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Who Let The Bull Out?
Possibly that question should be phrased: Who is standing on the sidelines as the bull awakens? The answer is the news cycle. No news in the last 72 hours of trading time has left the traders to themselves instead of down on the floor sifting the entrails of Fed sacrificed goats. (Yes, there was a housing report, but the results had already been baked into the gold pie last week. It was slightly below what was projected, but rousingly higher than last year at the same time.)
If you prefer a more conventional answer to the conventional question, "Who let the bull out?" then you will get this: China and Japan.
China has removed the floor on its lending rate thus giving borrowers of every size more choice due to competition among lenders. One would have thought given China's self-proclaimed fantabulous growth rate that this new, borrowed money would have streamed into their equities. It hasn't, which should tell you volumes about what the living market is saying about Chinese equities. Instead that money flowed into gold, physical and theoretical. (And into U.S. T-bills.)
At the same time, Japan has been buying more gold than ever before. This is true of banks, commercial bullion traders and individuals.
Again from Japan: the upper house elections that cemented Prime Minister Abe's hold on government is interesting for two reasons. First, he and his team want to reform Japanese economics so banking and investing become more transparent and less bound by tradition. Most of all, Japan wants to weaken the yen to make exports more appealing. But all capitalist countries go through periodic reforms, so gold didn't even flinch over that aspect of the election.
However, along with financial reform, Mr. Abe brings with him more nationalistic defense and foreign policy agendas. He has stated clearly many times that Japan needs to stand on its own more often and ease off from such heavy reliance on the United States defense behemoth. He wants Japan to have more decision-making power, but he has also expressed gratitude for the U.S. and their 50 year commitment to Japan and east Asia.
That has China worried. A resurgent Japan still coupled with the U.S. on their doorstep is not what the emerging Asian giant needs.
An article on Sunday from the official Xinhua News Agency said rather truculently
"if policymakers in Tokyo believe a potential election win could serve as a warrant for further rash behaviors to strain ties with Japan's neighbors, challenge the post-WWII world order, or abandon its pacifist commitment, they risk steering the country further down a wrong path."
Additionally, Abe has hinted strongly that Japan would seek a much more strategically intimate relationship with India, a move that would bracket China by two enormous economic powers. With unpredictable Russia on its north, a vaguely hostile Vietnam on its south, and a nervous Philippines on its east, China has reason to be concerned.
All this tension is fundamentally good for gold.
The U.S. dollar is adding not quite one half of one percent to the price of gold today. The dollar has weakened because markets are beginning to take seriously Fed Chairman Bernanke's assurances about QE3 and a longer commitment to low, low, rock bottom low interest rates.
The biggest news this week - besides weekly unemployment claims - will be on the earnings front for the equities. Amusingly, gold stocks and mining stocks helped the equities markets from tumbling too much today. The rise in gold prices and a smallish shortage in inventory buoyed the gold-related equities. But, (and it is a giant-sized "but"), paper gold isn't gold.
Another point to remember is that, just as today we saw short covering help raise prices, when we approach our next resistance levels we will see selling into the area close to resistance.
Wishing you as always good trading,
Gary S. WagnerExecutive ProducerMarket Forecast:As the market opened Monday morning in Australia and Hong Kong there was a clear and present direction to the price of gold. Closing just shy of that elusive $1300 per ounce, the Australian market as well as the Hong Kong market picked up where the New York markets ended on Friday. The net result is we witnessed a clear and utter breakout not only about 1300 but gold traded to a high, intraday, of 1341. It is clear that the recent lows of 1185, at least for the time being will remain the lows. Our new level of support is obviously above $1300 per ounce. The key right now is current resistance in gold which we show at 1334 to 1339. This is based upon the 50% retracement that gold traded down to prior to it breaking to its recent lows. As I’m sure you’re well aware of to a market technician support and resistance are part and parcel of the same thing. In other words one man’s ceiling is another man’s floor. Based upon this clear breakout and our current position which is long gold@1285 I have recommended trailing to just below 1310 per ounce. This is based upon the daily low according to Kitco.com, which is set at 1313.20 per ounce. Today’s video will look at the layers of resistance which are currently just above were gold is trading at, and our current Elliott wave count. Video archives:http://thegoldforecast.com/video/april-2013-archives-daily-shows http://thegoldforecast.com/video/may-2013-archives-daily-shows
Proper Action: Maintain Long gold @ 1285 and raise stop to below 1310 No current position in silver .
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Gary S. Wagner - Executive Producer