The metals are green this morning, and after the month they have had, that is enough to make people wonder whether the low is in.
Before reading too much into it, look at the date. This is the last session of the quarter, the one when funds rebalance into whatever fell hardest, and few things fell harder than gold and silver. Gold is closing out its worst quarter on record. A small bid into a number like that looks like housekeeping, not a turn. The real test of this market is not today. It is Thursday.
The bounce is small, and it is the wrong kind
The move up is modest, it is early in the global day before US trading sets the tone. Gold was just at a new yearly low and it failed to hold this breakdown. It doesn’t mean that it won’t break during the next attempt.
Gold price had declined below $4,000 earlier today, it had moved to new lows, and then it rallied back up, above $4,000, but not back above the rising resistance line.
The invalidation of the breakdown was a buy signal. But it seems to have been just an immediate-term one, and the rally that was likely to happen because of it, might already be over.
In silver’s case, we see something similar – the flag pattern simply continues. There’s one thing worth flagging here. The mid-June correction was much bigger than what we see now. That was a rally from the March low, so it had a good reason to take silver much higher. It didn’t.
Right now, we have silver below its March low, and the size of the correction is visibly smaller. Silver now has a good reason to slide once again.
The interesting thing about all this is the time factor. “Time is more important than price; when the time is up, price will reverse” – said WD Gann.
This is the fourth day of the correction. Back in mid-June, fourth day of the correction was also its final day. Sharply lower silver prices followed in the next several days. Will we see something like that also in the near future? Yes, I think that this is the likely outcome, even if it doesn’t happen immediately.
[Analysis of copper, FCX, mining stocks and detailed targets are available in full Gold Trading Alert.]
Finally, let’s take a look at the key context – the USD Index.
In short, it’s moving up once again, but the size of the rally is not convincing yet.
I think this is the key reason due to which gold, silver, and mining stocks are not yet collapsing.
The tiny consolidation might be over soon, though.
The three-line break technique suggests that we could see a bigger rally shortly. The technique is about monitoring the lines that a given market breaks based on the key top and the subsequent tops. Right now, we have the USD Index after two breakouts.
The third line was just created based on the overnight top. We’re also after the quick slide. This means that we already have the third line, a breakout above which would serve as a buy signal.
This fits the daily countdown that we saw on silver, and the situation in other markets as well.
The jobs report is the week's real event
Everything that matters this week is compressed into the next two days because of the July 4 holiday (observed on Friday). Job openings, private payrolls, and the manufacturing read come tomorrow, and the June jobs report and unemployment rate land on Thursday. That payrolls number is the one to watch, and recent history shows why. The last report, in early June, came in more than twice as strong as expected, and that single print drove the leg lower that erased gold's gains for the year by pushing rate-hike bets higher. The market has been taught that a strong labor number is bad for gold, through the rate channel.
So, Thursday is the swing. A firm number reinforces the hike path and the dollar and puts the decline back in motion. A soft one is the only thing on the calendar that could stretch this bounce into something lasting more than a session, and even then, I would treat it as corrective until the dollar turns. The rate picture in the print is unchanged: the market prices three hikes this year, with September near 60% and December near 80%, and the Fed under Warsh has stayed hawkish.
Iran is de-escalating, which gives gold nothing
The US and Iran are meeting in Doha today after standing down from the weekend's strikes, with shipping moving through the Strait again. That is a step back toward calm, and oil is easing to match. For gold, calmer Gulf news is not help. It removes the inflation-and-oil impulse rather than feeding fear, so it does not hand the metal a safe-haven bid. The one loose end is Iran insisting it will oversee Strait traffic even if Oman declines, which keeps the deal fragile, but none of it is a reason to expect gold to catch a bid here.
What it all means
The metals are up this morning, but I would not mistake quarter-end housekeeping for a bottom. The bounce is small and narrow. The trend is down, my targets below are still ahead, and Thursday's jobs report will do more to set the pace than anything happening today. I think the larger move from here is still lower.
Thank you for reading my today’s free analysis. More details follow for Gold Trading Alert / Diamond Package subscribers.
Sincerely,
Przemyslaw K. Radomski, CFA