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Have We Seen Capitulation?                            7/1/2013

"It feels to me that capitulation is at hand," Carter Braxton Worth, chief market technician at Oppenheimer & Co., believes, which is why he believes gold prices are "headed higher."

 

Indeed, gold's charts look like a reversal of August 2011, when prices reached a long-term peak. The surrender people are feeling now is similar, in the obverse, to the euphoric feeling investors experienced nearly two years ago.

 

"At the very least, it's time to cover short positions," he said; "We would look also for opportunities on the long side."

 

Fundamentals traders and analysts are beginning to sense that the reaction to the Fed comments in the last 2 weeks has been completely overwrought. As calmer people surface, come in off the sidelines, dare again to make gold a bet, the price should go higher. 

 

Further, now there has been what is being perceived as a price capitulation, physical buyers are entering the market square to buy physical gold. This is especially true in China, but, aside from India, it is also holding in the rest of eastern Asia. In the U.S., purchase of gold coins has ticked up considerably in the last 96 hours.

 

"Physical demand in Asia continues to be strong," Carlos Perez-Santalla, a New York-based broker at Marex North America LLC, said in a telephone interview. "The focus on the Fed stimulus and when the tapering may begin has begun to wane."

 

Unsurprisingly, there is very strong demand for physical gold and gold-associated financial products in the Near East. The unrest in Syria, Egypt, Lebanon and Turkey is intense, sustained and destabilizing. Talks of the army stepping in in Egypt and Turkey, the region's two chief players certainly help propel haven buying.

 

A slight weakening of the dollar also helped gold although silver seems to have returned to its individualistic orbit, behaving differently from the yellow metal.

 

Metals markets shrugged off good economic news issued by the U.S. and the EU, as well as news of softness in the Chinese manufacturing sector.

 

No wonder. The big news is now and will be a reconsideration of what the heck the Fed is really saying. Hopefully, the blue streak that Fed officials have been talking has ended and we can return to analyzing the market on true fundamentals and a rational analysis from our technical charts.