What a week that was! In a period when gold should be in the seasonal doldrums, steady, un-seasonal physical buying relentlessly kept buying the gold on offer. As the gold price was pushed back down so it came back, like a high wave in a Neap tide, it swept all before it into uncomfortable confusion.
The physical buying alone was not the sole reason for its rise, for sure. The lack of liquidity in the market place played a major role! Why you may ask? We believe the Central Banks could be the cause, so we have prepared an article on this in the next issue of "Gold-Authentic Money" published for Subscribers, next week.
The market had focussed, in mild amazement on the very persistence of the physical buying, not able to convincingly point to a news story, however, trivial, for this price rise. But the price just kept on rising, bursting through the resistance pulling the triggers on stop loss orders, pushing onwards and upwards. Bear in mind that when we last reported gold was in the lower $340's, that was twenty dollars ago. Not until the Euro began to recover, did the U.S. market jump on board and again, spurred more short covering.
As the Euro recovered so gold began to move the market upwards. The day before yesterday saw the mouths drop and the gasping begin, as gold shot through $360, as market commentators and analysts were pointing to why the price should fall. Cries of "it can't continue, it must consolidate" rang out, followed by the protective caveat, "unless the Euro continues to rise, of course". Then Gold fell back to $357, before the next wave of buying pushed it back up. Today, saw the U.S. market, having been wrong footed in the last week, join the fray taking gold to nearly the mid-$360.
Please note, this is not speculative pushing of the price, as it was pre-Iraq, as they have been cutting their long positions recently. This is physical purchasing of gold, whose features are that they wait until they believe the price is at a level that can be sustained.
In addition, the Indian Rupee price of gold has been dropping as the Rupee strengthened, so making these prices very attractive to Indian wholesalers, who have been very visible of late.
Yes, the South African Gold Industry looks set to become embroiled in a strike action, which if it is a long strike will affect supply to the market, but not if it is short.
Overall, the impact of this is, that if Fund buying comes in, or any other speculation on the long side it will have a disproportionate affect on the price on the upside.
At the time of writing, the Gold Price was $363, in the middle and the Euro $1.1532 in the middle.
Speculative Net Long Positions
The steady decay of Comex long positions continued after last weeks drop of around 47 tonnes in the Net Long position, which should have seen the gold price wilting visibly. Net long positions on Comex declined again falling to 167 tonnes from the previous week of 214 tonnes. Quite a drop, particularly considering that the gold price rose! It appeared that their confidence slid against the bullish hopeful chatter on Wall street, which was sadly disappointed at the failure of the Dow to leap ahead, after positive statements from Alan Greenspan. However, their diminishing positions were taken up easily by the physical market. Hence, their return to the long side of the market had to take prices up and may well continue to do so.
They opened their mouth to change feet!
Oh dear, oh dear, what happened? The media seems to have lost its touch. With the Dow not happy with "soft" intentional statements on the recovery of the U.S. economy, preceding the season of earnings announcements, the Dow just couldn't get the accelerator to work. The expectations were set too high and disappointment took the place of a rising market. The concerted media and Alan Greenspan campaign to push start the economy, has just not been convincing enough. Where to now? And confidence? We have to sympathise with the Fed Officials, though. Here they are, trying the best they can with inadequate tools to get the economy going, scared to say anything to dampen spirits and then a sound remark, at the wrong time, looks like they opened their mouth to change feet.
Governor Ben Benanke's comments that the Fed was still prepared to cut rates to zero, to attack Deflation helped the $ to lose ground, implying that the $ must walk alone, and the economy was not in as good a condition as Greenspan implied the week before.
We ourselves were encouraged by the rise in Durable purchases figures, but a whole lot of convincing should be going on, that isn't.
As we said last week - the markets will be perspicacious, they will discern the realities and they will adjust prices accordingly!
Short Term Prospects for Gold
• Why is the market being so wrong footed, you may ask? When positivefundamentals for the gold price are first noticed, there is a large time lagbefore they impact. The daily, often minor news, tends to dominate the price,largely in the hands of superficial traders [e.g. Iraq] When the structural changearrives, it causes a great deal of unsettling and breaks in previous behaviourpatterns. We believe this is now happening. The influence of these fundamentalfactors can even recede for a short while before coming into play again. Whathas now been building up for some considerable time, will slip in and irresistiblychange the market's behaviour. We are seeing the quiet arrival of major forces,which will keep the Gold price in its major Bull trend for some considerabletime. The first symptom of this is the current market lack of liquidity.
• The Euro fell to the 1.11 level and stabilised before showing signs of wanting to climb. Its last couple of days climb above $1.15 to the Euro is the precipitant for the rise. The dealers and the speculators believe that this is sufficient in itself to take gold higher and are well focussed on these currency aspects. It must be said that the action on the Euro : $ front, or should that be the $ : Euro front, is symptomatic of the underlying fundamentals taking the gold price up from now on.
• Whilst we remain in the uncertain month for gold, it could set the pattern for the foreseeable future.
• With all this week's achievement, perhaps a little consolidation is in order?
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Prospects for the Nasdaq Equity Market
Through our "One-on-One" service we track and guide Subscribers on the full range of Commodities, equities, Bills and Bonds. Interested? Contact us! As a sample, here we present our view of the Nasdaq: -
Global Equities - A Quick Look - 25 July
NASDAQ (closed 1701)
The 34-day indicator is declining, a close below 1681 (cash) will confirm it's going lower. The daily Mesa low is on the 8th of August, then it rises up to the 2nd of August and then goes down into a low on the 12th of September. The attached hourly chart of the September contract shows it has dropped through the upward trend support and through the moving averages, which opens the way for lower levels. The 34-hour indicator is overbought at 99.5. It should go lower.
This chart is indicative of what's in store for global equities in general. The Nasdaq has signalled that it is going to perform worse than the Dow.
Action we are taking:
• Sell Nasdaq Sept. with a STOP at 1296 (currently 1250)
Gold Fix 25th July a.m. $361.10 E 314.082
Gold Fix 25th July p.m. $363.00 E 314.613