Gold’s Picture-Perfect Downtrend Reasserts Itself As Fed President Says Sept. Taper Possible

August 07, 2013

[Editor’s Note: This was originally published on our commodities site hardassetinvestor.com]

 

The “dead cat bounce” in gold that began last month looks to be petering out as prices slip below $1,300 (€977) today. There was no specific news that drove the rally from $1,180 up to nearly $1,350. Likewise, there is no specific news that is driving prices down now.

The most important point to consider is that the medium-term trend is lower and that trend is attempting to reassert itself. There is a pattern of lower lows and lower highs in gold prices this year—a picture-perfect downtrend.

Until this pattern is broken, our bias is bearish. Naturally, we now expect prices to retest the current $1,180 cycle low in the coming weeks.

In terms of news flow, we are keeping a close eye on comments from various Fed officials in the run-up to the important Sept. 18 policy decision.

Speaking to reporters today, Chicago Fed President Evans—known as one of the more dovish officials—said that the central bank was “quite likely to reduce the flow of purchases rate starting later this year.” He added that he couldn’t say exactly which month that will occur, but that he “clearly” could not rule out September.

Looking forward, the minutes from the July meeting will be released on Aug 21, and the important Jackson Hole Economic Summit will take place Aug 22-24. Between those two events, we may get a clearer sense as to whether the first tapering of QE will take place in September or later.

ETF Holdings

Gold ETF holdings fell by 0.3 million troy ounces, or 0.46 percent, to 63 million ounces. Silver holdings fell fractionally to 617.6 million. Platinum rose by 29K, or 1.32 percent, to 2.2 million—a record high. Palladium holdings fell by 13K, or 0.59 percent, to 2.26 million.

Key Ratios

The gold/silver ratio fell to 65.6; the gold/platinum fell to 0.9; the gold/palladium ratio fell to 1.77; and the platinum/palladium fell to 1.97.

Currencies

The US Dollar Index fell to 81.6, while the EUR/USD exchange rate rose to 1.3312.

Sovereign Debt

German 10-year bond yields fell, while United States 10-year bond yields edged up last week. German yields were last trading at 1.69 percent, while the US 10-year yield was last trading at 2.64 percent.

Against the German benchmark, yield spreads on PIIGS were mixed. Portuguese, Italian, Irish, Greek and Spanish yield spreads were last trading at 4.8 percent, 2.6 percent, 2.2 percent, 8.1 percent and 2.9 percent, respectively.

Inflation

There were no notable inflation figures released last week.

 

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