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July 26th Gold Trend Analysis

London Gold Fix $1,610.00 -$8.50

The gold bulls have to be a little disappointed with the lack of additional upside action last night, especially in the wake of the latest US display of failed leadership on the debt ceiling debacle. In addition to “no deal” from Washington, the global markets also saw the prospect that the eventual compromise deal will only offer minimal spending cuts. There is talk that the magnitude of the spending cuts offered will simply increase the potential that agencies in the near future will be forced to lower the US ratings.

The market didn’t seem to be overly interested in news that South African Mines were facing a strike, as the news flow from Washington has become very dominating. Fears of extreme volatility in Treasuries could embolden some gold bulls, as the world increases its attention on the credit rating of the world’s largest debtor. With some political experts suggesting there is still a couple more days before the point of no return is passed on the debt ceiling, which could leave Washington to debate for a couple more trading sessions. It is possible that a rise in Indian rates overnight was partially responsible for some profit taking action in gold overnight but the influence of international developments should wane quickly once the fresh news flow from Washington resumes for the day.
While equity markets in Asia were generally stronger during the overnight session, stock indices in Europe were generally weaker this morning. US equity markets are open with the DOW down 75 points. The US Dollar is weaker against most of the major currencies this morning and approaching dangerous levels on the charts.

India’s central bank lifted rates by 0.50%, higher than expectations. UK GDP during the second quarter was up only 0.2%, in line with expectations. German consumer sentiment during July was 5.4, lower than forecasts. French consumer sentiment during July was at 86, higher than market projections. Major US economic number released this morning was June New Home Sales (300k rate) as well as US Consumer Confidence (up slightly). (Tell me they didin’t fudge that number) — The only thing that US is confident is that things are going to get worse.

Going to the chart

Gold has gone into a hold pattern as the markets await the debt negociations in USA. While the US dollar gets lowered to dangerous levels on the charts, gold continues to hold the 1607 area that was our important resistance point from last week. Support for today is 1599-1607 and is the strongest near the 1607 area. Resistance is the 1613-1617 area for the remainder of the day. The price to exceed is the 1617-1625, which was our first price target for this week. A close above this area would suggest higher prices into the 1640-1660 area. Once the debt decision comes out, there might be a big spike that clears out stop loss orders on both sides of the trade, and then direction will be decided. The stronger cycles we watch are due to peak July 30th (plus or minus 72 hours) so we are nearing the “window” to be cautious for trend changes.

The chart shows the run up from the beginning of the month. All moving averages remain in up mode and price has been sitting on them for the past 16 hours. Weekly support is the 1580-1589 area where the 23% retrace and last weeks lows reside. The lower channel line is sporting the 1604-1607 area and that’s where we think the market can hold until the news is out.
In summmary — the trend is still up, but we need to be aware of the potential for a clear out of stops on any decision from the USA. Watch the 1607 area — it seems to be important for support right now. On the upside –a close above 1625 is required to favor a move to the next level of resistance (1638-1650). The remainder of the day favors this tight range of 1607-1617. That is the most likely outcome, but will change as soon as there is a decision out of Washington.

by Bill Downey

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