Gold jumped in overnight trading during the early Asian session when China released its version of the CPI. June CPI came in at +2.7% on the year where the market was looking for +2.5%. Apparently there was a rush to grab gold when the data hit the wire. Prior to that gold was relatively quiet with a slight bias to the upside.
As you can see on the chart, volume is miniscule however. The big test will be what the metal does when it enters European trading but more importantly, New York trading.
The weakness in the gold shares today (Monday) is generally a bearish sign when the metal and the shares go their own separate way so call me a skeptic until proven otherwise. Asia still loves gold while the West seems to despise it; until the West comes around to falling back in love with the metal, it will be up to Asian buying to do the heavy lifting in the metal.
I have noted an overhead chart resistance zone which basically extends from last week's high at $1267 - $1269. Bears will be complacent unless this region is taken out with strong volume, otherwise they are going to look to sell into this rally. If the mining shares were strong, that would make them second guess so we will have to see how that sector trades during Tuesday's session.
I have also noted a region between $1210 and $1185 on the downside which was the price range delineated by very strong volume. Most of that volume was short covering after the $200 plunge where bears rang the cash register on what was one of the most profitable gold trades in a very long time. There was some bottom picking as well but compared to the extent of the short covering, it was insignificant.
The key for the market right now is that it did drop back down into the very top of that region but attracted more buying that selling. That is a positive. We have moved up some $40 since that brief foray into the HIGH VOLUME REGION. The trend is down however so we can expect the rally to be sold but if the bulls can surprise and take price through the anticipated selling that is going to surface, bears will run and this market could lift towards $1285 - $1290.
It does appear that once again we have that gold backwardation talk emerging. Keep in mind that all those proponents of that theory cost their devotees a tremendous amount of money the last time they were proclaiming a bottom based on that occurrence.
I maintain that until the gold futures market shows a true backwardation structure on the board, all this is just talk that is interesting but as far as a trader goes, meaningless. Price action is what confirms theories. If it does, fine. If it does not, that is also fine. Watch for resistance levels and support levels and make your trading decisions on that and that alone.
Remember what I have written here more times than I care to recall at this point - calling market bottoms and tops is a fool's errand for those with egos that need to be fed. A profitable and successful trader can make a fine living just catching 60- 70% of a trending move.
What will eventually take gold higher will be that shift in sentiment from one of deflation or benign inflation to one of concerns about a resurgence in inflation. That is what we are watching for signs of. When it does, we will know it from the price action!
"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat
Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput
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