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July 28th Gold Trend Analysis

In last nights website update resistance was listed at 1620-1628 and the high so far is 1620. Support was listed at 1605-1609 and the low so far is 1604.

Trades: Long 1 gold at 1583 — stop 1599 close only
Long 1 silver at 35.15 -stop 38.30 close only

CME NEWS

London Gold Fix $1,617.50 -$3.50

The gold market has mostly retained a large portion of its gains over the last month into what could be a major price decision directly ahead but has run into resistance right at the key 1625 area. Somewhat surprisingly the gold market was able to discount negative $$$$$$ market action of the past 24 hours until a few hours ago as more selling has come into the market, as the trade has kept its attention focused on the ebb and flow of the potential for a US credit rating downgrade. This pullback however is in line with our expectations of a Thursday pullback after the mid week Wednesday high. That high was at our first target for a price high for the week and this pullback is now testing the 1607 area support from last week. The stronger short term trend is due to peak between July 27th and August 2nd and lead to a mid August pullback.

The trade expects a vote today on a plan put forth by the Speaker of the House, but the Democrats don’t think the bill has the votes to pass the Senate. A portion of the gold trade thinks that Congress will push the debate into the weekend, as a way to garner the most theater as possible from the event and that might make the gold bulls very happy. News that a sub committee was investigating whether or not the US Treasury exerted undue pressure on the S&P rating company might be another element providing the bulls fodder on their positions but it has not shown up in price support today. While the scheduled data yesterday was expected to be a sideshow, it did seem as if the data undermined the US dollar, which in turn provided gold with some temporary lift. That has reversed today with the dollar up and gold under pressure. So far, news of possible strikes at gold mining facilities in South Africa also seems to be a sideshow story. It was also noted yesterday that gold seemed to fall in the face of speculation that a US deal was coming together.

While equity markets in Asia and Europe were generally weaker during the overnight session, US equity markets opened mostly unchanged. The US Dollar is stronger against most of the majors this morning. China confirmed that they will continue to diversify their foreign exchange reserves, most of which are held in Dollar-denominated assets. Japanese Retail Sales during June were up 1.1% year-on-year, higher than expectations. German Unemployment during July was 7.0%, in-line with forecasts. Euro zone Economic Sentiment during July was 103.2, lower than projections. Major US economic numbers to be released this morning will include Weekly Jobless Claims. A US Pending Home Sales increase of 2.4% for last month was reported. There will also be results of the Treasury’s 7-Year Note auction announced at 1:00 PM EST.

Going to the Chart

The July uptrend channel is giving way and a key test of support from last weeks 1607 is taking place. The pullback into today so far is normal market action after a mid week peak. The key is whether gold can hold first level support. So far gold has pulled to a new low this morning and still remains vulnerable to pullback.

Watch the 1604-1607 area. Should that area give way the potential to trade down to 1580-1590 will come into play again. In summary the micro short term trend remains down from the mid week peak and with the current set up its best to remain cautious as this pullback has the potential to extend further. I’d like to see the market close back above 1613-1617 to neutralize this pullback. For now the pullback remains in effect. Watch that 1604-1607 area.

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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."