Gold bulls were offered a temporary lifeline in the form of dollar weakness on Tuesday with prices rebounding toward $1,226 per oz. as of writing. While the yellow metal has scope to venture higher in the near term if the dollar continues to soften, the medium-to-longer term outlook remains tilted to the downside.
The week of July 23 will likely continue the “low-reversals-consolidations” theme of the prior week (July 16-20). The swing low of gold is in/here, in my opinion (see chart grid below). Do not initiate gold short side positions. Soybeans with a bearish daily & bullish weekly chart and Bitcoin with a 3-Day & Daily Chart sell signal may be the exceptions. Anyone ready to try and catch a falling safe or learn how? Now, it’s a savage sober rave party! This is some serious technical analysis regarding how to identify reversals and invert charts (as in upside down).
Equity markets around much of the globe are slightly soft to stable to start the week. The Nikkei is down 1.3% on speculation that the Bank of Japan could tighten up the timeframe in unwinding its ultra-loose monetary policy at their meeting next week. A stronger Yen has helped play into the weaker dollar and while the Dollar remains a critical theme, none might be bigger this week than earnings.
Yesterday in my silver report, I highlighted several reasons why precious metals could rebound. What I hadn’t expected was those comments from U.S. President Donald Trump, which weighed on the dollar and underpinned buck-denominated precious metals.
Volatility picked up last night after the People’s Bank of China cut a key interest rate and sent the Yuan to the weakest level against the Dollar since June 27, 2017. Equity markets and commodities took a swift hit but battled back in the overnight hours. The S&P traded right into key support at 2789.75-2792 with a low of 2793.50 before recovering to 2806; what a beautifully technical move, we will discuss more in that section below.
Every market participant knew this day was coming; trade tensions return to the forefront. While acquisitions relevant to U.S. and China trade negotiations stemming from Larry Kudlow’s interview escalated overnight, the White House Chief Economic Advisor, the true burden is a weakening Chinese yuan and the EU preparing a list of countermeasures to U.S. tariffs on European autos.
Equity markets have softened from Sunday night. The Nasdaq plunged just ahead of settlement after Netflix missed subscriber growth expectations. However, it wasn’t all bad news heading into the close as the Russell 2000 halved a loss of 1% in the last hour. While many sectors notched losses, it was the banks that lifted more than their weight with Bank of America +4.3%, JP Morgan +3.97%, Citigroup +3.67% and Wells Fargo +2.94%.
Global equity markets were mostly mixed while the Dollar dipped ahead of Fed Chair Jerome Powell’s first Congressional testimony later today. Powell’s testimony could offer investors a fresh opportunity to appraise the Federal Reserve’s monetary policy approach for the second half of 2018. The central bank head is expected to reiterate that the Federal Reserve remains committed to gradual monetary policy tightening.