Gold retreated from that stubborn band of chart resistance up near the $1340 level having failed to maintain its footing up there yesterday and today. There exists some very strong selling at that level, which adds to the significance of that zone. If and when it is broken, it will signify a strong shift in sentiment towards the metal. We will continue to closely monitor it.
Working against gold were several items today. The first is the strength in the US Dollar, especially against the Yen which is down over 1.5% against the greenback as I write this. Also lower are the Euro, Pound and Franc with the commodity currencies also lower. King Dollar is back, at least for today.
The second is the sharp selloff in the US Treasury market which is pushing yields up once again. Today the yield on the Ten Year which is at 2.715% and is knocking on the door of that recent spike to a TWO YEAR HIGH. Recently, a rising interest rate environment in the US has tended to quell gold buying.
Thirdly is the mining shares failing to extend past the top of the recent trading range and drifting lower.
Fourth was news out of India that they are back to slapping additional import taxes on gold and silver in an effort to get their widening current account deficit under control. Gold traders in particular viewed that with alarm fearing a drop in gold demand. However, and I think this is important, China is on its way to replacing India as the largest demand source for physical gold. Just yesterday we got the news from the China Gold Association that Q2 demand hit a record of 385.5 metric tons. That is double from the previous year! It also continues to explain where a great deal of the gold being dishoarded over in the West is ending up.
In a sense, it was a trifecta plus ONE against gold in today's session but all in all the metal is holding fairly well. I personally think that the Chinese news is really positive for the metal especially when you hear reports of gold mines being shuttered and low grade ore deposits being drained. At some point the supply/demand equilibrium becomes unbalanced and price needs to rise to adjust it.
Please realize that this is longer term oriented but it is something that those who have an investment horizon of that nature should keep in mind.
For the shorter=term oriented traders - gold is knocking on the door at the very top of the range but still has not forced it open. IF (note the emphasis) the market can stick around here closer to the top of the range and stay above $1300, the onus is going to be on the bears to cap it off because the seasonal tendency for the metal to rise heading into the 4th quarter is going to make life tougher for them.
One has to wonder if the fact that the yield on that 10 year is going to get the Fed governors back out to the microphones for a little "verbal intervention" soon. The last time we had mortgage rates kicking up recently, some realtors were already making noise about the rise hurting the sales of higher-end homes due to the inability of buyers to qualify for loans now that interest rates had gone up. not only that, but it is the BORROWING COSTS of the Federal Government that keeps the Fed awake at night.
Over in the grains corn was whalloped lower today after staging a big short covering rally yesterday on immense volume. USDA came up with some goofy number that I certainly do not believe for the final yield but it was enough to send a large contingent of shorts heading to the hills. Today, after some time to digest the number I think the market began pooh-poohing it and back in came the selling. Hey, gasoline is expensive at the pump but maybe I can afford to buy a box of Corn Flakes at the grocery store soon without having to leave a pint of my blood as a surety.
Silver remains impressive as does copper, both of which got a lift today on the news that Germany's economy is doing better than was expected. News that the Eurozone's largest economy has perked up is good for copper usage and silver usage as well. Remember, silver has been moving quite a bit in sync with the base metals recently having launched higher last week on the Chinese trade data. As long as the base metals are firm, silver bears are going to have to look for something else as an excuse to aggressively sell it.
I still need to see silver trading through $22.00, preferably through $22.50 or so to feel like it has a solid shot at beginning a more exciting trending move.
"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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