GST Issue #223
For some strange reason, traders jumped all over Janet Yellen’s comments this week indicating a more modest approach to raising interest rates, and started buying gold like crazy.
That’s nothing but hocus pocus. So let me be perfectly clear: Those who bought gold this week based on the prospect the Fed may delay raising rates are going to soon be crushed.
Think it through: Why would a delay in raising rates be bullish for gold? A delay in raising rates means the economy is not yet strong enough to handle higher rates. How is that bullish?
It also could mean that the Fed is not all that impressed with a recent uptick in inflation. So how is that bullish for gold?
FACT: The biggest bull markets in gold occur when rates are rising. Not falling or holding steady, but rising.
Conversely, the biggest bear markets in gold occur when rates are low, falling, or staying at very low levels.
Bottom line: Anyone who thinks Yellen’s comments this week were bullish for gold simply doesn’t understand the markets. Period.
That said, we must now be aware of a possible cycle inversion in gold, where the June 24 cycle target produces a high instead of a low. That would be largely confirmed if gold were to close above $1,212.70, basis the August futures contract, on a daily basis.
Currently trading at $1,202, my models suggest we may test the $1,212 level today or Monday, but fail to close above that level. If so, then it remains entirely possible that gold could simply COLLAPSE heading into later next week.
Therefore, at this time, we simply cannot make a move on the July put options. We need to see today’s and Monday’s action. From that, we will be able to make appropriate strategy adjustments.
If indeed a cycle inversion comes about, all it simply means is that the decline into the next cyclical target, in November, will be all that more powerful.
For now, hold all positions and look for a more detailed update on Monday, after my models digest this week’s closing action.
Best wishes and stay tuned …
Larry
Position Tracker
Click here, or on the image below, to view our position tracker in .pdf format.
