An Interesting, Provocative Week 5/3/2013
There are two highlights that we should focus on concerning the past week.
The first is that, as gold rose and found a new level of support, it fought off daily attempts to push it back down. This is a key fundamental indicator as well as a technical issue. How this happened is discussed below.
The second highlight is that we have re-entered the market with a silver trade, which has done very well for those who chose to heed the buy signal.
Let's turn to gold first. Lurking around $1300 are a whole slew of sell orders put in place by big traders - hedge funds - who are looking to crash the price through to the 1200's and then turn around and put in buy orders, thus making wheelbarrows full of cash on either side of the trade.
Who came to the rescue of gold? We can thank the "housewives" of China, and to a lesser extent those of India. (Since 71% of all women are employed in China, who these mythical housewives are remains a mystery. But they are similar to people we presume to make up "Middle America," a demographic that doesn't exist but rather is symbolic.) Over the May Day holiday alone, over 60 tons of gold were sold to mainland Chinese visiting Hong Kong. The final tally for sales in Shanghai has yet to be entered, but you can be assured it is also staggering. The unofficial weigh-in says that more than 300 tons of gold have been sold throughout China and its various dependencies in the last two weeks.
Interestingly enough, woman-on-the-street interviews - published by The South China News - featured a number of people who said that they saw gold as a hedge against the yuan, which is not held in terribly high esteem by the common folk of China. The Chinese have been buying and selling gold longer than almost anyone, so it is no surprise that they know a bargain when they see one. The fear-factor side to the buying craze was stated in the English-language edition of The People's Daily, which was surprisingly forthright:
The number of Chinese gold buyers and the money they spent caught out those investment bankers who had bet on prices continuing to fall. "A large rebound in gold prices is unlikely barring an unexpected sharp turn in the US recovery," analysts at Goldman Sachs had written in its research note. But to their disappointment, gold prices rose by more than 10 percent yesterday compared with that on April 16.
Guo Tianyong, a professor at [China's] Central University of Finance and Economics, said that was likely the result of its latest analysis of the gold market, taking the "Chinese housewives" into consideration.
"Chinese people have a natural love for gold, but such a craze is a reflection of the very limited investment channels available in China," Guo said.
India bought at a feverish pace as well, although it was somewhat dampened by the new import tax the Indian government has slapped on gold purchases. It is a foolish move in a country that struggles with poverty and sees gold as a true, physical store of value, one of the few ways the poor can effectively save.
On the U.S. front, the April jobs report was better than expected while February and March's figures were revised upward to push down the unemployment rate to 7.5%, still far from the Fed target of 6.5% - barely acceptable.
That news kicked gold down the stairs for a while today, but it climbed right back up, a habit it is getting. Abetting the rise were some disturbing numbers about manufacturing in the United States, which sank in March, and seem to be following a world wide trend. The buying of industrial-grade metals for finish work, mining equipment and military goods were down sharply. Experts cited weak overseas purchasing and headwinds created by budget cuts and tax-rate rises in the U.S. Additionally, sales of American-made commercial aircraft slumped, although they had surged in February and were steady in March.
"Expert" sentiment for next week seems to tell us that we could be in for a bearish week, but our take on it is that it will be a week of consolidation. You can surely expect some starch to go out of the physical buying as Asia reconnoiters the movement possibilities of gold. That we did not see a Friday profit-taking sell-off bodes well for gold and silver bulls.
As always, wishing you good trading,
Gary S. Wagner - Executive Producer
Market Forecast: For the second week in a row both gold and silver have finished out on a positive note, both metals closing higher for the week. Typically this might not be so significant, however after witnessing the largest today fall in 20 years, it is nice to see gold regaining over half of the recent market drop. On a technical basis we have defined support and resistance levels in both gold and silver that we need to look for next week. After exiting our long position in gold, this week we recommended going long both gold and silver, and gave specific stop recommendations. Today’s weekend report will highlight resistance areas that could prove to be significant if the market trades higher next week, as well as support levels to look for on signs of weakness in both gold and silver.
Maintain long gold @ 1452 stop below 1430 &
Maintai long silver @ 23.60 stop below 23.10
From the week of 05.03.2013
COT LINK See previous weeks in Historical Commitments of Traders Reports.
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