One of the most important pieces of data last week was Friday's
US non-farm payrolls report. US employers added 195,000 new jobs to
their payrolls last month, exceeding expectations of 165,000, the
Labor Department said on Friday, cementing expectations the Fed
will start winding down its $85 billion monthly bond purchases.
It was a very bearish factor for gold, which resulted in its fast
decline. The yellow metal dropped to $1,208 per ounce on Friday.
"We're predicting gold will continue to drop year after year
roughly by $100 on average each year," Michael Haigh, managing
director at Societe Generale, told reporters at a briefing in
Singapore. Haigh sees gold prices hovering around $1,200 towards
the end of the year and falling further to an average of $1,150 in
2014. He also said that as prices fell below $1,200, some gold
miners would start hedging, adding to the bearish momentum.
Is he right? Will gold revisit its June 28 low at $1,180.71 per
ounce and then decline below this level? Will it trigger further
declines in mining stocks? Let's check what happened and what did
not happen during the last several days and find out where the
precious metals market is likely to move next.
Let's start with a look at the long-term gold chart and check the
current situation in gold. (Charts courtesy of
Click to enlarge
In recent days, the
price of gold
has been trading sideways below an important resistance line, the
first Fibonacci retracement level, verifying the breakdown. With a
verified breakdown and the declining trend channel in place, I
still have a bearish outlook. The most important support level for
gold is slightly below $1,100 where two major support lines
intersect. These are the very long-term support lines and, at the
same time, the 50% Fibonacci retracement level for the entire bull
Despite Friday's data and a bearish outlook, Monday and Tuesday
sessions were quite good for gold bulls and the yellow metal
climbed up to over $1,260 per ounce. Today (at least at the moment
these words were written) we also see a positive sentiment. Has
gold already bottomed?
At times, gold stocks can tell us a lot about the situation on the
entire precious metals market. Let's take a look at the gold stocks
NYSE ARCA Gold Bugs Index
Click to enlarge
In this week's very long-term HUI index chart, we can see that not
much changed last week and declines remain in place. The downtrend
will continue as long as the index is below the 250 level. At this
time, we should pay attention to Monday's and Tuesday's declines,
which pushed the index below 220. From this point of view, we may
consider that the final bottom will probably form close to or
slightly above the 2008 low as indicated by the red ellipse (which
also includes the 61.8% Fibonacci retracement level).
Once we know the current situation in the most followed commodity
stock indices, let's take a look at the gold-stocks-to-gold ratio,
which is one of the more interesting ratios there are on the
precious metals market. After all, gold stocks used to lead gold
both higher and lower for years.
The ratio moved lower last week, which has bearish implications.
As I wrote in my
essay on gold, stocks, and the US dollar on June
The trading channel and the next horizontal support intersect at
a point much lower than where this ratio is today.… The ratio might
move to its target level - the 2000 low - close to the 0.135 level,
which is a quite clear forecast as far as direction of the next
move is concerned.
From this perspective the downtrend remains in place here and we
haven't seen any significant bullish indications.
The final chart today is the short-term
Market Vectors Gold Miners ETF
(NYSEARCA:GDX), which confirms the bearish outlook.
In this chart, we see that the pullback at the end of June was only
to the first Fibonacci retracement level. Prices are quite close to
this level now and at times approached the 50% level. With this
tendency in place, a bigger move lower is still probable even
though we could see some very-short-term strength first. As long as
GDX remains below $26.35, the downtrend will remain in place.
Perhaps the next move to the downside will be the final one.
the recent move higher in gold has not been validated yet, and the
outlook remains bearish. The charts of gold suggest that the recent
rally is nothing more than a pullback. Gold stocks declined despite
a rally in gold and the general stock market. These declines in
mining stocks are bearish signs for the entire precious metals
market for the coming weeks.
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