July 18th Gold Trend Analysis

IN last nights website update resistance was listed at 1598-1605 and the high so far today is 1603 — support was listed at 1577-1587 and the low so far today is 1590.

TRADES: LONG 1 Gold 1566 — would add a position at 1573 — stop at 1531 — raised my stop loss to 1545 intra day…………..

Long Silver at 35.15 —- would add a position on pullback at 37.65 —-new stop at 36.20 intra day.

London Gold Fix $1,598.25 +$5.75 LME

The key story is the bond yields of Italy and Spain —- as they are up 20% in a week. With all the passed votes —and bank tests —- the focus is now on the THursday meeting to see what they will do about the situation in Greece. The metals are moving higher — and everything else lower — on these debt concerns. The jist of the Thursday meeting of the ECU — is first — how to get the bond holders into some responsibility —- and to get the debt more sustainable — in other words –extend maturities —or bond repurchase to REDUCE the GDP debt to ratio. This meeting —- is the same issues that have been on the table for 16 months. This uncertainly is keeping the metals with a very strong bid at the moment.

The Euro zone bank tests results at the end of last week had no effect on the move to quality interest in gold, and that issue appears to have surfaced again this morning in the wake of bank downgrades and credit ratings overnight. While the US debt ceiling situation remains highly uncertain, the gold market in the early trade today wasn’t being presented with fresh news on that subject—but is focused on the big rate increases in Italy and Spain. The gold market also seems to be catching some lift off ideas that the US will probably be forced to come forth with additional easing measures, as the flow of numbers recently has left the markets fearful of even more slowing evidence ahead. Apparently gold wasn’t even deterred by strength in the US dollar overnight, as the yellow metal carved out a number of key price levels on the charts around the globe overnight. At least in the early action today, gold is trading inversely with the US equity markets and perhaps even inversely with the energy complex. With the Dow off 130 points and Oil off almost two dollars — gold refuses to let up so far today as momentum and VELOCITY are in super strong mode.

We speculated last week on the website that this big move was due to demand — but was also due to traders and HEDGERS having to REVERSE their seasonal short positions as the MASSIVE MOVE IN THE COT reports show. The Commitments of Traders Futures and Options report as of July 12th for Gold showed Non-Commercial traders were net long 236,193 contracts, an increase of 49,070 contracts. The Commercial traders were net short 284,271 contracts, an increase of 50,422 contracts. The Non-reportable traders were net long 48,078 contracts, an increase of 1,351 contracts.

Non-Commercial and Non-reportable combined traders held a net long position of 284,271 contracts. This represents an increase of 50,421 contracts in the net long position held by these traders.

OUTSIDE MARKET DEVELOPMENTS: (6:00 AM CST) While equity markets in Asia and Europe were generally weaker during the overnight session, early indications are that US equity markets opened with moderate losses this morning. The US Dollar is stronger against most of the major currencies this morning. EU leaders have scheduled a summit meeting on Thursday to discuss a debt aid package for Greece. There was a major downgrade of 7 Portuguese banks, all of whom passed last week’s European bank tests. The only major US economic numbers to be released this morning will be a report of the US housing market at 10:00 AM– but the trade will also see a Treasury Capital flows report early this morning.

Going to the chart

We’ve discussed the strength of the short term pattern and it continues into Day 11. The pullbacks that used to last a few days are now lasting a few sessions and every single dip is being bought. The Hourly charts shows the MOMENTUM to be strong — and the price pullbacks very small as price keeps climbing in a very tight distribution. As expected — we are getting some hesitation today as gold trades north and south of 1600 dollars today — and that’s usually good for a day or two when we arrive at new centaurian numbers. Day 11 (today) and/or day 13 (Wednesday) offer the best potential for a price peak this week. We tend to favor mid week Wednesday — but it is obvious at some point a pullback has to occur. The dynamic of gold and silver BEING THE ONLY SOLDIERs RISING—- stocks down — oil down — grains down— copper down — is indeed a rare event. THE fact that COT rose 50,000 contracts last week shows that the TRADE was on the lower seasonal side of gold —and had to cover. Support for the remainder of the day is the 1589-1592 area and it now looks like gold is featuring the 1573-1581 area as initial weekly support. Resistance for the remainder of the day is the 1607-1611 area. In summary — the trend remains up —– best case for highs this week is today — or Wednesday. With velocity this high — as long as price is inside the hourly channel favor higher.

by Bill Downey

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