RALLLLLLLLLY (settle 1622.1)- Terrible Employment data

69k! The low end of the consensus range for today's ever important non-farm payroll number was for adding 95,000 jobs. Needless to say this was a terrible miss. Before the number at 8:30, gold was trading down near 1550, and the S&P was down 15 handles. Weak China data over night was the catalyst for the drop during the overnight session. It seemed logical to me, that given that the S&Ps and gold were down overnight, they might react similarly to the employment data; but this was not to be.

After the number, the S&Ps quickly dropped 10+ handles, while gold began to rally. The bids kept flowing in, and low to high, gold rebounded nearly 87 dollars! In these writings, I am often cautious to ensure that I do not over-react to a one day move, regardless of direction. Today however, I must make an exception. This could be a game changer. But it is not just the magnitude of the rally that changes the gold story so much. Let's take a look at some of the dynamics of today's trading, and why it is all so significant.

1) As of this writing (3:15 PM), front month gold futures (August) have traded 280,000+ contracts. As of this morning's option pit open (8:20 am) only 51,000 contracts have traded. So, nearly 230,000 contracts have traded, almost all on what has been on a sustained up move. This is strong volume, and adds conviction to this move up.

2) This is the most significant stock market/ Gold divergence that we have seen in some time. Recently, I became bearish of gold. My thesis was simple. The stock market is showing no fight, and will keep selling off (correct so far). While gold has shown fits and spurts of negative correlation with the stock market, none has been sustained. As such, I believed that as people sold the stock market, they would sell gold too. Today, may be the first indication that this is not taking place. With gold up 60 and the S&Ps down over 32 this is divergence in the greatest form.

3) The S&P is now below its 200 day moving average and the Dow is negative on the year. 

If negative correlation is to persist between stocks and gold, closing below the 200 day DMA is bearish for the stock market, and consequently positive for gold.

4) We have broken out of the 1530-1599 range that we have been trading in for the last few weeks. Every time we went down into the 1530 area, it was met with serious support. 1581 had served as a big number for a while, but getting through 1600 became the next big challenge. Today, we broke through, and followed through in a big way.

I have written for the past few weeks, as we were range bound, stating that until we broke out of the range, it didn't make sense to play. We broke out. We broke out higher. If you have been on the sidelines because gold was "losing its luster", it's time to get back in. The metal looks like it may have just gotten its shine back.

Have a great weekend

-Ben