As soon as that number hit the wires, the currency markets erupted in a turmoil. The usual knee-jerk reaction hit Dollar/Yen and up went the "safe haven" Yen (I still have a hard time putting those words together in one phrase for the sheer idiocy of the rationale behind it), up went the Euro and down plunged the US Dollar, falling through a strong support level I might add.
Here is the problem - the entire world is long dollars. Take a look at the following Chart of the Commitment of Traders in the Greenback. Notice I am not posting the usual breakdown which is the Disaggregated Report for simplicity's sake. Just look at the specs, both the large ones and the small ones. This is what can happen when that group is all crowded together on one side of a trade and a chart level gets taken out. There is literally no one to take the other side of their buying or selling, in this case selling.
What that weak ISM number did was to once again put a temporary halt to the idea that the Fed was going to imminently begin the "tapering" of their bond buying program. That was all gold needed to hear before it reversed its downside reversal on Friday, from its upside reversal on Thursday of last week. In other words, the YO-YO market is acting like a YO-YO with its fortunes tied to both the US Dollar and the QE program. With the Dollar breaking down, gold is breaking up. It really is that simple. Now, if we get one of those strong payrolls numbers again...well, you figure it out.
Gold still needs to clear $1420 to get a larger wave of short covering among that hedge fund category. ideally that will occur against a backdrop of a push PAST 290 on the HUI, preferably through 301. They are still selling rallies but if the technicals continue to improve on the gold chart, their algorithms are going to start lifting them off of the short side. The bias in the gold chart is still down and will be until gold can push past $1440.
It will be interesting to see how the specs react to GLD this week. I am curious as to whether they are going to start returning to the buy side or will merely use this rally to further jettison their gold holdings. Keep in mind that there are a lot of money managers out there who still want to buy dips in stocks, whether here in the US or in Japan. They are going to raise funds to do so where and when they can so the onus is on the gold bulls to prove that this is more than a rally back to the top of a trading range market.