Here Is The Reason For Gold’s Massive Surge Above $1,300

Here Is The Reason For Gold’s Massive Surge Above $1,300

With gold surging above the critical $1,300 level, today the man who provides macro research and commentary to many of the largest financial institutions and top hedge funds around the world sent KWN 6 absolutely stunning gold charts illustrating the why the gold market has smashed well above key resistance.  Eric Pomboy, who is founder of Meridian Macro Research, also provided incredible commentary to go along with the 6 remarkable gold charts, as well as what all of this means going forward for the gold market.

July 22 (King World News) - Gold Surges Through Key $1,300 Level - Charts Of The Day

“COT data for week ending 7/16 show Commercials added to their Net Short Position by ‐5,566 contracts.  As for the Specs, they added +6,905 contracts, bouncing off the lowest Net Long position since 2005.  It’s too early to tell of course, but the data may signal the bottom for Gold is in.

Looking at the Net Commercial position in relation to Open Interest (see below), we get a strong flashing buy signal at these levels.  Again, too early to tell, but the data would certainly suggest a significant and extended rally is near.

The Gold relative to Net Commercial Position chart is most telling (see below).  We’ve seen a huge bounce off the historic low of ‐6.75, to ‐5.27, a 22%, 1‐week bounce.  The exact same happened at the 2005 and 2008 bottoms for Gold (at $412 and $712 respectively) -- In 2005, a 1‐week (22%) bounce from ‐1.10 (low) to ‐0.85; in 2008, a 1‐week (22%) bounce from ‐1.13 (low) to ‐0.88.  Each time signaled a bottom for gold, and each time a 70‐72% rally ensued.

If past is prologue and we are at the turning point for the Dow/Gold ratio as seen in the late 70’s, the next two charts illustrate this reversal is near at hand.  The first chart shows S&P 500 1974‐1977 vs. S&P today.  Of note: the dates line up exactly.  As you can see with the chart, and again if past is prologue, we are entering a volatile period (head‐shoulders pattern) for the S&P before it begins a downward trend in late December/early January.

Turning to the Gold chart, it shows we are forming a bottom at these levels (see below).  We may see another test of the lows before we can confirm an absolute bottom.  However, with indicators from our previous charts, the bottom may be in as we are now vault and may stay above $1300 in the next week or two with a sustained short‐covering rally.

Our last chart should give a sense of what Fed ‘taper’ policy may be going forward.  12-month sum of Foreign Purchases of US Treasuries are down -77.6% from Sept. 2010 high of $793 billion to $177 billion.  In the last 12 months Fed purchases have outpaced Foreign purchases by +54% ($273 billion Fed vs. $177 billion Foreign).  With Foreign buyers drying-up apace, this leaves the Fed looking as buyer of last resort.

In conclusion, the Fed will likely continue to move the goal posts on unemployment/inflation targets, and once market participants realize QE is not going away anytime soon (with an increase in asset purchases likely), a significant rotation toward inflation-protected asset classes will take place with the key beneficiaries being gold and silver.”