we had gold trading under $1200 per ounce, with many analysts looking for significantly lower pricing, these most recent price moves which propelled gold to an intraday high of 1345 are an indication of a renewed interest in the precious yellow metal. On a technical basis we are still showing resistance at 1345. It is critically important that gold not only challenge 1345, but more importantly rally above that price point and remained above 1345 on a closing basis.

If our current Elliott wave count and model are to be effective in our current forecast, then a price move above 1345 is necessary. We currently are under the assumption that we have formed the base and a bottom at 1181, the recent lows seen in gold at the end of last month. If we are entering a bullish impulse phase then certain benchmarks must be reached. The current major benchmark which must be achieved is for gold prices to move above 1345. If gold prices cannot reach and exceed that price point than the only model which makes sense is that we are still in a defined bearish correction. Today’s video will look at our current trades along with the initial strategy and targets that we are looking to achieve next week and through this month.



Proper Action:


 Long Gold @ 1313 Stop Below 1300

Long Silver @ 20.48 Stop Below  1965





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COT LINK  See previous weeks in Historical Commitments of Traders Reports. 


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Gary S. Wagner - Executive Producer