The Next Sound You Hear...

July 14, 2014 - 4:08pm

 by Gary Wagner

Not a great way to start the week for precious metals bulls. Fundamentally, there was a rather unusual confluence of events that separately could not have caused as much havoc as they did all together.

Let's start with conflicts around the globe. As we predicted a few weeks ago, the Iraq situation has calmed down considerably, and while this is not to say it can't flare up, it seems as if there will be more atomization of factions into sub-factions into sub-sub-factions.

The Israeli-Hamas rocket battle, while unfortunate, has not and will not draw in other countries weary from war or too weak economically to fight Israel. (Nor will those dependent on economic ties with Israel such as Egypt and Jordan.)

While Comrade Putin is palavering about Ukraine, he has firmly grasped that he cannot really do much without inviting serious economic blows from the West.

On another side of the international front, Portugal's Espirito Santo Bank saw bargain hunter's come to its rescue (unintentionally, of course), when investors began buying up Portugal sovereign debt at a reduced price.

That collective sigh of relief found expression in renewed interest in international equities buying and a decline in interest in gold and silver as safe haven plays. It should be noted that the entire precious metals complex is down significantly on the day.

A few large sales of gold allowed pre-set sell orders to kick in and bulls suffered the consequences.

One can assign the initial sell off to profit taking, with the pre-set sell orders creating a lot of collateral damage.

But, as you would expect from reading the first part of this fundamentals assessment, the VIX - a measure of financial volatility - has been declining since Thursday shrugging off the Middle East turmoil.

How and when gold recovers will tell us a lot about the rest of the month's trading.

Tomorrow and Wednesday, Fed Chairwoman Janet Yellen will testify before the Senate Banking Committee. We believe she will reiterate (or re-re-reiterate her vision for interest rates). However, today's decline in gold and silver can in some minor part also be attributed to jitters over the possibility she might back off her dovishness.

As always, wishing you good trading,
 

Gary S. Wagner - Executive Producer

Sentiment Indicator:

Gold Forecast: Proper Action

Friday morning we sent out a special trade alert raising stops on our current long positions in both gold and silver.

Those recommended stops and positions were:

Maintain current long position in gold at 1303
Maintain current stop below 1329

Maintain current long position in silver at 20.60
Maintain current stop below $21 per ounce

We were stopped out of both our silver and gold positions

Long gold at 1303, out at 1327 for a profit of $24
Long silver at 20.60, out at 20.90 for a profit of $.30

 

Gold Market Forecast

Gold and silver traders witnessed a meltdown today. As trading activity began in Australia approximately 22 hours ago, both gold and silver opened slightly lower, trading off just a few dollars. That would dramatically change once trading opened in London and continued its dramatic slide into New York's open.

Gold gave up roughly 38% of its most recent $100 rally, and does appear at least for the short-term to have found support roughly at 1305.

Equities traded dramatically higher today putting additional pressure on the precious metals markets. However, the meltdown we witnessed today I believe was due to thin volume and technical selling triggering stops and moving the market substantially lower.

Whether or not gold finds support at 1305 will be a critical element in our upcoming forecast and will determine short-term where the market is going. Inasmuch as we have seen a dramatic selloff, we were fortunate in that we were able to liquidate our positions at a much higher price, and avoid being stung by today's selloff.