Macro Morning – Gold drops, Cliff rhetoric rises

Just when you think it is OK to focus on Christmas and forget about the fiscal cliff the need of the political class to poke each other in the eye and get their faces on TV knows no bounds. Overnight we learnt that US Republican leader John Boehner is planning to take his “Plan B” to the vote in the House of representatives this week but Democratic Senate leader Harry Reid said that it won’t get through the Senate.

Just so you can see the stupidity of this argument below is a graphic from MarketWatch which shows the difference between the Obama and Boehner plans.

Trivial difference between Boehner and Obama

It’s cream pies at 20 paces folks and it’s just posturing and is plain stupid. All the while the ranks of the American poor grow, markets are on tenterhooks and the chance of a repeat of the debacle of 2008 in markets after the Lehman collapse grow. But at least the Politicians get on the telly.

Right, enough of the rant for the day because there was a little bit of positivity in the markets which are up in the US as I write this morning with the 3rd read of Q3 GDP which took the annualised pace of growth up to 3.1% from the 2.8% expected. Of course hardly anyone expects this to be replicated this quarter thanks to the concerns over the Cliff but the fact that personal consumption which was also released overnight came in at +1.6% as expected gives some hope growth has not collapsed. The Philly Fed index was likewise positive printing at 8.1 from -10.7 last and against pundit expectations of a -3 print. Existing home sale were also up at 5.9% from 1.5% last. On a darker note however jobless claims increased 17,000 to 361,000.

Gold

Of bigger interest overnight given the discussions of the past week and my view that Gold was going to tank was the price action in precious metals. Gold fell $21.20 and is down 1.27% at $1645.30 oz. as I write but off the low of $1637.60 according to Reuters.

As we head into the weekly and then very soon the yearly close I am watching Gold very closely. Some of my systems are already short gold but a press below $1635 oz. would for me be the decisive break of the multi year uptrend line and a signal of a much deeper retracement to come. Even Gold bull Jim Rogers is cautious yesterday I saw him quoted as saying,

“Most things correct 30 percent every year or two, even in big bull markets – 30 percent corrections are normal and yet gold has only done that once in the past 12 years,” Rogers said. “Gold on any kind of historic market basis is overdue for a nice correction.”

gold, gold price quote

As you can see in the chart above gold has been trending lower for some time now and the lower of the two red lines stretches back to the start of the Gold bull run which commenced in 2008. If we get a weekly and or monthly close below $1635 then I’ll be looking for a run to $1434 in time.

At the close Europe was largely unchanged with the FTSE, CAC and DAX all 0.05% either side of square. In the US with 48 minutes to go the S&P is up 0.36% to 1440.98, the Dow is 0.19% higher and the Nasdaq is up 0.15%.

We have noted gold above and Silver also had a big fall, in fact much bigger then gold as it lost 3.91% to $29.83 oz. As we wrote recently we had a target for a fall to $30.60 which has been materially exceeded overnight and the charts look like it may want to test important trendline support at $29.45/55. We’ll keep an eye on it.

Oil tired to break up through yesterday’s high and our target level but has closed below it at $90.21 for a gain of 0.26%.  Copper was 1.93% lower while the Ags were also off sharply with Corn down 0.92%, Wheat off 1.77% and Soybeans 2.09% lower.

On Global FX markets not big moves over the past 24 hours but some decent ranges with Euro trading a low of 1.3187 to a high of 1.3295 and is currently up 0.11% at 1.3241. Stirling is up 0.20% to 1.6279, Dollar Yen largely unchanged at 84.38 while USDCAD is down 0.12% at 0.9837. The AUDUSD spent the last 24 hours dancing on the spot and is roughly unchanged at 1.0481

Lets have a look at some Meta 4 charts from my  AVATrade platform.

EUR/USD: 

The 4 hour charts for EUR suggest a double top around 1.33 and are signalling a potential fall back to last nights lows and if that gives way 1.3145/55

eur, eurusd, euro, euro (eur) price quote

AUD/USD:

The Australian Dollar made a low at 1.0459 over the past 24 hours which was in my 1.0450 region identified yesterday. The bounce has been encouraging for those looking for more positive price action. Should the 1.0450 region break then the big support comes in at the bottom of the uptrend channel that comes in at 1.0400 today:

aud, audusd, australian dollar, australian dollar price quote

Data

BOJ Monthly economic survey in our time zone today and then French Business Climate tonight together with UK GDP and Public sector borrowing out. In the US the Chicago Fed index is out as is Durable goods and more personal income data.

Twitter: Greg McKenna

Here is how the markets looked at 7.20am this morning.

Disclaimer: The content on this blog should not be taken as investment advice. All site content, including advertisements, shall not be construed as a recommendation, no matter how much it seems to make sense, to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility and you should consult your investment or financial adviser before making any investments.

Comments

  1. Jim Rogers was equally cautious about Gold on May 15th, 1 day before this years low and by his own admission his short term timing is usually poor:

    http://www.bullionbaron.com/2012/12/jim-rogers-on-gold-terrible-timing-by.html

    Not to say Gold couldn’t head lower, but sentiment is in the trough and we are seeing similar bearishness to other major bottoms. I doubt we will see the price below $1600 let alone below the May 16th low which IMO was a 2008 like bottom… but we”ll have to wait and see 🙂

    • I’m less optimistic for gold BB. I see buying gold as a fear play, with concerns about hyperinflation and the collapse of fiat currencies.

      Now that the market can see that hyperinflation is not a current threat and fiats won’t collapse, with the USA economy getting stronger, fear has subsided.

      I hope that it works out for you BB.

      • If Gold is only a play on fear then what was the reason for it’s strong rise (priced in USD) over 2001 – 2007?

        USA getting stronger on the back of the Fed buying 90% of new bonds… sounds sustainable 😐

      • Well I think the driver for gold at the moment is fear.
        Just my 2c worth, feel free to disregard it.

      • I do think fear has played a part in Gold’s rise, there have been short term periods where this has been especially noticeable e.g. when the USD and Gold rose together during the worst (so far) of the eurocrisis. But I don’t think fear is the only driver, for example demand from central banks buying is a new driver added to the market in the past few years (where earlier in the decade they were net sellers). Only last night we had news of Brazil doubling their Gold reserves:

        http://online.wsj.com/article/BT-CO-20121219-716532.html

        Also I think it’s preemptive to suggest that the fear should have subsided over currency debasement, especially given the strong words out of Japan a few days ago:

        http://www.telegraph.co.uk/finance/economics/9751609/Japans-Shinzo-Abe-prepares-to-print-money-for-the-whole-world.html

        And the recent announcement by the Fed that they would increase their bond buying.

        That’s not to suggest hyperinflation is around the corner (in fact I think we would see changes to the monetary system before that was allowed to occur in the US), but I think the environment which Gold has thrived in for the last few years is set to continue, namely one of negative real interest rates, irresponsible fiscal policy and debasement of currencies. So expect a higher Gold price in the near future, but as I said above “Time will tell” 😉

      • Hi Peter,

        Just to add to what BB has already touched on, where interest rates are low, the opportunity cost of holding gold is low also.

        Given that the amount of sovereign debt is so large that a rise in interest rates would make sovereign debt unserviceable for many countries (relative to their tax income), I think you will continue to see govt central banks try to maintain this “co-ordinated” policy of low or negative real interest rates indefinitely.

        As to central banks buying gold, perhaps they are copying the europeans, where in 2000 they had perhaps 1/3 of the euro backed by gold and 2/3 by foreign reserve currency holdings. 12 years later, gold now makes up 2/3 of their holdings (based purely on valuation changes, not volume) and foreign reserve currencies 1/3.

        I’m not confident will see hyperinflation in the future, I think the world is too interconnect for this to occur over a prolonged period, so I would concur with BB, a quick reset at some point is more likely.

        The thing that confuses me about fiat is that given the USD (the world’s reserve currency) is borrowed into existence at interest, unless they keep creating more money, there is not enough money that exists to pay the interest on the existing money that has been created.

        So despite talk of deflation, money printing must continue, for the system as we know it to continue.

        As there is so much money around, interest rates must be kept low to service the debt. Once the interest rates spike, the debt becomes unserviceable.

      • Yeah I gree that Gold is a fear trade. Or rather insurance. Gold acts as a competing currency to preserve purchasing power.

        But with China buying gold hand over fist at $1580-$1620ish, Central banks being net buyers of gold currently, the bernanke openly printing a trillion per annum and asian and Brics nations signing agreements to bypass the USD, its not looking good for fiat.

        However this latest smackdown has alot to do with options expiry and algos pushing the market around in the low volume periods.

        Hope that helps Peter. 🙂

    • Deus Forex Machina

      Yep you are right

      Indeed – buying now might be a really good trade with a stop and reverse at $1634.90 or something like with a small posi.

      Not advice folks, just something that I will probably look a at as a trade with my own account.