Issue #53
Dear Member,
Here is this week’s big picture update.
GOLD
Fundamentals:
After a big selloff on news that the government shutdown was confirmed last Tuesday, gold managed to stage a recovery taking it back above the $1,300 level. The rally suggests that Washington may not be able to reach an agreement.
Gold may also be anticipating the looming debt ceiling deadline on October 17. Any signs of an imminent debt default could be attracting safe haven flows into gold and may be the reason behind its rebound despite the huge selloff below important support levels at $1,305.
Technicals:
Gold went down to retest old support coming in at the $1,270 region but held and managed a close for the week back above the $1,305 region.
This action alone proves that there are willing buyers below $1,300 in gold. But until gold can close strongly above its 50-day moving average at $1,345 and subsequently $1,375 then I still hold my bearish bias.
Beyond this, I would need to see gold close on a weekly basis above its recent intermediate-term highs at $1,434 before I can confidently say it is heading solidly higher. Indicators, including momentum, are in a neutral position right now. Overall, I remain bearish intermediate-term and do not believe the final lows are in.
SILVER
Fundamentals:
Like gold, silver sold off on the shutdown news but also managed to reverse course and push back up toward former resistance levels.
Reports of a slowing down of precious metal ETF outflows perhaps has reinvigorated the bulls into thinking maybe this time the tide has finally turned and higher prices are ahead. I don’t think so.
Technicals:
Silver managed to climb back to its 50-day moving average after the shutdown selloff showed signs that this market is not yet ready to breakdown.
However, as with gold, I still need to see a convincing move with a close above $23.50 for the picture to turn bullish, at least for the near term. All other indicators are pointing to a directionless market in the near term, but a bear trend on an intermediate-term basis.
THE U.S. DOLLAR
Fundamentals:
News of the government shutdown kept the pressure on the dollar as traders saw no near-term solution to the deadlock in Washington.
Also, some encouraging data out of the euro zone during the week kept the euro in a strong position relative to the greenback.
Traders will be looking ahead to the debt ceiling deadline on October 17 and how a possible default by the U.S. government will impact the dollar, keeping in mind that the same issues in the past have not been bearish on the dollar.
Quite the contrary, if the debt ceiling issue is not resolved and there is at least a temporary, partial default, then it might turn out to be extremely bullish for the dollar. Ironically, if most investors and big capital is worried about a default and its implications for the market, they will park money on the sidelines, in cash, which is dollar-bullish. That’s what is called the “exorbitant privilege” of the dollar as a reserve currency.
Technicals:
Support in the Dollar Index at the 80 level should hold.
With Friday’s slightly bullish action and strong close back above 80 in the Dollar Index, I would need to see further signs of strength with a close above at least 80.75 to see more upside.
Resistance still stands at 81.30 – 81.75 at its respective 50- and 200-day moving averages, but a closing back above these levels will signal a renewed bull market in the dollar.
THE U.S. 30 YEAR BOND
Fundamentals:
Bulls were on the back foot last week as profit takers exited the market in light of a slight recovery in equities with the Dow closing back above support at the key 15,000 area.
Another factor keeping a lid on higher bond prices was Fed commentary questioning the effectiveness of the government’s bond buying program.
Also not helping prices is the default threat that looms for the market in the coming weeks as some traders may preempt any negative consequences by selling Treasuries ahead of October 17, pushing up yields further in the long bond.
Technicals:
The long bond is managing to hold its 50-day moving average as support but will need to push off this soon to confirm its short-term bullish stance.
One factor favoring the bullish case is the bullish flag being formed in the price action of the last two weeks and resting right at support, a sign that indeed we may see more upside in bonds in the coming days and weeks.
However, bonds would need to close above resistance at 133.50 and another close above 135 to get any kind of sustainable upside in prices. Conversely, a breakdown below previous lows and a subsequent close below 129.50 would turn this picture bearish.
Stay tuned to your inbox for additional updates.
Best wishes,
Larry
Position Tracker
Click here, or on the image below, to view our position tracker in .pdf format.
