$1,300 Rejects Gold
Gold was stopped cold in
its tracks today at the psychological round number resistance level of
$1300. It had initially reacted to Ben Bernanke's comments, (which most
market analysts and players viewed as dovish) by moving smartly higher.
During the Q&A session which followed, gold was slammed lower by a
wave of very strong selling.
In watching the price action it occurred to me that just as we suspected in our notes from yesterday, nothing new or fresh proceeded from the Chairman. In other words, there was NO FODDER for the bull. Gold had already run higher last Wednesday when Bernanke first reversed himself from his comments in June. At this point in the game however, that is now old news. What gold needed to propel through $1300 was something far more definitive than what Mr. Bernanke gave the markets today.
Think about it this way - the QE will continue as long as the economy needs it. Okay - what is new about that? We have seen this QE going on for some time now and to the minds of most market participants, there is still no real inflation threat looming on the horizon. What is there to make them waver the least in their convictions that inflation is benign? Answer - there isn't anything... YET.
Now, if crude oil and unleaded gasoline do not soon set back then that might change. But with a large grain harvest expected, food prices look to be moving lower. As stated previously in another piece I wrote - energy prices may be high and moving higher but food prices are going the other way. Just look at a chart of new crop corn or wheat, or sugar, or cattle, etc.
Both of these need to be moving up simultaneously to impact the consumer (and business to a certain extent although that segment is more impacted by higher fuel and energy costs) and to generate the all-important headlines needed to derail an entrenched, "there is no inflation" psyche.
Technically, two things happened today: Gold failed to extend past an obvious chart resistance level while simultaneously, the HUI FAILED TO CLOSE THAT IMPORTANT CHART GAP I noted in yesterday's missive.
In watching the price action it occurred to me that just as we suspected in our notes from yesterday, nothing new or fresh proceeded from the Chairman. In other words, there was NO FODDER for the bull. Gold had already run higher last Wednesday when Bernanke first reversed himself from his comments in June. At this point in the game however, that is now old news. What gold needed to propel through $1300 was something far more definitive than what Mr. Bernanke gave the markets today.
Think about it this way - the QE will continue as long as the economy needs it. Okay - what is new about that? We have seen this QE going on for some time now and to the minds of most market participants, there is still no real inflation threat looming on the horizon. What is there to make them waver the least in their convictions that inflation is benign? Answer - there isn't anything... YET.
Now, if crude oil and unleaded gasoline do not soon set back then that might change. But with a large grain harvest expected, food prices look to be moving lower. As stated previously in another piece I wrote - energy prices may be high and moving higher but food prices are going the other way. Just look at a chart of new crop corn or wheat, or sugar, or cattle, etc.
Both of these need to be moving up simultaneously to impact the consumer (and business to a certain extent although that segment is more impacted by higher fuel and energy costs) and to generate the all-important headlines needed to derail an entrenched, "there is no inflation" psyche.
Technically, two things happened today: Gold failed to extend past an obvious chart resistance level while simultaneously, the HUI FAILED TO CLOSE THAT IMPORTANT CHART GAP I noted in yesterday's missive.
Both occurrences are viewed as
technical failures and will bring in additional selling by the
shorter-term oriented trader. What will be key for gold is whether or
not it can generate enough buying to keep it above the "former
resistance zone now turned support" that can be seen on the chart. Let's
call that the zone between $1270 - $1260. If it can hold here, it will
bounce back and set up yet another try to best $1300. If not, down
towards $1240 it will go.
I should also note that volume in
today's rejection at the $1300 level is very strong. I view that as a
bearish sign that a lot of bulls threw in the towel and gave up on a
breakout above $1300. Also, guys who have been playing gold from the
short side were emboldened to come back in.
I am unclear just yet as to how much
of this jump in volume is associated with rollovers as those are
occurring in increasing frequency as we move deeper into July. Most
traders will be moving out of the soon-to-be-in-delivery August contract
and heading into the more active December. That might have distorted
the volume somewhat and thus take what I say here about it with a grain
of salt but nonetheless, volume was strong regardless.
Silver? What more can you say about
it other than the fact that it too failed to push past tough overhead
resistance at $20. The level is now reinforced with significance on the
technical price chart. For this metal to start any fireworks whatsoever,
that barrier MUST BE BREACHED. If not, it ain't going nowhere. Poor
English grammar but solid trading analysis.
Silver bulls simply must prove their
mettle or the bears will grab control of that market and take it down
for another test of $18.
One more thing I want to note was
that the yield on the Ten Year note closed the day just below the 2.5%
mark ( 2.491 to be exact). Interest rates have set back ever since
Bernanke made those comments last Wednesday. Here we are now a week
later and they have yet to exceed their recent peak. That being said, it
might not be too much longer before they try sneaking up again.
Everything will depend now on the content of each piece of economic data
that gets released.