Here is a look at the daily chart of gold as it stands after the dust has had a chance to settle from the commotion resulting from the FOMC statement of today.
Here is my take on the metal as of now:
it has made a nice recovery off of the low just below $1200. It is stalling out however at the resistance zone noted on the chart. That comes in near $1350 and extends towards $1360.
Bulls will need to push past this region soon or gold does run the risk of seeing some stale long liquidation which would have the potential to drop the metal back down towards $1280. Based on what I am seeing of this chart, if they do clear through $1360 there does not appear to be much in the way of overhead chart resistance until near $1390.
This particular indicator, which I detailed a while back on the site here is showing that the downtrend has definitely stopped. That is evidenced by the continued downward progress of the ADX line (dark purple) which is heading lower from a lofty 47 reading. Remember, a rising ADX indicates the presence of a trending market, either up or down is immaterial.
As far as the two directional indicators go, the red line or -DMI remains above the blue line or +DXI using this particular time frame for reference. This tells me that for right now the bears are still in control of this market and the downtrend has the potential to resume if any downside support levels give way.
If however the bulls can power through that overhead resistance, this indicator would more than likely generate a buy signal.
Other indicators are in a buy mode already but they too are showing signs of a stalling in upside momentum.
Gold had a strange and somewhat convoluted reaction to the Fed minutes as if it was unsure of what to do. First it moved a bit higher, then sold off strongly as players focused in on the statement dealing with the lack of inflation. Then later in the afternoon, the metal gathered strength moving back higher again as the focus shifted to the more dovish tone of the FOMC statement.
Confirmation of that was provided by the rally in the long end of the curve as bonds came well off their worse levels of the session and actually moved into positive territory about the same time as gold broke higher. Evidently, both the bond market and the gold market are now expecting no curtailment of the Fed bond buying program.
We may have to wait until FRiday to see if anything changes that current sentiment.
With all the chatter out there about shortages of gold, Comex warehouse stocks drawdowns, etc., the delivery process for August gold could be interesting.
I must say that given all the recent fanfare, to see Deutsche Bank being a large issuer on the first delivery day seems to take the steam out of this talk. They are delivering 1,103 contracts worth of gold at 100 ounces each.
JP Morgan was the largest stopper with 847 contracts picked up for the house and 200 for their clients.
Remember when we had all that talk that Deutsche was taking delivery of Comex gold in order to return it to Germany.... Well...
The truth is that the gold delivery process has always been and will remain opaque. Firms may stop in previous months only to show up as big sellers in subsequent months. We simply have no way of knowing why they are buying or selling because we are not insiders working within their firms.
That is why, while the process is always interesting to observe, drawing conclusions from it can be rather risky.
A better gauge of the demand for gold is merely watching the price action. That will tell you what you need to know and eliminate all the worry and fuss over trying to figure out who is doing what behind the scenes in the gold market. If elephants are walking through a plot of ground, they always leave big footprints that are difficult to not see! Remember that.
That is the big thing to take away from today's FOMC statement in my opinion.
Here are the two key excerpts in my view:
"Inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable."
"The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back towards its objective over the medium term."
If anything, the Fed became more "dovish" if you ask me as they are back to talking about deflation concerns. This translates to no let up for the foreseeable future ( to use Bernanke's words from his recent Congressional testimony) for the bond buying program referred to as QE.
One would expect this to weaken the Dollar against some of the majors, as is currently taking place, and by default help to shore up the gold price. However, it is this concern about the lack of inflation that should get the attention of gold traders. They are focusing more on that than they are on the weakness in the US Dollar.
However, and I think this is important, their statement just further underscores the fact that all future Fed actions in regards to the QE program are going to continue to be heavily reliant on future economic data. If the data shows steady improvement, talk about tapering will increase. If the data shows weak or lackluster growth, tapering talk will be put off. In other words, traders/investors are on the same exact page with the Fed in that we are all going to be sitting around looking at each piece of economic data as it is released and attempting to view it in the light of potential Federal Reserve action based upon it.
An example - if we get a strong payrolls number in the upcoming jobs report, tapering talk will pick up, the Dollar will rise, gold will sell off and the bond yields will rise. If the number is anemic, the opposite will occur. As you can see, we are effectively right back to where we were before today's FOMC statement was released.
Isn't it peachy that our markets have degenerated into entrail reading of the FOMC?
More and more copper is taking its cues from economic data and developments out of China. I can well remember the days when the US was king as far as Copper prices went. If the US economy was humming along and if housing was strong, it was a fairly simple bet that copper prices were going to move higher or stay firm.
Nowadays it is China that is the primary driver of copper prices. Last week's announcement that the authorities over there were ordering production cutbacks in order to deal with what they consider to be a surplus of goods, sent base metal prices on a downward spiral. Copper dropped hard, pure and simple.
However, there is still a US influence on the market and today's GDP number seems to have breathed enough life into the red metal that it has thus far been able to hold above what I consider to be a key technical support level on its price chart, namely the $3.00 zone.
Dr. Copper, as it is affectionately known in trading circles on account of its excellent predictive capacity when it comes to diagnosing the health of the global economy, is signaling a period of relatively flat, decidedly unimpressive growth.
As you can plainly see from the chart pattern, there is nothing bullish about the metal whatsoever. The one redeeming factor has been its refusal to break below the $3.00 level. If, and this is another one of those big "IF's", copper were to collapse through that level, it would signal another slowdown coming our way. My hunch is that the Central Banks of the developed world will more than likely maintain enough monetary stimulus to try to prevent this from happening however.
That should translate into a further continuation of the sideways pattern on the chart with the metal attracting enough buying to keep it limping along above the $3.00 level. It will take some pretty strong economic news to push it up and away from the top of the pattern, but especially above that downtrending 50 week moving average.
What this translates too is that as far as inflation signals go, the red metal is certainly not generating any at this time. That takes away one plank from gold if the industrial metals are generally weak.
Moving over to crude oil and the energy sector... Crude has dropped off its best levels and unleaded gasoline prices are back under the $3.00 level (barely). Thus the energy sector has seemingly run out of upside steam for the moment. That is not to say that it is about to fall apart; what it is saying is that the recent strong drive upward has stalled out.
Couple that with what is expected to be a very large corn crop and soybean crop, and there is not any help for the inflation boogie man coming from the food sector either.
In other words, we are continuing to see the absence of any strong, sustained upward move across the broader commodity complex. With the job market here in the US remaining subdued, it is difficult for me to see, at this time, where the inflation pressures are going to come from, particularly if WAGES REMAIN FLAT.
I should also note here that the yield on the Ten Year Treasury Note briefly popped above the 2.7% level this morning before retreating slightly. keep in mind that the last time it moved above that level, Fed Chairman Ben Bernanke changed his somewhat hawkish stance displayed in June to that of a SUPER DOVE in July when he uttered those now famous words about QE continuing "for the foreseeable future". That sent the yield crashing lower but once again, it has quietly snuck back up again. HMMM... wonder what the FOMC statement will therefore give us this afternoon???? Maybe they will have to sent more Fed governors back out to disavow what they might have written for us.
Either way, it looks as if gold is going to continue being held hostage to the vagaries and whims of the Central Bankers, as is the entire economy for that matter.
I will leave you with this chart of the Australian Dollar for now. The Aussie is particularly sensitive to the commodity cycle as the economy down under is heavily dependent on the production of raw materials, a large chunk of which end up being sold to China. As you can see, it is sinking and sinking heavily. This does not bode well for strength across the commodity sector.
