I should know as my poor inbox gets inundated with such articles whenever gold has experienced a sharp selloff of late. "See - we told you so", seems to be the message.
The poor bears however have no friends for no one writes snappy titles to defend them whenever gold has one of these big up days like it is having today.
On to more serious business however - there was a strong combination of data releases that really lit a fuse under the gold market in today's session. Unemployment numbers, the Chicago Fed's index, China, etc. Each of these data releases showed slowdowns in growth.
If that were not enough, India's ruling Congress party chief, Sonia Gandhi was reported to have requested the Ministry of Commerce to ease restrictions on gold imports into India. The gem and jewelry industry is complaining, rightfully so in my view, that this 10% barrier is forcing their costs to rise and impacting their businesses negatively. Any easing of this tariff would be viewed by gold traders as friendly towards India gold demand. At least that is how the market seems to be regarding it at the moment.
Back to the US data however but more specifically, back to its impact on the US DOLLAR. It fell SHARPLY and guess what???? - Yes, Gold rose sharply. No manipulation, no theories, just a simple correlation between the Dollar and the Anti-Dollar or ol' Yeller. The weak economic data, which reminded people of just how weak that last payrolls number was, once again spurred more of the same talk that the Fed was going to be on hold in the regards to the Tapering.
Side note here - one wonders just what will happen if the next payrolls number just happens to be above 200K. Will all of today's talk disappear once again? From a trader's perspective, it is like trying to catch a yo-yo.
With equities selling off sharply on the sharp reported fall in the Chinese manufacturing index, investors are fearing more slowing growth and that translated to sinking interest rates here in the US as bonds were the recipient of money flows today. Those money flows dropped interest rates and that pulled the rug out from beneath the US Dollar which has been supported by a general tend of rising rates here in the US.
The yield on the Ten Year as I type these comments is down to 2.8%. At the start of this year it was trading above 3%! The Dollar has tended to generally track the yield on this note.
Watch the Dollar to get a clue as to whether or not gold can muster the energy to punch through this tough overhead resistance barrier that it has now once again entered.
Around 10:00 AM CST, the Kansas City Fed numbers were released and this data showed a big improvement in the manufacturing in the Plains area. The number rose to 5 from -3 in December. That showed manufacturing growth for the month, the exact opposite of what we got from the Chicago Fed. Gold seemed to fade a bit when that number hit the wires.
This market remains so incredibly sensitive to Tapering/Not Tapering issues that for all practical purposes, we are trading each and every single economic data release with the view to how traders are generally interpreting that data. Predicting this sort of thing in advance is fool's work so just be warned that volatility will continue to remain quite high until we get some sort of clear, defined TREND in this data. Right now there is no consensus and that will lead to sharp bouts of buying/selling depending on which side panics. Today it was the bears' turn; tomorrow - who knows?
This is the reason I continue to urge caution for those traders who are still attempting to work this gold market. KEEP YOUR POSITION SIZE SMALL OR MANAGEABLE. You are liable to get hurt and hurt badly if the economic data does not come out your way. It is not trading at this point because there is no clear trend. You are essentially gambling or rolling the dice and hoping that the roll comes out in your favor. There is no skill to that, just chance, and good traders do not rely on chance.
Let's see how the dust settles at the end of the day but more importantly, how the market reacts to the next payrolls number coming our way.
A couple of charts for you to examine... note the daily chart and the strong push above the 50 day moving average. That is quite positive. Also, the ADX has gotten a clear crossover of Positive Directional Movement Indicator ( BLUE LINE ) above the Negative Directional Movement Indicator ( Red LINE ). Clearly that bulls have regained control of the market at this time frame. As a matter of fact, the ADX, the trending indicator, is actually beginning to rise, just as gold is moving higher. It is still below 25 so the trend is not yet confirmed but it is very close. What the bulls need is one more ingredient and that is a strong push through that very tough overhead resistance zone noted on the chart. That means we need to see prices above $1,262, preferably a bit higher, to give us the real possibility, the first in a while I might add, of an upside trending move.
Look at the 4 hour time frame. Here you can see the strong volume on today's big move higher ( a lot of this is due to panicked shorts when that data came out). This REVERSE FLASH CRASH is CLEAR PROOF that gold prices are being manipulated higher. After all, who would buy in such a fashion? Sorry - I think I need some help restraining myself at this point. ( it comes from having to deal with all the nasty emails that constantly fill my inbox from the gold acolytes in the cult).
Seriously, look at where the bulls have taken this thing - right on the verge of a breakout! We have a big hurdle to clear with that next payrolls report but suffice it to say, that IF THE US DOLLAR experiences another strong selling-related plunge as it is doing today, gold should break free to the upside. I am noting that the Dollar is holding initial support near the confluence of the 40 and 50 day moving averages. Failure there and it has a strong possibility of visiting 80.20 - 80.00.
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