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August 4th Gold Trend Analysis

In last nighs website update first resistance was exceeded and 2nd tier resistance was listed at 1683-1690 and the high so far is 1679 (spot Forex). Support was listed at 1652-1657 and the low so far is 1657 (spot forex)

Trades: No open positions — waiting for a set up

CME NEwS

London Gold Fix $1,664.25 -$2.75

The gold market recently has gained from fears of US slowing, fears of a US debt downgrade and yesterday from hopes of fresh QE from the US. In other words, gold prices have clearly benefited from a series of anticipated events and that could make this week’s high a somewhat lofty price zone unless some anticipated events become reality. The gold market might have seen some support for prices overnight in the wake of a price forecast from a gold mining company executive, who suggested that gold could eventually reach $2,000.

However, the gold market might be partially undermined by action in the $$$$$ markets this morning, as the BOJ intervention overnight has temporarily boosted the greenback. With the gold market recently benefiting from signs of US slowing, the trade saw fresh buying interest off US employment data.

While equity markets in Asia and Europe were mixed during the overnight session, US equity markets opened with moderate losses down the obligatory 100 points to start and hit an intra day low of nearly 200 points. Stocks are clearly oversold and after a 1000 point loss in the past 10 days is due for a bounce. Thus it will be interesting to see the gold reaction should equities reverse. With the “spin” news saying Europe is now in a bear market, and gold keeps making high after high, the tension is rising to fever pitch.

The US Dollar is stronger against most of the majors this morning perhaps primarily because the Bank of Japan intervened in the markets during overnight trading by selling over 1 trillion Yen against the Dollar. The Bank of England and the ECU held rates steady.

The strength in gold in the face of a global sell-off in equities and crude oil is indeed impressive. Even the grains are down this morning. This action is indicative that the main driver is the potential contagion global debt factor as the European debt situation is now the main headline again now that USA is on hold. The Euro banks are in trouble as there is talk of exodus out of the banking system. Italy and Spain continue to make news as well. Basically the ECU will come to the bank rescue the same way USA is doing. Until calm can be restored, gold will be the beneficiary. Watch the stock market in USA as it has broken the March lows. Stops have been cleared so now the question becomes can it reverse today.

Going to the charts

This morning’s chart shows the move since the beginning of July. In this view, we have an upper, lower, and middle trend line. Gold has been working to get above this middle line for the past few days. Resistance for the remainder of the day is this line in the 1683-1690 area. A weekly close above this line would project even higher levels towards the upper line. For now this middle line is the key. Pullbacks over the last two days have held the 1650-1655 area and until we close below 1645-1650 the upside remains in play. The pullback from Mid Week Wednesday’s peak at 1675 was weak and held the first key resistance on the chart. This is suggestive that the market remains very strong. The bottom line is that the BANKING SYSTEM in Europe and USA is on the ropes. THE DOORS would be shutting downUntil price shows signs of weakness the trend remains up. It looks like the “boys” are going to try and contain gold at the mid line so expect resistance there today. The intervention in the Yen market yesterday is suggestive that there is desperation and they will throw all they can at equities to stop this sell off. In summary the trend remains up in gold but very overbought at the moment. I suspect that markets will try and reverse, but until price shows some weakness, the trend is up. As long as we are above 1655, the upside is still in charge.

by Bill Downey

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Thoughts
"For a mountaineer, the important things are the effort, the posture and the muscles. The rope that holds him serves no purpose when everything works but it gives him a sense of security. In the same way, all gold does is ensure confidence; it's a safe haven."