Overview

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Technical systems are calling for continued weakness in Gold and strength in the USD. Technical analysis being what it is, that is correct until it no longer is. What matters is the risk/reward scenarios presented by such analysis. As Statistical traders and Option geeks we do not claim to be technicians. But the tool is useful in conjunction with other factors after one has developed an opinion and is looking for an entry or exit point to implement that opinion.
-Soren K.

Brexit, Volatility, and Value
From our point of view, Gold has been relatively strong. It is among the last markets to go back into pre-Brexit mode. That is a pleasant sight given that hot money makes Gold more volatile on a daily basis than other mediums of exchange. Which also means it could have further room lower. As we said over the last week, our own VBS trade signal has given entries and non profitable 3 day exits to the downside in Gold and Silver. But if you ignored the volatility, as we do not on VBS signals, both markets have softened since. If you ignore the volatility as an investor you will be more comfortable. and yesterday’s DB report gave us impetus to comment on that. If Gold can be $300 higher from where it is now based on one correlation, then why isn’t it? Because of volatility. Price is not value. Price is a snapshot in time. Value is relative price over a period of time. We will elaborate on that more tomorrow in a fresh post

UPDATED 2:45- GC “Snaps” its range
Snap is a common term traders use on a range breakout in either direction. Today we saw a classic example right below what we thought was “weak resistance”. Turns out, it was strong enough. The only “tell” in the rectangle area was the RSI. On each attempt to pierce the upper bound of the trading range shown, the RSI made lower highs. That was our only warning. And no we did not trade it. But we are sure technical bears (before the snap), and momentum shorts (after the snap), did

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Our next trade in Gold will likely be a buy after the market bottoms and our VBS gives us a signal for increasing upward volatility. We say that becasue the OI is upticking as shorts are starting to pile in. They will likely be right in the short term. Assume the bottom is not in. It is when the market makes new lows without a the RSI makingnew lows. A nice Snap could come off a similar pattern at some point. Hopefully if you are a Gold inverstor just hearing someone agnostically say “The next trade on our system will likely be a buy” should tell you that volatiity is not risk. And Price Is Not Value.
But if you are trading Gold and area momentum fund, you will be selling dips now. If you are a technical bear, you will be selling rallies. If you are looking for a place to buy technically, one place would be when you can identify more sellers of weakness than sellers of strength. Weak hands selling for quick dayttrader type gains. Watching OI and RSI should help.

Today we have to contemplate whether consumer confidence, that is the public’s “attitude” toward cutting loose and stoking the fires of higher spending, is an idea or a reality.

After all, broad consumer spending is based on higher employment levels, higher wages, and access to credit. The model consumer can be whistling “Dixie” as he or she walks down the street, but that doesn’t mean that consumer is going to turn into the nearest store and buy four new pairs of shoes instead of one or a ride-on lawn-mower instead of an old-school push mower. Feelings are notoriously hard to quantify through surveys.

One way or another, the sharp rise in consumer confidence that came in well above projected levels, (101 vs 97) moved the U.S. dollar sharply higher today. That, in turn weighed heavily on gold and the entire precious metals complex.

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The dollar was up half a percent against the euro and more than one percent against the yen. Gold is down about $11.00, of which $7.00 can be attributed to dollar strength. Silver is off 1.60%.

Interestingly, the yield on the U.S. 10-year bond inched up barely perceptibly. The bond market, unlike gold, oil and equities seems to reflect more doubt as to the direction of interest rates especially in the near-term.

Speaking of oil, it fell again today as it remains trapped in a range that is defined by rumors of a freeze on one hand and oversupply due to over-production on the other. Some of today’s loss in West Texas Intermediate and Brent North Sea positively may be attributed to the stronger dollar but the fact remains too much oil is – literally – in the pipeline.

Although we are probably in a minority at the moment, we don’t see the oversupply issue clearing up until late in 2017, or perhaps even 2018. No player in the energy game wants to alter the game’s current rules by curbing production.

The price of oil, a new ripple of fear concerning the possibility of rising interest rates and sluggish growth elsewhere in the world quashed any incipient rally in Wall Street stocks.

Add to that the chilling effect of the EU’s unfair and retroactive tax grab on Apple-Ireland and you have an almost perfect storm for losses in equities. This will not be the last of the Apple tax brouhaha, which is rather just beginning to unfold.

If the ruling stands, it will leave many American companies puzzling out whether they should invest in Europe at all if they can be subject to retroactive taxes. Additionally, after the Brexit train wreck, it will leave a bad taste in the mouth of all strong supporters of stronger decentralized decision-making within the EU. The Irish – and other nations in the group – will likely ask if they, too, should drop out.

A retroactive move is also the kind of tricky maneuver that leaves European countries here in the U.S. subject to retaliation. This could be the start of an undeclared trade war.

For those who would like a deeper analysis, I invite you to try our daily video newsletter. Simply use the link at the bottom of this report to sign up for a free trial.

Wishing you as always, good trading,

As I’ve been warning for some time, the silver spot price was due to correct. And that’s playing out this week.

Recent silver spot price action has dragged the precious metal below its narrow consolidation range and below its 50-day moving average. That certainly helps confirm correction mode.

But I’ve also been telling readers to watch for the gold/silver ratio to bounce back after dropping significantly in silver’s favor. That’s happening now, too, and we’ll look at that in more detail below.

Price of SilverNow that U.S. Federal Reserve Chair Janet Yellen and other Fed officials have made their speeches at Jackson Hole, Wyo., we can see what that has done to the dollar and precious metals.

Her remarks that the U.S. economy is nearing the Fed’s employment and inflation goals sent the dollar higher and precious metals lower.

It seems the market saw Yellen’s remarks as hawkish, which explains both the stronger U.S. Dollar Index and lower silver prices.

We’re going to look at what the silver spot price correction and the gold/silver ratio move could mean for silver going forward. But first let’s analyze what happened with silver prices last week…

Why the Silver Spot Price Is Correcting Now
Like gold, the silver spot price peaked in early August around $20.70. But the precious metal eventually succumbed to weakening sentiment and overbought conditions. And that trend intensified this past week.

On Monday, silver opened at $18.88, and after a quiet day of trading closed just one cent higher at $18.89.

Urgent: Despite the recent gold price slump, gold stocks are still among the best investments out there. That’s why we just recommended one gold stock that could gain 49% in 12 months…

Tuesday saw silver open at $19.00 on early morning dollar weakness. But the dollar rebounded and that weighed on silver, which closed at $18.85.

Wednesday, more strength in the dollar continued to drive the silver spot price lower. Silver began trading at $18.84 but quickly dropped to $18.55 by 11 a.m. It closed even lower at $18.50.

By Thursday, these new lower levels had become entrenched. Silver opened at $18.50 and closed at that exact same price.

But after Yellen’s speech on Friday is when the fireworks started. Here’s how silver prices reacted:

You can see an immediate drop as Yellen’s comments were made, then a strong bounce, followed by a retreat to below pre-speech levels.

Much of that can be explained by the opposing reaction in the U.S. Dollar Index. Here’s how it looked:

The Fed is Out of Ammo

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While the markets gyrate against a backdrop of the Fed symposium Jackson Hole jawboning it might be prudent to put ourselves in the Fed’s shoes for a moment.
We do think the Fed is constrained from doing the right thing even when it wants to by political pressures. An outgoing Democrat POTUS and the current front runner, Hillary Clinton have major stakes in the stock market price as a “legitimate” barometer of the economy. It would be far tougher for Mrs. Clinton to win if the S&P were 500 lower. There would be nothing to hide behind when the populist revolt swelled and attacked their policies head on. Trump could win. Add to that the reality that the economy has not recovered, the newly employed are waiters and bartenders (who are now getting laid off) and it seems ludicrous to raise rates.
On the flip side, what can the Fed materially do if there is another crisis? Pretty much nothing. They have no ammo. This is reflected somewhat in Janet Yellen’s speech which gives a rather wide berth for rates in 2018.

“The shaded region, which is based on the historical accuracy of private and government forecasters, shows a 70 percent probability that the federal funds rate will be between 0 and 3-1/4 percent at the end of next year and between 0 and 4-1/2 percent at the end of 2018.2 The reason for the wide range is that the economy is frequently buffeted by shocks and thus rarely evolves as predicted. When shocks occur and the economic outlook changes, monetary policy needs to adjust. What we do know, however, is that we want a policy toolkit that will allow us to respond to a wide range of possible conditions.”

Note the last sentence. That is basically an admission that they have no bullets to use if there were another crisis. The only way to have anything in reserve for a crisis event is to reload the gun by raising rates. And by the way, a 70% probability is not very good. That is 1 standard deviation from where we stand in a world where 3 STD moves are becoming not the norm, but the reaction to almost any exogenous shock in other markets.

(Kitco News) – There seems to be more gold bears out of the woods on Wall Street this week with nearly half expecting prices to move lower post-Fedspeak.

Friday, Federal Reserve Chair Janet Yellen spoke in Jackson Hole, where she implied conditions are moving more in favor of an interest-rate hike. Fed Vice Chair Stanley Fischer also reiterated this sentiment Friday, noting that monetary policy tightening could happen before year-end if data permits. As a result, gold prices were fickle on the day, dipping in the immediate aftermath of Yellen’s remarks and then moving higher. After peaking at around $1,346 an ounce, December Comex gold futures last traded at $1,325.20 an ounce.

Thirteen analysts and traders took part in the weekly Kitco News Wall Street survey, of which six participants, or 46%, called for lower gold prices next week. Five voters, or 39%, voted higher, while two, or 15%, are neutral.

Meanwhile, 1,060 Main Street participants voted on this week’s online survey. A total of 606 respondents, or 57%, said they were bullish for the week ahead, while 296, or 28%, were bearish. The neutral votes totaled 158, or 15%.

Most analysts agreed that since the Fed is now out of the way, gold will shift focus towards next week’s U.S. economic data as well as movements in the U.S. dollar.

“A lot of technical damage was done to gold this week as it broke an uptrend, and although gold has regained for now, momentum indicators also look bearish for the near term,” noted Colin Cieszynski, chief market analyst for CMC Markets.

“Gold trading is likely to be driven by swings in USD depending on whether PMI and payrolls data point toward a September rate hike or not.”

Ralph Preston, principal with Heritage West Financial, also called for lower gold prices in the week ahead, noting that as the metal coils between $1,315-1,369, he wouldn’t be surprised to see the price drop around $50.

“I’m looking for a break to the downside under $1,315, which would project a move back down to $1,275,” he said.

However, one analyst – who is also expecting lower gold prices – still made the case for the yellow metal over the longer term.

“Gold finds itself pulled in two directions; a stronger dollar is a headwind but monetary policy divergence between the U.S. and other central banks establishes a solid price floor around $1,300 per ounce,” Richard Baker, editor of the Eureka Miner Report, told Kitco News.

“Negative interest rates around the world should maintain strong demand for U.S. Treasuries, keeping the long end of the yield curve down even when the Fed raises short-term rates. This flattening should buffer gold somewhat from the curse of rising interest rates, keeping $1,400 still in sight for 2016.”

Baker added that he is shifting his attention to the Bank of Japan, which may bring about “September surprises” to the marketplace in reaction to the strong yen, which would bode well for gold.

One bullish vote came from Adrian Day, chairman and chief executive officer of Adrian Day Asset Management, who said he sees higher gold prices ahead regardless of whether or not the Fed raises rates this year.

“The Fed, as evidenced by Yellen’s speech, wants to raise rates but many, including Yellen, are cautious, seemingly wanting perfect conditions before they act,” he noted.

“The headlines were negative but the speech as a whole remains cautious. Vice Chairman Fischer is attempting to force the issue, so we’ll probably see a rate hike before year end, but another quarter point would not detract from gold’s bullish case.”

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Gold futures fell, then quickly bounced in the aftermath of comments Friday from Federal Reserve Chair Janet Yellen suggested the argument in favor of another rate hike has strengthened but nevertheless was vague enough that she did not spook the market, traders said.

The Fed chief was addressing the annual symposium of Fed policyholders in Jackson Hole, Wyoming. There had been worries she would strike a more hawkish tone than in the past, particularly after other policymakers did so over the last week.

As of 10:29 a.m. EST, Comex December gold was $15.80 higher at $1,341 an ounce.

Yellen’s prepared remarks said that considering “continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months.”

The initial headlines were construed hawkiskly, and gold fell, said Charles Nedoss. The market then reversed higher, though, as market participants continued to digest her remarks.

“She laid out the case (for a rate hike), but not a real strong case,” Nedoss said.

Yellen also said the case for a rate hike depends on future economic data. She added any rises should be gradual.

“The market was prepared for interest-rate Armageddon when Janet Yellen spoke,” said Phil Flynn, senior market analyst with Price Futures Group. “Apparently, the market isn’t afraid of what she said because she didn’t say anything new.”

The Fed chief was just vague enough that buyers returned to the market, Flynn said.

George Gero, managing director with RBC Wealth Management, said gold also held up since “it’s underowned at this time,” pointing out that many funds had already exited from the market.