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Gold Gains on Fundamentals, Halts on Technicals

Posted by Joseph Trevisani on Aug 12, 2013 11:26:00 AM


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Gold rose to nearly a three week peak spurred by Friday's weaker than expected U.S. wholesale inventory data and Chinese consumption.

Gold touched $1,344.01 in thin New York trading, the best level for the precious metal since July 23rd, $1,346.83, and 24th, $1,348.60. It halted before the resistance formed by those two tops, the June 19th low at $1,349.28 and the June 20th high, $1,352.75,  the latter being  the day of the $76 fall  which led directly to the $1,180.57  three year low on June 28th.

Wholesale inventories declined 0.2% in June on forecasts for a 0.4% gain, becoming the third negative month in a row. Businesses may not be replacing inventories because they are no longer anticipating an increase in sales and are letting costly stocks sell off.

If firms are replacing their goods and raw material stockpiles at lower rates, this could subtract from second quarter GDP and diminish the chances that the Fed will begin to curtail its securities purchases in September.

Retail sales for July are reported at 8:30 am tomorrow and a gain of 0.3% is forecast after a disappointing June result that at 0.4% was half the prediction.

Gold traditionally rises with a weaker dollar, and markets have been anticipating a stronger dollar if the Fed begins to reduce its QE purchases in September.

 If the Fed does not do so traders will probably recalibrate their estimate of dollar strength in the third and fourth quarters.

The China Gold Association reported today that gold consumption on the mainland climbed to 706.36 tons in the first half of this year. In all of 2012 only 832.18 tons tone were utilized. Joseph Trevisani

Chief Market Strategist


Charts: Bloomberg

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