The US Dollar, while in a slight correction at present, is still forecast by most to remain strong for the long-term. While investors have come out of treasuries and gold alike, the allocations have remained strong in both the US Dollar and the Stock Market. There has been a break between the physical and the paper gold. The physical demand has supported gold as jewelry and coin sales have surged after the ETF’s and Gold futures have gone into a bear market. The US Mint has sold 21,000 ounces of the American Eagle coins this month so far. In June, 57,000 ounces were sold. In Australia, their Perth Mint reported bar and coin sales had decreased 47% in June. India may have contributed to the slack in world demand with the imposed import tax increase — the Indian imports may have decreased about 80% in June. The Indian monsoon season may come into play yet if the rains continue. The rains may nurture the agricultural crops such as sugar. This fills the pockets of the Indian consumer, and what do they love to buy? Gold. The physical gold may be held up by Asia and India, but the Fed is necessary to support the paper gold. The printing of money cheapens the US Dollar and increases the potential need of gold as a safe-haven product. Outflows on the Gold ETP’s this year has totaled around 645.45 metric tons. PFR Gold Fund, owned by John Paulson, may have lost about 65% of its value to date.
The CME Group Inc. now owns the Comex and has raised the Gold margins to $8,800.00 per 100 troy ounces contract, with $1250.00 becoming a possibility. The inflation target of the Fed is 2%, and we are well away from it again pressuring the gold. In order for gold to begin an uptrend, factors would have to line up. It must break through $1425.00.
- Inflation would have to accelerate.
- The economy would have to worsen.
- The Fed would continue or increase the easing and become ultra-accommodative.
- The European Central Bank (ECB) would increase their monetary stimulus.
- The central banks would have to bump up buying.
- The speculator would have to regain confidence in the Gold market.
US Federal Chairman, Ben Bernanke, said on Wednesday, July 10th, that the “highly accommodative monetary policy for the foreseeable future” needs to remain in place until the data dictates a gradual tapering. He was very careful to separate tapering from tightening, meaning that interest rates may remain 0.00 – 0.25% without an end date. The Fed Chairman seems to have taken heat from his previous potential end from the June Fed meeting. After clarifying his plan to exit the quantitative easing by the middle of 2014, he remains very cautious in a very fragile trade environment. All parties claim that the Fed Chairman needs to provide a clear focus on the unwinding of the QE3 program, yet it still seems vague to the traders and analysts alike. He initially had targets for the “tapering” to begin when the US unemployment rate hit 6.5% and/or inflation rate hit 2.5%. Also, thoughts were added that the Fed would like to see in about four consecutive months of approximately 200,000 jobs created. We now have one month coming fairly close with 195,000 jobs created.
The Producer Price Index for June was 0.8% while the previous reading was 0.5%. The PPI excluding food and energy was 0.2% while the previous reading was 0.1%. The Consumer Sentiment Index Level for July was 83.9 while the previous reading was 84.1. The US Initial Jobless Claims were 360,000 up 16,000 from the previous week. The Export Prices were -0.1% for June while the previous months reading was -0.5%. The Import Prices for June were -0.2% while the previous months were -0.6%. The Bloomberg Consumer Comfort Index Level for the week of July 7th was -27.3 while the previous reading was -27.5. Chain Store Sales held steady and will post on Monday. The US Treasury Budget Level for June was $116.5 billion while the previous reading was -$138.7 billion. The Fed Balance Sheet Total Assets for the week of July 10th was $11.4 billion while the previous week was $14.1 billion. The Reserve Bank credit was $11.4 billion while the previous reading was $2.0 billion. The Money Supply for the week of July 1st was $81.1 billion while the previous week was -$22.1 billion. The NFIB Small Business Optimism Index Level for June was 93.5 while the previous reading was 94.4. The ICSC-Goldman Store Sales for the week of July 6th was 3.0% while the previous week’s was 0.6%. The Redbook was 3.6% while the previous reading was 2.9%. The MBA Purchase Applications for the week of July 5th for the Composite Index was -4.0% while the previous reading was -11.7%. The Purchase Index portion was -3.0% unchanged. The Refinance Index was -4.0% while the previous reading was -16%. Wholesale Trade for May was -0.5% while the previous reading was 0.2%. US Consumer Credit was at $19.6 billion while the previous reading was $11.1 billion. This came in above Wall Street’s expectations of $12 billion which made the recovery look brighter still. Non revolving credit was increased by $13.0 billion reflecting the auto sales and tuition. The Revolving credit was up $6.6 billion in May. Auto demand has picked up to a 15.9 annualized rate as of June.
The US economy appears to be stabilized in its recovery next to other nations such as Europe, England and Japan. The International Monetary Fund (IMF) projection for growth was lowered for the BRIC countries (Brazil, Russia, India and China). They also anticipate the US recovery to slow, China may remain stagnant and the Euro Zone may fall further into their recession. Demand in housing and autos may perhaps counter some of the US slack recovery. While the US tapering is thought to begin as early as September, European Central Bank (ECB) President, Mario Draghi, promised to keep the borrowing costs low only last week. Ben Bernanke is scheduled to speak on the monetary policy in a semi-annual report to Congress in the House of Financial Services Committee on July 17th. Bernanke affirmed keeping the fed funds rate at 0.00 – 0.25%. He also maintained to keep the pace of the Fed’s asset purchase program intact for now. The potential exit strategy has no bearing on the asset purchase program. While the growth was described as moderate, there was a noted rise in financial instability. A couple of the Fed members were more vocal on their support of tapering soon, but the accommodative stance remains in place for now. Easing out of the easing is a very delicate strategy in keeping a balance so that the markets do not react wildly. The premature withdrawal can create further damage to the US economy as well as the global economy if handled poorly. The data must support the potential tapering to the point where consumers have a positive view of the US economy to overcome the reduced asset purchases. Last week’s US unemployment report at 195,000 new jobs fueled the idea that the Fed may begin to taper as early as September of 2013. The US Dollar should climb higher after natural retracements.
Japan has been aggressive with their own quantitative easing program, weakening the Yen and driving the Japanese assets lower. The result may be the exit of the foreign investor out of the US Treasuries. Greece was given bailout funds of $6.8 billion euros by the Euro Zone and the International Monetary Fund (IMF). Greece is projected to grow in 2014 by about 0.6%. It is difficult to expand with job cutting and selling the nation’s assets to keep up with the austerity requirements. Italy’s credit rating was reduced yesterday to BBB which is two levels above junk status from BBB+. The outlook remains negative, hence the ten-year bond yield points higher to 4.45%. Fitch’s credit rating agency cut the credit rating of France from AAA to AA+ with concerns regarding the slackened growth and increased debt. The US and the European Union are entering into talks on a Trade Agreement laid out to benefit both countries along with the global economy. The Transatlantic Trade and Investment Partnership pact may increase jobs and growth. China continues to slacken with poor export numbers decreasing 3.1% in June. With data like that, we may look to see if China may ease policy to compensate and boost growth. China’s trade surplus with the US decreased to $17.49 billion in June from $19.35 billion in May. China and the US agreed to begin negotiations again on a Trade Agreement for an investment pact that actually began in the previous administration.
The global economy needs to be pacified by the support of the Fed, the European Central Bank, the Bank of England and the Bank of Japan. Weaning the economy off of the easing may be extremely difficult judging by the market’s reaction to date. The US Dollar has weakened the last two days but it is thought of as a necessary retracement rather than a long-term move in light of the recovery. It should remain strong next to many of the other currencies.
The August Gold may have hard support at $1191.10 at present. If breached, levels $1100.00 to $900.00 are projected downside targets from analysts. Even with the Fed maintaining their accommodative policy on the quantitative economic stimulus, gold is an emotional market that needs a major event or inflation to build any momentum on an uptrend. Without a major infusion of fear and anxiety, the Gold market may drift within a range of $1190.00 to $1325.00.
While reaping the rewards of being a gold trader, one must be sure to use stops and money management to stay in the game! Retracements are possible. While I remain very bullish still – use stops – live to trade another day!
The Sample Trade:
Buy December Gold 2013 1800 Call for 20.00 or better! It is currently at $100.00. This began on the last Gold Digger Alert!
The risk on the trade would be $2000.00 plus fees and commissions. The profit potential is unlimited and the expiration is November 25th 2013.
Please call or email me for the complete recommendation to coincide with your risk tolerance, so that we may apply the correct Money Management. The Weekly Gold Digger is a Free Weekly subscription to receive trading opportunities by email along with fundamental commentary and basic technical points of interest.
Take a close look and feel free to call in and talk to me in greater detail. It would be my pleasure. Good trading!
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