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Gold took a
double hit recently based partly on a news item from the rumor mill that a
large fund in Asia was selling to "run the stops."
"The
sale looks like a carefully crafted trade prepped and successfully executed
by a well known $14b US fund," according to
one source. "Prior to the sale there had been an unusually large purchase
of gold 'puts' - a leveraged options play that profits from a downward spike
in prices. There had also been some early selling on the overnight electronic
platform presumably to test the waters before the big guns fired a
devastating salvo."
The short
sell at the opening bell last week had the desired effect on prices, as the
$1,730 level was breached where it triggered stops. The reason behind the
trade is a matter of speculation with no clear motive. One source believed
the selling was a bet that the U.S. "fiscal cliff" will be averted
and that both sides of the Congressional isle will be able to reconcile their
differences long enough to meet the upcoming deadline for the expiration of
the Bush tax cuts.
This brings
up another question concerning the 2013 outlook for gold. Pundits believe
that if the fiscal cliff is averted and the U.S. economy picks up steam in
the coming months that it could put downside pressure on the yellow metal.
Many analysts
have also called into question whether the 17% year-over-year compounded rise
in the gold price over the past decade can be sustained going forward.
Perhaps not, but as Sharps Pixley points out,
"Some bulls now seem to see single digit growth as a bear market."
The point here being that even a single digit gold
price increase in 2013 would still be preferable to an outright bear market
and is still an attainable gold.
Analysts'
median forecast for the 2013 year-end gold price has risen from $1,832 as of
September to $1,850 currently. Commerzbank expects gold to reach $2,000/oz next year, citing supporting factors such as
additional central banks buying due to ultra-loose monetary policy or
addition to reserves, more active Indian buyers, continued low real interest
rates, a rebound in Chinese growth rate. Deficits in the gold supply are also
expected to continue into 2013.
From a
technical perspective, the 10-month gold price oscillator showed some
improvement in early December from last month, falling back from the
"overbought" red zone shown in the following graph to a neutral
reading in the yellow zone. That should help gold to stabilize a bit in the
coming days and weeks as the metal tries to establish support and chew its
way through the supply overhang created by recent selling.
 
It should be
noted that despite the recent sell-off, gold is currently showing a net gain
for the year-to-date (as of Dec. 4). The iShares
Gold Trust (IAU), our proxy for gold, is above its opening level from the
start of 2012 as you can see here. But it's also below its 30-day moving
average, and this important trend line also has a downward slope. It's also
below the 60-day MA. This signifies that the interim trend is still sketchy
and the buyers haven't regained control of the market yet. The best trading
signals - the ones that signal a sustainable rally has begun - are when the
gold ETF is above the rising 30-day and 60-day moving averages.
U.S. Economy
A few weeks
ago our New Economy Index (NEI) was looking dicey. I even speculated that by
December we might even see a "sell" signal in the NEI - the first
one since 2010. But as the latest NEI update shows the U.S. retail economy is
still managing to maintain its intermediate-term rising trend and shows no
sign of breaking down.
As you can
see, the index remains above its rising 12-week and 20-week moving averages
as well as staying above the interim uptrend line (see below). That means
that the outlook for U.S. retail sales in the near term future is still
positive, and it practically guarantees a fairly strong holiday sales trend
for December. So it looks like Santa is coming to the rescue this year once
again for retailers.
Clif Droke
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is the editor of Gold & Silver Stock Report, published each Tuesday and
Thursday. He is also the author of numerous books, including most recently,
“2014: America’s Date With Destiny.” For more information visit
www.clifdroke.com
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