From the Trading Desk
China has grabbed everyone’s attention this week with the Shanghai Composite equity index losing 8% on Sunday night. The equity market over there remains on tenuous ground and participants are wondering how long the government can keep the market afloat. It is interesting to note that equity weakness has not caused a safe haven flight to gold in the region. Physical demand out of China remains weak and the Shanghai gold premium arb versus London spot gold is nonexistent. This lends credence to the theory that gold is being used as collateral or margin in equity accounts in China and losses in equities need to be fulfilled or maintained with the yellow metal.
Starting on July 10th, gold traded lower for seven consecutive sessions. It is finally starting to consolidate a bit this week. Support is at $1,070 while any brief rally has been sold into around $1,100. Silver has held up surprisingly well during gold’s meltdown. Its current range is defined between $14.50 – $15.00.
The dollar rebounded today and gold found it difficult to move higher, but the dollar is still below 97 on the index. The miners however did continue higher confirming that we may be getting a bit of a reversal. All hinges on the Fed tomorrow. My advice is wait for the news, see how the trend develops, and then jump on it.
It’s all eyes on the Fed decision on interest rates tomorrow. Will we finally be able to light a fire under gold for a bit? Will a threat of rise in interest rates after Friday’s early release (mistakingly) of the Fed’s future plans? Is everything already priced in and no surprises to come tomorrow? I feel like the old announcer at the end of a Batman television show right now.
My guide for doing anything is to look at the dollar and see what it does. I combine that with many other indicators but one of the most important is the 10 year. These are the two I post here the most often. A weaker dollar is what I see from this chart of late and a 10 year that is not expecting a rate rise just yet.
Lastly I look at price action. This is a forceful trend that is taking gold and silver down. It’s hard to ignore such a move in light of all the supposed problems in the U.S. and the world, but ignore it at your own peril.
I will say this as a warning today though. Supply of metal WILL become an issue as the price falls. If you are NOT getting some metal now from a dollar cost average approach, you do take the risk of waiting for your metal a bit longer than you may want to as the price falls. Suppliers are having issues now and you should be aware that this will be an issue as supply dries up moving forward.
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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