Posted on June 28, 2013
Well gold is certainly seeing some interesting price action today. Overnight, gold made fresh three year lows and was trading around the $1186 level before catching a bid and moving higher off of those lows.Could this finally be true capitulation in this market? We will see. The gold market has been widely covered this week by many financial journalists and news outlets. The discussion surrounding the yellow metal’s demise has been widespread.
Often times-but not always, once a market reaches this degree of public and/or media reporting interest, that market may be ready to reverse. Will this be the case with gold? All markets, including gold, have certain tendencies. Looking at gold right now, it would seem that the short trade in gold is extremely crowded at this point. Perhaps we are reaching a point at which there is simply no one left to sell. In addition, with all of the current media coverage surrounding the gold market, it would not be at all surprising to see many late-coming shorts enter the market at or near the bottom.
It is amazing how this occurs but markets do tend to punish those who are late to the party. In fact, since putting in the lows overnight, the price of gold has climbed steadily throughout the session thus far. Spot gold is now trading higher on the session and back above the $1200 level. Did we bottom out here? It is too early to tell. One must remember though that there are a lot of people short the gold market right now.
When the selling dries up there will likely be people looking to book profits and cover short positions. We feel such a short covering rally could easily take the price of gold higher by $100 or more. From a technical standpoint, the market is extremely oversold and this could also potentially indicate that a near term bottom may be at hand.
From a fundamental standpoint, the gold market has had more data to digest. Overall, the data stream continues to remain positive with the exception of this week’s GDP revision. Investors have also been listening to various fed governors who this past week took more of a dovish tone with their remarks.
It is possible that the market has gotten too far ahead of itself, and that in fact the fed may hold off a bit longer on tapering. We shall see, and the data stream will continue to be very closely scrutinized. The gold market will begin to focus on next week’s data, including manufacturing data out of China and Friday’s U.S. Department of Labor’s non-farm payrolls report. Today will mark the end of an extremely ugly quarter for the precious metal.