Gold has experienced a wild ride over the past few trading days, but has surged through key triple top resistance above $1,300.
On Friday — after disappointing U.S. durable goods data, but just prior to Fed Chair Yellen’s address at Jackson Hole — gold initially surged above $1,301-an-ounce, then just as abruptly sank as low as $1,281 … all in less than half an hour!
The volatile move was accompanied by a surge in volume, with gold futures contracts worth more than 2 million ounces changing hands in a one-minute time span!
Gold bugs who are prone to believing conspiracy theories will no doubt point to this as yet another example of gold market manipulation.
But a more likely explanation was simply a large hedge trade placed just prior to Yellen’s speech in Wyoming, and a speech later that afternoon by ECB Chief Mario Draghi.
Following Friday’s volatility, gold ended the week flat. But the yellow metal surged higher out of the gate Monday morning, trading as high as $1,317 before settling at $1,315.60, up 1.4%. Silver likewise posted a strong performance, gaining over 2% to $17.43!
In the process, gold sailed straight through two key weekly pivot points, a close of $1,295 from earlier this month and a weekly high of $1,298.80 reached back in June. So key support for gold now lies at $1,290 to $1,300.
If gold, can manage to remain above these levels on a monthly closing basis (Thursday) and a weekly close (Friday), it’s a bullish development for the yellow metal indicating higher prices near term, perhaps testing the next key resistance at $1,338, stay tuned.
However, some caution is still warranted … because our E-Wave cycle model (see chart above) is forecasting lower gold prices into September and October.
The most likely inflection point for a change in trend for gold is from now through mid-September. But it’s too soon to say what the magnitude of any pullback will be.
This morning as I pen this, gold and silver are bid higher after another North Korean missile overflew Japan, pushing December gold futures above $1,325. It’s quite possible gold could challenge the $1,340 to $1,350 level first, then pull back to the breakout point around $1,310 before moving even higher.
Ultimately, gold could easily revisit the $1,350 to $1,400 level during the next rally phase. But once again, our cycle models indicate the rally may not get underway in earnest until late October.
So please stay alert for updated analysis from us as events are likely to move fast, and markets turn more volatile post Labor Day.
Your positions in VanEck Vectors Junior Gold Miners ETF (GDXJ), Seabridge Gold (SA) and especially Sibanye Gold (SBGL) are surging higher along with gold and silver prices. Continue to hold. We are looking to add to your precious metals positions on a pullback.
Meanwhile, stocks are under increased selling pressure heading into the worst six-week seasonal period of the year for the market: Good news for your Home Depot Inc. (HD) puts and for your inverse index ETFs – ProShares UltraShort Dow30 (DXD) and ProShares UltraShort S&P500 (SDS). Continue to hold.
Treasury bonds are an accidental beneficiary of safe-haven money flows thanks to increasing tensions in Asia, and with the U.S. debt-ceiling debate looming in September. The dollar however is not reacting as you might expect from safe-haven flows. In fact, the buck fell to a new 52-week low today, as the euro moved up.
We are watching developments closely, and keeping both the Direxion Daily 20 Year Plus Treasury Bear 3x Shares ETF (TMV) and ProShares UltraShort Euro ETF (EUO) on a short leash. If we don’t get a reversal in trend very soon in the dollar and bonds, we will recommend closing out these trades. But wait for our signal.
Hold all other positions and stay tuned for more updates.
Good investing,
Mike and David
