Confluences

January 23, 2014 - 4:14pm

 by Gary Wagner

Confluences

 

Trading volume in gold on the COMEX today was around 235,000 lots, the highest turnover in nearly two months and about 25 percent above volume's 250-day average. 

 

Jitters about a slower world economy based primarily on China's manufacturing slowdown in the month of 2013 seems to be the general culprit. This is odd because the euro-zone's manufacturing output gained almost the same amount in real terms as the Chinese lost. All of this drove equities lower except in Japan (early in the day).

 

According to Bloomberg, euro-area manufacturing index increased to 53.9 from 52.7 in December, Markit Economics said in a statement today. That exceeded the median estimate of 53 in a Bloomberg survey than even the most pessimistic forecast in a survey. A number below 50 indicates contraction. 

 

The lower equities prompted a dollar sell-off as the greenback slumped to its lowest level against the pound sterling since April of 2011. The dollar lost about 1% to the euro today.

 

In turn, the U.S. 10-year Treasury note declined, another investment struggling to find direction in the new year. 

 

A much lower dollar poured gasoline on the gold (and silver) fire, which was already ablaze with bullish gains. Additionally, money that was shifted out of equities and money that didn't see the T-bills as a very profitable move for once moved into gold (and to a certain extent crude oil). 

 

Physical prices were underpinned as the leader of India's ruling Congress party, Sonia Gandhi, asked the government to review tough import restrictions on gold, which include a record 10 percent import duty, a television channel said on Thursday. 

 

Thomson Reuters GFMS (a metals analytics consulting company) believes that due to improving global economic vigor gold would not rebound appreciably anytime soon. Thomson Reuters expects prices to fall another 13 percent in 2014 even after 2013's crash allowed the bear to catch bullish gold investors and give them a thrashing.

 

Finally, a day with discussion of tapering is like a day without sunshine, although the obsession of some precious metals analysts with tapering would have us believe they are under the influence of moonshine. 

 

By Wednesday we will know if the Fed tapers again. In our book, it doesn't much matter in concrete terms. But perception means a lot when trading gold. The next tranche in tapering might be smaller, but whether the FOMC cuts its purchases or not, either path can be read as a vote of confidence in the U.S. economy, which in turn will keep a lid on gold prices. 

 

That's the way we see it. But we believe other factors are at work, such as subdued inflation, employment issues, a huge number of Baby Boomers retiring daily, and so forth. 

 

As always, wishing you good trading,

 

Gary S. Wagner - Executive Producer

Sentiment Indicator:

Gold Forecast: Proper Action

We were stopped out of our short gold trade today. Short @ 1245 stop hit at 1265 - $20
No open posistions

Gold Market Forecast

We have been looking at a long-standing resistance line which began in October 2012, the last time gold traded anywhere near $1800 per ounce. Today we witnessed a strong and significant selloff in the equities markets, and at the same time a huge surge in the price of gold. Trading to an intraday high of 1266.80 gold prices surged, and as of this writing are trading just off of the size.

There can be no doubt if gold prices are able to find support in this area, today’s trading activity could be a game changer. Another significant fact is the last time the market traded to an intraday low of around 1180, gold prices rallied to an intraday high of 1435. Will history repeat itself?  My belief is that if we see significant support in this area it could very easily be.