Gold finished trading in New York yesterday at $922.70, down $25.50 and silver was down 55 cents to $17.38.
Gold has rallied in Asia and in early European trading with bargain hunting buying. Traders and investors with more medium to long term horizons realise that the speed and depth of the sell off is overdone. Especially as none of the fundamental macroeconomic or geopolitical issues have disappeared or even abated. Speculators, both long and short (it is important to remember that most speculative money is on the short side of the oil, gold and silver markets), can have real impacts in the short term and create volatility and exacerbate trends in either direction. However, macroeconomic and geopolitical factors and the all important supply and demand factors will be the ultimate arbiter of the value of all asset classes.
Gold Nearing Summer Lows Prior to Rallying Strongly into Autumn
While gold has suffered strong selling in recent sessions it is only working off an overbought position (it was up 15% in just over a month – from $857.00 on June 12th to over $988 on July 15th) and a correction and consolidation is healthy and normal. This looks likely to be the last such sell off prior to a strong rally into the autumn as is typical.
Gold seasonal patterns often result in lows in July or August prior to strong rallies into year end.
Previous years may be instructive in this regard. Last summer, gold fell some 7% from $687 on July 16th to $641 on August 13th. The $641 reached on August 13th marked the seasonal low and subsequently gold rallied strongly in August, September, October and early November. It reached $845 less than 3 months later for a return of nearly 32%. Gold subsequently had a shallow and brief correction in November and early December prior to rallying from mid December low of $787 to its highs in March of $1003 or a return of 27%.
A similar performance can be seen in previous years in this current secular gold bull market as seen in the excellent charts which featured yesterday at the James Joyce Table in Lemetropolecafe.com.
As the astute contributor noted “It is perhaps no coincidence that the end of July coincides with option expiry day for the August contract, a subject that Adrian has been discussing in his always outstanding analysis. As we are well aware the price of Gold is almost always pulled down in the days approaching option expiry day as those who wrote the calls are keen to see them expire worthless. And in ‘full view of the cops’ they almost always get away with it. The August contract is a significant one, as it’s the last main contract before the December ‘Big One’, which makes this option expiry as relevant as it is.”
Should gold trade as it did last summer, which is more than possible, we again could see gold fall some 7% (as seen in 2007 – from $687 on July 16th to $641 on August 13th ) and fall from its recent high of $988 to around $918 (-7%).
$900 to $920 should provide strong support and we will likely experience the lows in the coming days prior to surpassing $1,030 in the coming weeks and $1,200 prior to year end.
Today’s Data and Influences
At 1500, we have the publication of U.S. existing homes sales. Federal Reserve member Geithner is also testifying before a House Financial Services Committee hearing at 3pm.
Gold and Silver
Gold is trading at $927.20/927.80 per ounce (1200 GMT).
Silver is trading at $17.51/17.56 per ounce (1200 GMT).
Platinum is trading at $1715/1725 per ounce (1200 GMT).
Palladium is trading at $389/395 per ounce (1200 GMT).