Gold has a strongly bullish trend, but here is the key price to watch.
Asians back in the market for gold
July 30 (King World News) – Alasdair Macleod: Over the last two weeks, the gold price was slammed, ensuring that expiring call options were out of the money and therefore worthless. As part of a bull market consolidation process: is it now over?
It is important to get a feel for overnight trade being unwound into London’s morning fix. Many years ago, I did an exercise which assumed that every day the PM fix was shorted, and the position bought back the following morning at the AM fix. As a trade it was extraordinarily profitable. The reason was that the bullion banks received orders from mines and refiners as suppliers of bullion in the morning and that this supply was unwound into the fix. True, there would be buyers, but to balance the position the price would invariably fall. It was front-run by the bullion banks, balanced on the fix, and the supply having been cleared the price would generally recover into the afternoon.
Today, we still have the mine and refinery business in London, but Russian gold is now sanctioned, reducing the supply. And refineries have direct orders to fulfil, so they only use the fix as a reference point. Furthermore, with gold replacing dollars and euros in central bank reserves, there is additional underlying demand already there to take out any supply…
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Furthermore, with Chinese banks now offering retail customers gold accounts, and aggressive Chinese futures speculators looking to play the next run, the world of supply in the morning suppressing the fix is no longer the case. Instead, we must monitor overnight Asian demand and how it impacts the market.
The reason for mentioning this now is that this morning gold has risen ahead of the fix. Do not be surprised that after it, the price falls because overnight net demand will have been cleared. However, its existence is what should be noted.
Potentially, morning demand in London could be extended by Indian buying. Now that the bullion tax has been reduced to 5%, the discount in Mumbai has gone. Undoubtedly, this is a positive factor.
Returning to the bigger picture, the correction of the last fortnight has eliminated the overbought condition on Comex, suggesting that the market condition favours a resumption towards higher prices. Furthermore, the pattern confirms, reflected in the chart below of daily trading bars.
Gold Futures Have Now Surged To $2,455 (Not reflected on the chart below)
Key Price To Watch In Gold’s Strongly Bullish Trend
The consolidation pattern from the first high of $2341 on 12 April is a rising wedge. A rising wedge indicates a strongly bullish underlying trend, typically seen in a rerating process.
The pattern is not yet complete, but when it breaks above $2500, far from being a psychological ceiling the bullish momentum can be expected to take it rapidly to $3000. Furthermore, with such a strong undercurrent, it is likely that the recent test of $2355 marks the end of the correction.
Released!
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