Zig-Zag Path But Long-Term Trend Points Up
July 2010, 8:54 a.m.
By Debbie Carlson
Of Kitco News
-- (Kitco News) --Gold has meandered around
the $1,200 an ounce level lately, struggling to stage
much in the way of rallies – or breaks – as it enters
the second half of 2010.
the short-term gold may have limits to its upside potential,
but the longer-term trend remains intact most market
trend is still up, but July has been difficult for gold.
It’s struggling with the counter-seasonal tendencies,”
said John Person, president of National Futures.com
has been overshadowed by the strength in equities during
the first several days of July, but many market watchers
still don’t put much faith in the move higher in stocks.
The first trickles of earnings reports have come in
positive, but there’s a long season of earnings ahead.
Those scant supportive earnings reports tend to get
overshadowed by economic data, which lately has pointed
to a soft-patch in the resumption of growth in the U.S.
economy. The most recent example was Thursday’s retail
sales report and the Empire State Index, a measure of
manufacturing in New York.
Morrison, editor and founder of the online newsletter
Morrison on the Markets, said that gold’s lackluster
performance lately goes along with some other commodity
markets that have lost at least a favor with asset managers.
behavior of gold futures and gold-related ETF’s since
June 30 suggests there is a movement to reduce positions
in gold and related investment and to turn the ‘paper
profits’ into ‘booked’ profits…. Based on the high volume
and sharp decline on July 1, it’s like the ‘longs’ could
hardly wait to pull the trigger to lock in some of those
gains once the quarter ended,” Morrison said.
also said activity in the Commodity Futures Trading
Commission’s weekly commitment of traders’ report underscores
what is seen in the exchange-traded funds.
notable that in the week ending July 6, hedge funds
reporting a long position to the CFTC declined by nearly
20% from 115 to 93 funds. Not only were longs exiting,
but the same report confirmed that new short sellers
were stepping up to the plate as the number of funds
reporting short positions increased to 22 from a paltry
nine in the prior week ending June 29,” he said.
market watchers have noted the drop in investor interest
in gold since the prices hit their nominal all-time
high in mid-June. Total ETF holdings dropped 4.4 metric
tons from the high of 1320 tons in mid-June. Short-term
it suggests that investors are uninterested in adding
to positions, but the fact that redemptions have not
accelerated means there’s still appetite to hold gold
for the long-tem, the market watchers said.
at technical charts, Morrison believes the August Comex
futures are setting up a classic bear market flag as
it struggles to break through the $1225-30 area, which
could mean a correction is possible in the short-term.
He said in the past two to three years that when gold
has made new highs, then corrected, those corrections
have been anywhere from 15% to 30%. A 15% correction
from the mid-June intraday highs around $1,266 would
mean a fall to $1,075.
normally experiences a choppy price trend at this time
of year, and this year is no different, Person said.
The yellow metal is likely to weaken in the near-term,
but by mid-August that should end, and prices are likely
to rise into year-end because of seasonal patterns.
said provided during the next four weeks gold will hold
above $1,100 on a weekly basis the yellow metal could
trade between $1,250 and $1,450. “If we see a weekly
close under $1,100 (in the next four weeks) then all
bets are off. That means something has drastically changed,”
doesn’t recommend shorting gold despite its difficulties
to return to the recent highs. “If you don’t want to
own it here, wait to buy on dips,” he said.
Bush, senior financial futures analyst at Archer Financial
Services is still bullish on gold for the long-term.
“There are two ways to trade gold. You’re either out,
or you’re long. I would never have a naked short in
gold in case of a geopolitical incident that occurs
or that a … chart signal is hit” and prices spike, he
cited all the money supply floating around the world
because of stimulus spending has the potential to be
inflationary, especially if the global economy is in
recovery. Future inflation is still a concern, even
though inflation now isn’t an issue. He also cited the
recent purchases of gold by different central banks
as price supportive.
some believe the global recovery is in doubt.
Hackett, president of Hackett Global Advisers said he
sees inflation in the long-term – but not until 2011
– because he believes the U.S. is due for a deflationary
move for the rest of the year. Souring economic data
could mean the stimulus plans the U.S. government put
in place have come to an end and for the economy to
continue to grow, more stimulus is needed. However,
given how much the U.S. electorate disliked the first
stimulus package, politically he does not believe the
Federal Reserve and Obama administration can offer another
unless another crisis hit.
think we’re headed for a heavy dose of deflation in
the fourth quarter,” he said.
like what the markets experienced in 2008-09 with asset
values declining, something similar could happen later
this year. He said money supply contracting despite
record low interest rates as consumers pay off debt
and that leaves less money around to buy goods. “In
the long-term, that’s a good thing, but in the short-term
it isn’t,” he said.
a deflationary scenario all assets – gold included –
would fall. He said gold could trade in the $950 to
$1,000 range – and that could offer investors a chance
to buy the yellow metal at a discount to current prices.
“That would be a fantastic time to buy gold as once
we’re in the reflationary cycle you can maximize the
upside,” he said.