It has been almost non-stop bid since the Non-Farm Payrolls disappointed for the September number (covered last week). For the first time since January, we positively breached the 50, 100 and 200 day moving averages. While momentum has run out over the last 48 hours, it is not uncommon during a rally to take a breather, especially considering its LME week in London and the LBMA industry conference begins tomorrow in Vienna.
- China bought more gold again in September at about the same pace of .75 tons per day that we have seen.
- Momentum still very much positive.
- Turkey shot down a drone aircraft on the Syrian border and concerns that it may be Russian have some anxiety
- Rate hikes in October and, increasingly, December are effectively dead. Market pricing in only 6% and 30% respectively and the Fed seems unlikely to want to do a surprise hike.
- The market is even pricing in only 40% chance of ANY move up to and including the January meeting.
- 10yr yield has broken 2% to the downside
- The GLD ETF has been adding ounces at a rate not seen since January
- Will have support at 200, 100 and 50 Day Moving Avg’s (1176.5, 1141, 1133)
- EFP moving steadily to the right towards contango, which is indicative of spot/forward selling relative to futures. You would like to see the opposite for confirmation
- Gold futures length getting a bit ahead of itself and has almost certainly gotten longer since last Tuesday
- The 4wk moving average for Initial Jobless Claims is at its lowest levels since supposedly 1953, which is further back than I am capable of verifying.
- Indian demand remains weak, even pricing in a discount in Mumbai versus London with mediocre demand in China as well
- Nearing technical ‘overbought’ levels on the RSI at 65 for the daily (14s)
- 50 week moving average is proving stiff resistance at 1181.50 and is still very much on the downtrend.
- Physical demand has gone fairly quiet on the spot rally and premiums are softening a bit, we’ll see if year-end demand supports them again
- Producer selling has been somewhat quieter than you might expect on the rally. Expect heavy selling on the first indication that we have run out of steam.
- Call skew is getting fairly steep. This was also the case during the very long rally 2008-2011, but generally takes away some of the short-covering tendency for cheap thrills higher.
Chart 1 Precedence. The scope of the rally is not without recent instance as both January and August saw rallies of this magnitude and one-way nature. What is different between this rally and the one in August? We have broken through the major daily moving averages to the upside and the sustained lower highs, lower lows trend since January. If January were to replicate itself, we could have another 4% higher from current levels, or $45. $1185 to $1200 has a fair amount of resistance though.
Chart 2 The ETF bid is strong enough (red line), that it is visible on the weekly chart. The big takeaway here is that on a long term, we are still struggling with the long term downtrend or at least stagnation still in place.
Coin Toss Silver really struggles to hold the $16 handle of late, so generally expect lower there as lack of coin and bar Demand is off and I believe producers are finding this level amenable to operating margins. I am following the DXY and rates for indications on gold as I worry that the general consensus is about as dovish as it gets currently in the short term pendulum. As mentioned earlier, there is certainly room for further room higher before this even becomes overbought, but I think the next leg will require a specific stimulus in the form of data, central bank action or commentary. In a vacuum, lower.
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