This is a sample entry from Leslie Burton’s newsletter, The Weekly Gold Digger, published on Friday, August 28, 2015.
Gold has finally shown some support the last two weeks.
The Gold chart is showing a compelling formation. There appears to be a double bottom giving the December Gold support at around 1117.00. If this holds, then looking at the Fib numbers, the next level up may be $1154.30 and/or $1173.60 depending on whether they support the bullish formation. It may just be up to the Fed on whether Gold can hold!
The Gold market has been totally oversold and was due for a bounce! The Chinese devaluation was just the perfect catalyst for the Gold to move up. China is typically a major buyer of the Gold so it fits perfectly for Chinese allocations to hedge the currency devaluation by buying Gold. The true nature of Gold as a safe-haven calls for fear and anxiety to increase the demand for Gold. We have seen anxiety this week as fears of China’s devaluation and possibly other countries devaluating their currencies moved the Gold. Gold hedges against currency devaluations and conflict. The International Monetary Fund had decreased its forecast on global economic growth down to 3.3% from the earlier 3.5% which also may boost the Gold prognosis.
The World Gold Council forecasts that the global central bank reserves added about 120 tons of Gold in the first quarter. In the second quarter, the Gold demand was 137.4 tons. Russia bought about 67 tons in the first half of the year. Their reserves may be about 1.275 tons to date. Gold had been hurt this year by a listless chart. Risk allocations had remained preferred by investors such as the equities. The Fed’s potential rate hike had impacted the Gold negatively. The People’s Bank of China released data showing their Gold reserves to be at 1.658 tons according to the World Gold Council. Russia and China seem to be opting for Gold reserves as opposed to US Dollar reserves.
The Chinese devaluation had some serious effects on the markets this last week and a half! Moody’s Investor Services had decreased its 2016 world growth projection to 2.8%. Citigroup Inc had reduced their forecast for global growth last week to 3.1% for 2016. While it is noted by many economists that the Chinese slowdown should have limited effects on the US economy, the markets show their fragility as the productivity of the US economy and the markets are intertwined. Keeping the US Dollar strong will affect exports for the US. Manufacturing and construction have been frail in comparison to the labor sector, but they are intertwined in that labor must have goods for the jobs to exist. Services sectors are stronger yet a nation cannot survive on services alone without goods. This must be a quandary for the Fed to see the effects of the China devaluation knowing that the rate decision may have more impact. Certainly the Fed does not want to believe that they manipulate the markets, but in evaluating market moves, it is difficult to rule out. It is now a matter of the Fed showing a disassociation with the markets and raising rates in September as many have forecast or will they contemplate the moves we have seen these recent days and consider the effects. The US economy has shown better data numbers particularly in job growth, but will the economy be healthy enough to stand without the Fed’s stimulus? IMF Managing Director Christine Laggard and the World Bank has asked US Fed Chairperson Yellen to hold off on a rate hike until 2016. After all the easing and careful planning of the Fed, will Yellen want to take the chance of springing the hike too soon and be subject to the criticism of some esteemed leaders? Next Friday’s Employment Report should be extremely important to the Fed, not only in terms of jobs created but also in wage growth. Financial instability may just delay the Fed rate hike this year.
The Fed Members still prefer to assess the economic conditions and outlook before any decisions. There was a diverse sentiment making the rate hike timing murky. They must decide on whether to reinvest the approximate $216 billion coming from maturing Treasuries or simply let them expire. Additional assessments were requested thus making the analysis incomplete. It would seem that it boils down to whether the Fed can project the inflation rate to come and the employment growth in the future or if they really need the figures to come in to confirm the hike. There was obviously concerns still on the inflation and wage growth. They want to be “reasonably confident” before the rate hike. The Fed is staying with their mandate of improved employment and inflation increasing toward the 2% target. The next Fed meeting is September 16th and 17th. Yellen prefers an early and gradual hike rather than a late and steep tightening process. The strong US Dollar has hurt US exports as it is, so now it may just be the key in whether the US Fed may still launch their rate hike in September, December or wait until 2016. The US had in previous years fought against the yuan devaluation, but at this juncture China may have just cause with their current economic status. China has their allocations of US debt instruments at about $1.27 trillion. Japan has trimmed their foreign reserves of US debt instruments to about $1.197 trillion.
Personal Income for July was 0.4% while the previous reading was also 0.4%. Consumer Spending was 0.3% while the previous reading was 0.2%. The PCE Price Index was 0.1% while the previous reading was 0.2%. The Core PCE Price Index was 0.1% while the previous reading was 0.1%. The University of Michigan’s Consumer Survey Center’s Consumer Sentiment for August came in at 91.9 while the previous reading was 92.9. The Chicago Fed National Activity Index for July was 0.34 while the previous reading was 0.08. The Redbook Store Sales for the week of August 22nd was 1.7% while the previous reading was 1.6%. The FHFA House Price Index for June was 0.2% while the previous reading was 0.4%. The S&P Case-Shiller HPI SA for June was -0.1% while the previous reading was -0.2%. The 20-city NSA was 1.0% while the previous reading was 1.1%. The PMI Services Flash for August was 55.2 while the previous reading was 55.2 unchanged. New Home Sales for July were at 507,000 while the previous reading was 482,000. Consumer Confidence for August was 101.5 while the previous reading was 90.9. The Richmond Fed Manufacturing Index for August was 0 while the previous reading was 13. The State Street Investor Confidence Index for August was 108.7 while the previous reading was 114.6. The MBA Mortgage Applications Composite Index for the week of August 21st was 0.2% while the previous reading was 3.6%. The Purchase Index was 2.0% while the previous reading was -1.0%. The Refinance Index was -1.0% while the previous reading was 7.0%. The Durable Goods Orders (New) for July were 2.0% while the previous reading was 3.4%. The durable goods excluding transportation was 0.6% while the previous reading was 0.8%. The Real GDP was 3.7% while the previous reading was 2.3%. The GDP Price Index was 2.1% while the previous reading was 2.0%. The Initial Jobless Claims for the week of August 22nd was down 6,000 to 271,000 while the previous reading was 277,000. Continuing Claims increased 13,000 to 2.269 million with a one-week lag time. Corporate Profits for Q2:15 (after-tax profits) was 7.3% while the previous reading was 9.0%. The Bloomberg Consumer Comfort Index for the week of August 23rd was 42.0 while the previous reading was 41.1. Pending Home Sales for July was up 0.5% wo 110.9 while the previous level was 110.3. The Kansas City Fed Manufacturing Index for August was -9 while the previous reading was -7. The Fed Balance Sheet for the week of August 26th was $4.475 trillion while the previous week was $4.487 trillion. The Total Assets were -$12.1 billion while the previous reading was -$2.0 billion. The Reserve Bank Credit was $70.8 billion while the previous reading was $10.5 billion. The Money Supply for the week of August 17th was $33.4 billion while the previous reading was $26.5 billion. The Employment Report for July was 215,000 while the previous reading was 223,000. The Unemployment Rate was at 5.3% unchanged. The Private Payrolls is at 210,000 while the previous reading was 223,000. The Average Hourly Earnings is at 0.2% while the previous reading was 0.0%. The Average Workweek is 34.6 hours while the previous reading was 34.5 hours. The Participation Rate was 62.6% unchanged.
The safe-haven properties of the Gold are perfect for those times of uncertainty and/or conflict in the world! The Gold (December) contract is in a bearish mode if it stays below $1167.70. A key consolidation area may be $1100.00 to $1175.00 for the moment. $1131.20 may be the comfort level. The range may be $1100.00 to $1175.00 for now. The stimulus in other parts of the world such as China and the Euro Zone is good support for Gold. If the Fed delays the rate hike or even introduces additional stimulus, it would be positive for the Gold market. In the near-term, we look for a bounce. The bounce may be short-lived but seasonally this is the time we start to look for the Gold to make a move toward December. The really long-term range remains very optimistic.
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