From the Trading Desk
In a perfect storm of fundamental and technical factors, gold and the rest of the precious metals complex finally sold off in dramatic fashion last Tuesday. China’s weeklong holiday drying up physical demand out of Asia, hawkish commentary from a Fed official, and gold testing pivotal moving average and psychological support around $1,300, all proved to be insurmountable bearish pressure on the yellow metal. Gold broke through $1,300 which then triggered stops to take it all the way down to finish the day below $1,270. After the big sell off last week, we’ve seen some consolidation so far this week. China has returned as a big buyer and ETFs have steadily added ounces to their reserves. The 200 day moving average has effectively capped the market for three days in a row and this remains near term resistance. Support is coming in at $1,240, the low from last Friday. Last week was probably the strongest demand seen all year for fabricated coins and bars in the US. Given that the market was so slow for 6 months though, most participants had built up inventory and were happy to get rid of it at low premiums. Without the volatility this week, demand is already starting to wane again. We’ll need to see another drop in prices before premiums expand for coins and bars.
Metals seem weak and with the dollar stronger, it’s no surprise. We still have an inverse relationship and metals I think should have been down more than they were with such a strong dollar performance.
Tomorrow we have the Fed minutes release and I expect them to reveal the “talk the talk of higher interest rates” that the Fed has done all year, yet done nothing about raising them. Most everyone knows this is their mantra of saying one thing and doing nothing, but the market still follows them and what they all say like following some dictator who will punish you if you don’t do what that dictator says. It’s silly to me the market does this, but you can’t ignore price action.
I can think one thing, and you know overall I have been looking for a stronger dollar and still do. But right now the dollar seems overbought and tomorrow we may get some “sell the news” that can help gold move higher, but if there is a certain language different from the last report about being adamant of raising rates, then gold will get hit again.
I’ll wait till after the report and see who wins out. But longer term we know gold is going higher no matter what the Fed does. But I also won’t ignore what the price is telling me.
Doug 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
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