Looking For Trouble
The general tenor of the precious metals markets has recently been controlled by traders and investors who, if not exactly bearish, are inarguably on the lookout for any sort of negative news circulating around the world. They found some of that bad news today.
The Reserve Bank of India (RBI) announced that importation of gold would be further restricted after imports jumped from 142 tons in April to 162 tons in May."The news that the RBI will curb imports of gold by agencies has weighed prices down today as it is a wider restriction and could imply lower imports of gold into the country," said Societe Generale analyst Robin Bhar.
He also said that June imports could drop to between 50 and 100 tons with India at the end of the wedding and Hindu festival seasons. Both are traditionally major gold-buying events. One has to wonder just how quickly the restrictions can be put in place and leaves us questioning whether the reaction is a little premature. This is especially true because India's customs and tariffs enforcement wall is notoriously porous, especially when it comes to gold.
Gold and silver closed off slightly less than 1%. Importantly, gold bounced off its lows to finish at 1400 an important resistance/support level.
Although dollar strength is adding a small bit of pressure on prices, regular trading accounted for 80% of the loss in both gold and silver.
In other economies around the world, gold is still seen as a currency inflation hedge. Deutsche Bank is advising its clients to buy gold in yen and Australian dollars.
This tells us a number of things. We can expect the U.S. dollar to remain strong, relatively stable and free of inflation pressures for the moment.
Deutsche Bank points to the significant increase in Japan's balance sheet as likely to cause the yen to weaken further and has said on numerous occasions that the Australian dollar is overvalued.
Gold in yen is down just 3.6% in 2013, in the last 12 months the yen has fallen by 10.1% against gold, showing gold's importance as a hedge against currency devaluation.
Of course gold is down about 13.5% in U.S. dollar terms in the last year.
We can't look at gold futures for any direction. August gold was down $19 on Friday, up 18.70 yesterday (Monday), and settled down 14.70 today.
Needlessly so, but traders and investors are on tenterhooks as the June FOMC meeting approaches, two weeks from now. Friday will give us a powerful insight into what will happen when May's labor report is issued.
A quick editorial: The fiscal policy of the legislative and executive branch cannot be fully countered by Fed monetary policy and mortgage and bond buyback programs. Monetary policy is, by its nature, weaker and slower than cuts in government spending and rises in taxes are. If we are witnessing slippage toward recession, which the equities markets seem to be indicating, responsibility lies squarely on Congress and the President.
Wishing you as always good trading,
Gary S. Wagner - Executive Producer
For the first time in the last few days we have seen gold neither take back the prior days upside or downside move. Also on a technical basis gold hit a intraday low of 1387, and bounced off of that price point. These two facts coupled with a Fibonacci retracement level at 1385 and a another retracement level at 1387, gives technical evidence of a possible bottom in gold for the intermediate Outlook.
We recommended entering the market from the long side this morning, which would’ve put your by at around $1400 per ounce. Our exit strategy on this particular trade will look carefully at the different resistance levels currently found in gold. The first level that we need to overcome is 1420. If gold has the ability to trade above 1420 that I believe it will gold on to test 1450, with 1475 being major resistance currently in gold. Depending on how gold reacts if it continues to move higher will determine our exit strategy in terms of price point.
Price support in gold at 1385
Long gold @ 1400 stop below 1380
From the week of 05.31. 2013
COT LINK See previous weeks in Historical Commitments of Traders Reports.
Gary S. Wagner - Executive Producer