The Three P's.
Prickly. Perhaps. Percentages.
Sometimes seemingly innocuous news can slow down a rally. Today it came in the form of two conflicting reports in very different areas of the economy. The first is more telling for gold and its bullish adherents, the second is in banking. But the news is prickly, hard to understand.
U.S. retail sales came in under estimates and were buoyed mainly by sales of new cars and trucks. Of course, as everyone knows who drives a car with any frequency, rising gasoline prices also contributed to costs to consumers in June.
Analysts are now saying that this development is perhaps pointing toward an American economy that will be shown to have grown only around 1% on an annualized basis for the whole second quarter. That doesn't sound terribly wonderful, especially when coupled with the skidding around of China's economy and the bloated dead whale that is Europe's economy.
However, as the saying goes, indeed, "It is an ill wind that blows nobody no good." The good side comes for gold bulls. A slumping economy in the U.S. makes it all the more difficult for the Fed to consider curtailing QE3 bond/mortgage purchases. And it will give all concerned for the state of the world's economy pause to ask: "What exactly is wrong?"
We can answer that, even if in a self-serving way, with a sentence or three. All the money that is being pumped into the American - and international - system, is simply not finding its way into the hands of the workaday consumer. All income growth has been concentrated in the hands of people in the top 1 to 5% of developed an developing economies. This is not a screed against income inequality, but we have reached the point where the spending of the very well-to-do can't offset the lack of disposable income of the remaining 95%.
It may, in fact, be time for the Fed to reconstitute itself as an institution that stirs up some inflation. And that, naturally, would be good for gold.
Oil may do some of that work for the Fed without its having to lift a finger. West Texas Intermediate has been surging of late. That's the fuel that manufacturing and power generation runs on. Experts are saying that, in spite of everything, U.S. manufacturing is expanding, a reality borne out by a report today on a robust expansion of that sector in the New York Region, which also includes northern New Jersey and southern Connecticut. Those areas manufacture high-tech, high value products as varied as medical devices, pharmaceuticals and nano-technology. There is also a lower end slice that manufacturers "Made In America" clothing, shoes and accessories.
But, gold and oil do tend to move in tandem as a broad generality. So, higher oil prices bode well for gold.
The second piece of under-the-radar news concerns a rise of 42% in profits for Citibank. In and of itself, that percentage rise is not remarkable unless you bought Citi back in 2009 when it was staggering toward a cliff. But, most of the profits were from trading in U.S. Treasuries, other bonds and from stocks.
Much of the success came from emerging markets, with China leading the parade. Citi cannot expect the same growth in the current quarter from those countries.
This tells us that gold holdings of banks dwindled significantly beginning in January of this year and continued to decline right through May. Cash from the conversion was poured into other trades - bonds, stocks, derivatives, swaps and so forth. But there seems to be some fairly strong signals that the stock market ride is slowing significantly.
Gold and silver reacted to these two pieces of news cautiously. Gold fell at the end of trading a scant $1.60 and silver was up a penny. It was a quiet day, but the news was a big meal and it will take a session or two to digest.
Wishing you as always good trading,
Gary S. Wagner
On a technical basis this latest rally in gold can be characterized as a series of higher lows and higher highs. That’s higher highs up until we hit resistance at 1300. We have made our second attempt, and failed to breach and trade above 1300. We clearly have resistance at this price point. Although we see good physical demand reentering the market, we have also witnessed a continuation of the outflows from gold ETF’s which have been cited as a primary factor in the major decline in gold.
This week could be decisive as we look to see whether or not gold can challenge 1300 and more importantly take it out. Today’s video will look at current resistance levels as well as support and take a broad look at this most recent rally.
Proper Action: Maintain Long gold @ 1285 and stop below 1244 to 1266
Maintain Long Silver @ 20.10 and stop below 1960
Click on chart below to view gallery