Is the Gold Correction Over?
In short, we don't know. Many data points support the view that it is over, but this correction has been much shallower than the corrections typical of past new bull markets.
Is the Gold Correction Over?
In short, we don't know. Many data points support the view that it is over, but this correction has been much shallower than the corrections typical of past new bull markets.
The question is whether the $33 increase in the gold price on Friday, June 3, 2016 following the poor jobs report is just a bounce or the beginning of the next leg up in what we believe is a new bull market in gold.
As of today, the sentiment indicators are supportive of an extended move higher. Hulbert's gold timers survey rose 7.9 points to just 10.53% bullish. MarketVane's bullish consensus rose 4 points to 53%, and the Daily Strength Indicator jumped 16 points to 29%. These all remain at low levels where a turn higher could be expected.
The GLD gold ETF's holdings rose 6 tonnes to 881 tonnes on Friday. In fact, GLD, added 410,702 ounces last week, which is bullish. COMEX open interest jumped nearly 4 percent on Friday as the market went long, another bullish sign. It seems the big move on Friday was not just short covering.
The GDX gold mining ETF gapped up huge on the open on Friday and basically rallied for the entire session to go out near the very best levels of the day with a gain of over 11 percent, its biggest one-day jump in about 7 years. Volume was also nearly a record. Once again, bullish.
However, today gold has not carried through to the upside after the big Friday move and it hasn't broken through its 50 dma and the $1250 mark, both regarded as important technical indicators. The COT data on traders' positions on COMEX indicates that the Speculative long position is still about 75,000 contracts north of where a turn higher would normally be expected, meaning there is still potentially some liquidation to come based on historical precedent.
Shortly after the poor employment data hit the tape, Federal Reserve apologists were quick to rush out and assure everyone that the Fed was still on track to raise rates in the coming months, perhaps even July. The Fed's designated mouthpiece at the Wall Street Journal, John Hilsenrath, was one of the first to do so. Today, Fed Governor Bullard and Chairman Yellen have both hinted that the economy economic data remains positive on balance and that rate hikes remain on the table in the near term. These statements should have no credibility but unfortunately they still seem to move markets.
We believe that economic risks are growing and that the Friday jobs report is telling us this. We do not think the Friday jobs report is an anomaly. Not only was the May jobs number weak; March and April totals were also revised sharply lower. As a result, we do not believe the Fed will be able to raise interest rates, the U.S. dollar will weaken and gold will start its next leg higher. However, this realization may still be a few weeks away, in our opinion.