Insights

Market Wrap – Gold, Gold, Gold!

Trading was flat today with the one shiny area of the market moving higher being the age old human store of value, gold.  The shiny yellow metal showed strength today after the ADP jobs report came in higher than expected.  The SPDR Gold Shares ETF (NYSE: GLD) opened higher this morning, and then spiked even higher at about 10:35 a.m.

Gold has been in a trading range between about $935 and $965 an ounce since the middle of July.  Once gold broke above $965, it looks like a bunch of resting buy stops to catch a break out were triggered, carrying the metal price higher by about $8 an ounce within minutes.  When these stops are triggered and a stock or commodity breaks out, alerts and filled positions flash up on traders screens and everyone gets real interested.  The GLD closed at $96.19, seven cents from the day’s trading high.  Whenever a stock or commodity closes very near its high, this is considered bullish as this might be signaling there could be more buying into the next trading session.  Today the GLD gained 2.43% and the New York Spot Gold price was last seen trading $980.50 an ounce (4:03 p.m.), up $22.70/ounce or 2.37%.

The talking heads on TV were on top of the gold move, referencing the fact that September is traditionally the beginning of the ‘gold season’.  From September to March gold is usually strong, with holidays from the Indian Wedding Season to Ramadan to Christmas to the Chinese New Year sparking buying interest.  John Nadler at Kitco.com is a well known gold analyst and his column provided this piece today.  A look at the longer term gold chart shows September was the month that had gold breaking out into a move that carried it to significantly higher levels in both 2005 and 2007.  A look at the monthly chart in gold shows a loosely defined head and shoulders bullish pattern, which targets approximately $1200 an ounce.

Earlier this year saw gold run up on a flight to quality trade as the market dropped.  With yesterdays 185 point drop, the beginning of the ‘gold season’ and favorable technical chart patterns, it looks like the stars are aligning for the beginning of another gold move that could take it to all time highs.  The Market Vectors Gold Miners Index (NYSE: GDX) jumped 9.51% while individual gold mining stocks were all very strong with Yamana Gold Inc. (NYSE: AUY) gaining 12.84% (+1.16, $10.19) and Agnico Eagle Mines Ltd. (NYSE: AEM) up 10.81% (+$6.10, $62.42).

The rest of the trading today was nothing to write home about, with the Dow dropping another 29.93 points (-0.32%, 9280.67) along with a move lower in the S&P 500 losing 3.29 points (-0.32%, 994.75) and the Nasdaq 100 down 1.56 points (-0.09%, 1594.28).  The Dow has a support level at the 9080 to 9100 level which roughly corresponds to the next S&P 500 support level in the low 980’s area.

Jobs are at the forefront of traders’ minds and the weak ADP report has raised the level of concern with Jobless Claims tomorrow and the Employment Situation number Friday morning.  Friday’s release is expected to show a new higher unemployment rate with estimates ranging from 9.4% (current) to 9.7% found among many economists.  Last week, Atlanta Federal Reserve President Dennis P. Lockhart said that the real unemployment rate for the United States was 16% when considering those that have become ‘discouraged’ and have stopped looking for work, and those ‘under-employed’.  Our economy is 70% fueled by consumers and without jobs, companies will not be selling too much product and this means stocks go down.

Oil was unchanged at 4:20 p.m. at $68.03 a barrel.  The U.S. Dollar index future spot price (DXY) was down 0.48% or 38 cents at $78.38.  Usually when the dollar goes down, gold goes up and vice-versa.  Today’s 0.48% loss in the dollar index while gold gained 2.37% shows a difference in magnitude of almost five, and this underlines that the move in gold might very well have been magnified by a breakout occurring.

The finance sector was the big loser today dropping 0.71% with the energy sector hot on finance’s heels losing 0.68%.  The one gaining sector today was the consumer non-cyclicals up 0.17%, showing that some traders may be positioning their book defensively.

Trading Thursday and Friday will be focused on the jobs numbers, and with a market ripe for a correction and gold breaking out, if money runs for cover the result should be an even bigger gold move and a rise in the Treasury market (drop in interest rates).