Data Rules

July 24, 2014 - 5:17pm

 by Gary Wagner

Equities took center stage today as the Dow and NASDAQ fell on earnings reports while the benchmark S&P 500 hit a record high for a third straight day. The S&P reacted most positively of the American exchanges to data showing initial jobless claims in the world's largest economy dropped to their lowest in more than eight years. (However, in late afternoon trading even the S&P is flirting with negative territory and the Dow is flirting with a gain.)

"The lower-than-expected U.S. initial jobless claims made people focus on the improving labor market situation," said Ian Lyngen, senior bond strategist, at CRT Capital in Stamford, Connecticut.

On the flip side, data showed sales of new U.S. single-family homes fell by the greatest amount since July 2013, offsetting the positives somewhat. Homebuilders' stocks fell by 2% to 3%. This particularly hurt the Dow.

The temporal conditions do not contradict the underlying fact of the matter: risk-on is the word of the week for equities.

That means poorer fundamental news for gold and silver.

Adding to the woes of the precious metals to some degree is the strength of the dollar against the euro. Yet, late in the day in the continent, the euro recovered from 8-month lows on a number of upbeat eurozone reports.

As we noted in passing yesterday, with some textural notes, demand for gold in China is down.
Chinese demand for gold bars fell 62% during the January to June period, while gold coin demand dropped 44%.

"That's huge and it tells you that physical buyers stepped away from this market at these price levels," said Adam Klopfenstein, a senior market strategist at Archer Financial Services, Chicago.

We repeat that we think this is because the Chinese are saddled with more debt and a once-optimistic citizenry is beginning to worry about their personal, specific liquidity issues. You've got to have money and/or credit to buy precious metals.

Returning to the weekly U.S. new claims for unemployment assistance: claims fell to their lowest level since 2006.

In case you forgot 2006, on January 1st, Russia cut off gas supplies to Ukraine over a price dispute and Israel invaded Lebanon after Hezbollah kidnapped two Israeli soldiers.

As the French say, "Plus ça change plus c'est la même chose..." In English that means, "The more things change, the more they stay the same..."

As always, wishing you good trading,

Gary S. Wagner - Executive Producer

Sentiment Indicator:

Gold Forecast: Proper Action

All traders should now be flat with no open positions in either gold or silver. Hopefully most traders took my suggestion earlier this week and exited both their long gold and long silver trades. For those that took my alternative strategy this week, you entered a long gold position at 1316 and exited at 1306. For those that maintain long positions you were stopped out when trading went below 1297 our initial stop recommendation

Gold Market Forecast

Today's dramatically lower pricing in both gold and silver added to the selloff that began early this week.

If you recall, in the beginning of this week, I sent out a special trade alert suggesting an alternative strategy to our current long trade. My recommendation was to take our long gold trade, which we entered at 1316, and exit at the market rather than continuing our long position and current stop placement.

In the five years that I have been producing the Gold Forecast I have only taken a stop to the market on two other occasions. The rationale behind why we recommended this will be detailed in today's video.

Based upon our current Elliott wave count, my current belief that we are in the final stages of this correction, the concluding "C" wave down. Based upon Fibonacci retracement studies the two logical points for this C wave to conclude are 1293 (a 50% retracement), or 1280 (the 61% retracement). These are the two key numbers we need to look at to determine at what point this most recent corrective wave will conclude. Most importantly upon conclusion of this correction we should enter another impulse wave that should take the market past the most recent 1331 top in gold.