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From the Trading Desk
After losing ground for a week and a half, the USD is back on the offensive and gold and silver are feeling the pain. Better than expected US economic data yesterday encouraged USD bids and the USD index is now up for the second day in a row. Yesterday, US personal income came in at 0.4% in February m/m versus the 0.3% median forecast from a survey of economists. US home sales also beat estimates and came in at 3.1% in February m/m after an increase of 1.2% in January m/m. Partially fueled by the positive US data, equities screamed higher yesterday which also contributed to the precious metals sell off.
Gold is now trading lower for the third day in a row. After moving higher for seven consecutive sessions, it bounced off resistance at the 50 day moving average. It is now well below previous support at $1,200 and the short term range is defined as $1,170 – $1,200. Silver has followed gold’s trajectory and looks like it wants to test lower. There is minor support at $16 but $15.50 is the bigger level to watch.
I had said in yesterday’s Current Thoughts “Please let the dollar short term moves guide you with gold and confirm the next move. Same goes for silver.” With the big move up in the dollar today over 98, the precious metals moved a bit lower, but it was the mining stocks that felt the real pain. Oil was also lower today along with the Dow.
Today’s move in almost everything could have just been the normal end of quarter maneuvers for mutual funds as holdings today are reported as what the various mutual funds hold.
Today continued the trend of lousy data with the Chicago PMI missing the mark. This joins the data that confirms the economy stalled in the first quarter. It also confirms for me the deflationary episode we are living in. Is a recession now on the way?
Tomorrow we’ll get more data on the economy that can shed some light on this. It will be gin with the ADP Nonfarm Employment report scheduled for 8:15am (EST) followed by the Manufacturing PMI at 9:45am and ISM Manufacturing PMI at 10am. Two Fed members speak tomorrow, Williams at 9am and Lockhart at 10:30am.
Fed member Lacker spoke today and talked about how we are ready for an increase in rates relatively soon. Of course this is a joke to me because the data doesn’t back it up, but the Fed can “talk the talk” and try and will strength into the economy. I don’t buy it. I did however say at some point the Fed may raise rates to give the “illusion” that we are on to better things. This would be followed by more QE down the road and the first admission to us they are a complete failure in understanding what’s really going on. That’s when gold will bottom. But I don’t see that occurring till later in the year.
Yesterday I said I follow some people that are bullish gold and silver soon and gave the metals a 60/40 chance of rising in the near term. I will still stick with those numbers, but again, tell you to watch the dollar for clues. If you see the dollar break below 98 again, that might be the sign tomorrow to go long gold for a trade. But look for the data to also give you signals.
Below are the 3 month gold and silver charts. You can see that silver had a higher bounce than gold. This will be what occurs when the precious metals finally do take off. It will be the tortoise being gold and silver acting as the hare. But we have a ways to wait before the real race begins.
3 Month Gold Chart – Click to enlarge
3 Month Silver Chart – Click to enlarge
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About Doug EberhardtDoug Eberhardt is a 28 year financial services veteran and precious metals broker selling gold and silver at 1% over wholesale cost. Doug has written a book to help investors understand how gold and silver fit into a diversified portfolio, how to buy gold and silver, and what metals to buy. The book; “Buy Gold and Silver Safely” is available by clicking here Contact phone number for Buy Gold and Silver Safely is 888-604-6534
Disclosure:
Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don’t trade with capital you can’t afford to lose. This is neither a solicitation nor an offer to Purchase/Sell futures or options. No representation is being made that any account will or is likely to achieve gains or losses similar to those discussed in this outlook. The past track record of any trading system or methodology is not necessarily indicative of future results.
All trades, patterns, charts, systems, etc. discussed in this outlook and the product materials are for illustrative purposes only and not to be construed as specific advisory recommendations. All ideas and material presented are entirely those of the author.