Gold, which had been moving higher in its recent consolidation range until yesterday, immediately fell back on the data as the further squashing of another round of bond buying in early September seems even more remote at this point.
Still it did attract value based buying just above the $1590 level and is currently back above the psychologically significant $1600 level. Whether it can stay there without strong expectations of a forthcoming QE is unclear however.
It does seem as if stubborn strength in crude oil, particularly in Brent, is keeping selling from becoming too aggressive in gold especially with the bonds moving lower and interest rates moving up again. The CCI and the CRB are both higher today which helps feed into more of an inflation scenario rather than the deflationary psyche which has gripped these markets for so long. Additionally, an article in a prestigious European based newspaper dealing with a potential breakup of the Euro has kept a decent floor under the gold price.
A quick explanation for those who seem unclear about my comments from yesterday regarding hedge fund money flows. I mentioned that gold needs a spark to break it out of this range to the upside; one which will bring in speculative flows from the hedgies on the long side of the market to send it forth on a trending move higher. Let me remind those who are unclear on this - hedge fund money flows dominate our financial markets today, whether we like it or not. If they are not committing to a market in size on the long side, it is not going to be able to sustain a trending move higher. Most of that crowd are momentum players meaning that they need to find a market that is moving and has some momentum to it, whether that is up or down, in order to make any money off of their algorithms. For the most part, the hedge fund crowd is mindless relying on its computers to do their thinking for them. When markets range trade, they lose interest because these systems generally do not perform well in sideways markets. Locals and other large traders love these conditions on the other hand.
What is supporting gold on the downside is not hedge fund money but rather value based buying originating out of Asia and from other large entities which actually study fundamentals and make buying or selling decisions based upon that analysis. We curse the hedge funds when they are liquidating longs or establishing new short positions in gold or in silver but keep in mind, it is these same clumsy trading clods that also drive these metals higher when their computers flip over to the buy side. Love 'em or hate 'em, they are a force to be reckoned with; any analysis of the markets that disregards their impact is not worth the paper it is written on.
