I have found most people who watch gold asking themselves the same question lately. How can this thing not rally in the wake of all that's going on in Greece? The S&P gapped down 40 handles on Sunday night. Gold rallied about 15 bucks, failed, and closed back near unchanged by day's end.. Given the slow grind up we have grown used to with the stock market, a 40 handle gap is a big deal. If news could derail the S&P like that, there should be safety bids across the board..... but gold failed.
As I write, we trade near 1173, right about where we settled last Friday. The situation in Greece has only gotten worse since then, yet gold remains decisively unchanged.
Technically, gold continues to look shaky at best, but it has simply found ways to rally in too many technical doomsday scenarios (looking like it would collapse but it rallied). But there is an important take away here even if you don't want to get involved in placing directional bets.
Gold is FINALLY starting to gain a public persona. As gold has swung back and forth in ranges that are old and boring, the public has completely lost interest. At the same time, you have seen a stock market up 200+% in just over 7 years, so its no surprise gold has not been hot on people's radar's.
So what is gold's public persona?
That it is not a safe haven. If the Greece situation becomes tricky and leads to more serious political"brinksmanship" maybe it'll generate some buying interest, but thus far, evidence points to the idea that gold is not considered a "safe haven".
In effect, as I have said in times past, gold has been going through a massive identity crisis. When QE (quantitative easing) began in the U.S. gold had a very clear identity. It was the thing you bought when people became fearful of inflation due to the increased money floating around. I was clerking at the time, but I watched people make a lot of money riding that wave.... and guess what.... the whole idea was wrong.
All the QE, zero interest rates, and whatever other "accomodative" policy we have seen over the last few years, has not lead to inflation. In fact (take it for what it's worth) policy makers would rather see more inflation in our economy, as the "below target rate" inflation we are seeing can be viewed as a sign that money is not making its way through the economy quickly enough. In other words, there is a lot of money out there, but it isn't creating a vibrant economy that leads to demand and in turn, causes the prices of goods to go up. But, all the people who believed that QE would lead to inflation, and bought gold on its rip to 1900, still made money, even if they were completely wrong about how quantitative easing would effect inflation.
Gold is something people buy and sell. It's price is more a matter of psychology than anything else. Demand for gold was fueled in the QE inspired bull run because of a fear of something. A general understanding existed among market participants that if you were afraid of inflation, this is where your money belonged. It was an idea, nothing more or less, but it was enough to create an identity that could create an investor base with a reason for interest.
THIS GREEK THING WAS A BIG DEAL FOR GOLD.
It has at least established one part of gold's identity. It's not the thing you buy when an EU country might default on their debt obligation. It might seem like a sad and slow step, but it is something. Over time, as gold goes up or down in accordance with these perceptions among investors, trends will form. When trends form, trading starts, and that is what leads to a vibrant market. It's a small start, but I am being sincere when I say that I think this Greek situation has been a big deal. If gold had rallied to 1200 like it has so many times, we might still be hearing about "the safe haven bid". But it didn't, and I believe that the investment community, the same community that could've cared less about gold for the last 2 years, has had no choice but to take note of this pathetic performance. It is hard to begin the process of finding one's identity by being picked last in the pick up game, but at least its an opportunity to build some character.
These are some interesting times and I don't mean to be hard on gold when I refer to its broken identity.... I think there are other markets going through similar things. It is important to tread lightly while trading all of these markets right now. There are simply too many things at play that are outside of our capacity to understand that can destroy a good thesis (massive central bank intervention). There should be (and in gold options finally has been for the last few days) some 2 way trading, but building a position is tricky as the market can flip on a dime (for reasons we don't, and probably won't understand).
If you don't want to be bored with my chart ideas, stop reading now. Remember, the Employment report was pushed to Thursday because of the shortened week.
Above is the 90 day chart of gold. I only want to point out 2 things.
1) Gold is entering a decision point. The uptrend line drawn from the low of 1141.6 has seen multiple tests of late.The line has managed to hold, but it is getting tested more frequently, and the bounces are less pronounced.... which is not a very strong sign for the metal.
2) There is a profound similarity between the pattern we are seeing now, and the rally to from 1170 (right here) to 1232 and its sell off following the high. Notice how there is an uptrend line that held from ~ 1145 in late February, which formed its second point around 1170 in late April. Following this test there was strong buying that lead to the rally all the way up to 1232.
After it failed 1232,it worked its way back down to the trendline in late may around 1185, and it consolidated in a very tight range along that trend line for nearly 2 weeks before breaking, and forming the 2nd bottom of the new uptrend line.
I see the same thing repeating with this new trend line. Instead of rallying to 1232, this rally failed at 1205. Now gold is testing this trend line more often, which as mentioned in point 1, is signaling that buyers are struggling to regain control.
I don't think gold stays here for too long. Phones have been buying back straddles (bought back options they have sold, indicating option shorts might be concerned of a pending move). It is also this meeting of trendlines, a decision point where we see whether the buyers or sellers have more pull.
I would be surprised to see gold consolidate here for more than a few days. Thursday's employment number might be the catalyst for movement. If it is to break upward I think it will run into resistance and struggle to break above 1192. It is harder for me to guess where a sell off might land gold. Certainly the chart above's low of ~1140 would be in play, but it would have the potential to go much lower. A drop to 1140 would only be the 3rd test of this area (low 1130.4 in November and the 1141.6 you see in March) since 2010. If a new low were to be made, barring any miraculous bouts of buying (ala the rip post the first test of 1130 which found us near 1200 within about a day) there isn't much support until at least 1100.
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