From the Trading Desk
In the overnight trading session, the People’s Bank of China allowed their currency to depreciate by 2% against the USD, the biggest one day loss in two decades. Weak trade numbers which have been exacerbated by a strong currency in the face of weak global demand for its exports seemed to be the final straw for the PBOC. Chinese exports for the month of July dropped over 8%, worse than expectations for a 1% fall and the poorest figure in four months. The move by the PBOC rattled the currency markets and US equities are down over 1% at time of writing as participants attempt to digest the Chinese currency news.
Gold had a volatile overnight session and the active December gold contract on the Comex is having its biggest volume day yet with over 184,000 lots traded thus far. Gold’s reaction was slow to the currency devaluation but it ultimately moved from sub-$1,100 all the way up to $1,120. The jump higher was met by heavy selling though and it has since retreated. The 2% weakening of the renminbi means that gold (not factoring in gold’s own price moves) for the Chinese is now 2% more expensive than it was yesterday. Chinese gold buying overnight took a hit as the Chinese were instead happy to sell into the rally. The story of currency devaluation is generally gold bullish but this time it may turn out to be negative in the short term as further Far East selling emerges.
Looks like my leaning bullish has paid off from a micro perspective and we have caught this bounce at a good time. The question is, how long will it last before we break down again? Hopefully my indicators will tell me.
We had the dollar try and break down today and stay below 97 but couldn’t do it. The mining stocks though are leading the way higher and gold should continue to follow suit for 3 reasons;
1. we are now over the $1,100 resistance.
2. Gold and silver sales, my proprietary indicator that gives me insight you can’t really find anywhere else.
3. the dollar is looking weak. It actually did dip below 97 at one point today ignoring the move by the Chinese to lower the value of the Yuan by almost 2%.
Another reason might be another indicator I watch is the 10 year which I have been calling for lower rates. Today we are at 2.15 and the Fed is wondering that the heck is going on.
We’ll see what tomorrow brings.
P.S. I want to see an oil bounce if we get below 97 on the dollar index. I have called DWTI from $60 to $160 and we may have had a reversal today. UWTI looks attractive but I would wait until after the report that comes out tomorrow before doing anything. Can go either way for a micro move up or a continued capitulation down.
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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