FMX | Connect – www.fmxconnect.com - (Reported 7/27/2010)
While the long-term outlook for gold remains robust for the majority a growing number of market participants are cautioning that buyers may need to brace for short-term corrections. Citigroup’s timely technical warning was punctuated by a nearly $25 drop in the underlying today. We hope you find the analysis constructive.
Time to take a much more defensive stance on Gold
•While we remain constructive on Gold from a long-term perspective the shorter-term price action is now very disappointing with a severe correction lower looking a real danger.
•Equities are performing well with bullish weekly reversals on 4 major U.S. indices last week and break of supports on VIX yesterday.
•U.S. yields are finally rising with possible double bottom forming on U.S. 30 year yields at 4.12%. A break would suggest 4.40-4.50% again and drag 10 year yields through the pivotal 3.05-3.10% area. U.S. 2 year yields are also starting to rise and drag USDJPY higher with 89.00 mow looking on the cards here.
•European sovereign spreads are falling sharply; German 2 and 10 year yields are rising as the curve flattens.
•EURCHF is bouncing strongly
•Industrial commodities (Copper and Crude in particular) are outperforming Gold in recent days.
•It’s looking like a very pro-risk dynamic could be developing and as this has been happening Gold has not been able to follow through towards our $1,300 target
•The base of the 2 year channel around $1,176 is now under threat and a close below (Weekly) would suggest a danger of extended losses. Weekly divergence at the recent highs also supports this danger.
•A weekly close through the base of this channel could suggest extended losses towards $1,030-$1,045 again.
•Could it be that we are entering a multi-month pro-risk environment where people feel less need to hold Gold as a hedge as other assets look more attractive?
Gold monthly chart
Source: Aspen Graphics / Reuters 27 Jul’10
•While we have just seen our 4th higher high in the last 4 years monthly momentum has yet again peaked at a lower high.
•The prior 3 turns lower have seen Gold fall from $180-$350 off the peak…which would give a suggested range of $985-$1,085 with a mid point of $1,000.
•Have we seen this movie before?
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