"Investors are selling equities and moving into safer assets" as geopolitical risks rise
Gold Tuesday blasted to its highest level since May 15 as geopolitical tensions over Syria escalated and sent jitters through the stock market. The price topped $1,423 in a 1% surge as investors scrambled for a safe haven as China and Russia warned the West that any strike would carry "catastrophic consequences."Iran also got into the act, with one official saying Israel "will be the first victim of a military attack on Syria."
"The possibility of U.S. military action against Syria is driving demand for safe-haven assets including gold," said Jeffrey Sherman, commodities portfolio manager at DoubleLine.
Gold "is clearly finding support from the geopolitical risks in the Middle East and North Africa, amongst other things,"Commerzbank analyst Eugen Weinberg wrote.
The fear trade is back -- and slamming stocks
"Investors are selling equities and moving into safer assets today, of which gold is one asset," said Paul Herber of theForward Commodity Long/Short Strategy Fund.
Indeed, the Dow Jones Industrial Average dropped nearly 150 points to head for its 13th decline this month, the most number of drops in a month since July 2012. The S&P 500and the Nasdaq also slumped, on track to post their worst day in two months. The Dow and S&P 500 are on track for their biggest monthly declines since May 2012.
Meanwhile, uncertainty is soaring, with the CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, spiking near 17.
The re-emergence of the fear trade has sent gold back into bull-market territory, analysts say. Yes, it's still down on the year, but it's gained about 20% since hitting its June lows, and that's the definition of bull-market action.
Gold's break above $1,400 on Monday for the first time since June 7, and a bullish "cup and handle" chart pattern, suggest more gains are in store.
"There is a very high likelihood that we saw the near-term low on June 28, the last day of second quarter, as many big investors capitulated," said Adam Sarhan, chief executive ofSarhan Capital, referring to a final wave of selling at the market's bottom before prices rose again.
After touching $1,406 briefly on Monday morning and running even higher amid the Syrian crisis, bullion has recovered more than $200 since the end of June, when prices hit three-year lows of $1,180 amid talk that funds were being forced to sell to meet client redemptions. On Aug. 9, the yellow metal's breakout of its "handle" coincided with its breach of its 50-day moving average, indicating gold had bottomed and hedge-fund managers could aggressively buy back their gold positions, Sarhan said.
Next momentum target: 200-day moving average
With gold now trading above its 50-day moving average and below its 200-day moving average, the 50-day is heading for a break above the 200-day, a significant bullish formation known as "golden cross" which would suggest the metal's momentum is growing..
Rick Bensignor, head of trading strategies at Wells Fargo Securities, is watching for it to break the 200-week moving average around $1,471. "I can't say it's out of the woods yet. Technically it's too early to necessarily say that this is anything more than a short-term bounce in a somewhat negative market," he said.
More bullish on gold is Citi futures specialist Sterling Smith. "Momentum has shifted in gold," he said. "Gold is very much a momentum-oriented market, and after months and months of downward (motion), we've finally seen momentum turn positive. … We're coming into a good seasonal time of the year. We're getting past the summer doldrums and the market should be able to pick up a little bit. Along with this we should see some good buying coming from India, and I think we're going to see improved Asian buying, so the physical market should be able to improve a little bit. I think we can probably take the market above $1,500. I think if we can get above that, taking the market above $1,600-$1,625 by the end of the year is not out of the question."
Trend is your friend: Stocks weak, gold strong
"A lot of time gold historically performs very well between the months of July and October," agreed Greywolf technicianMark Newton. "Gold's been trending up for the last couple of months. … The target I have is right near $1,525, which is the area where gold broke down from early in April, and so that's a decent target. Gold might be a better place to invest than stocks, I think, over the next couple of months. The trend in stocks has been shaky to say the least really since the beginning of August. … We're in a seasonably weak time for stocks, and gold is in a bullish-type season."
Also adding fuel to gold's fire is a growing awareness of the fiscal fight looming in Washington starting in September, a situation underscored Monday in a letter sent to Congress by Treasury Secretary Jack Lew. In it, he urged lawmakers to raise the debt ceiling to to allow the government to borrow more money, saying it could default on its obligations if they don't act by Oct. 15.
"Act as soon as possible" on debt ceiling
"Congress should act as soon as possible to protect America's good credit by extending normal borrowing authority well before any risk of default becomes imminent," Lew wrote. "If investors should become unwilling to loan the United States money, the United States could face an immediate cash shortfall," Lew said.
By mid-October, Treasury would be left to fund the government with "only the cash we have on hand on any given day," now estimated to be about $50 billion.
"Operating the government with no borrowing authority, and with only the cash on hand on a given day, would place the U.S. in an unacceptable position," Lew said. "A cash balance of approximately $50 billion would be insufficient to cover net expenditures for an extended period of time."
Since May, Treasury has been using extraordinary accounting measures to avoid hitting the debt limit, but these tools will be exhausted around October 15, Lew said.
The revised timeline puts more pressure on lawmakers and the White House to find a way to increase the $16.7 trillion debt ceiling.
If the debt ceiling isn't raised, the country could face a rerun of the financial crisis that shook the nation in the summer of 2011, when Standard & Poor's took the unprecedented step of downgrading the U.S. credit rating. Gold later shot up to its all-time nominal high above $1,920 an ounce.
"There is a very high likelihood that we saw the near-term low on June 28, the last day of second quarter, as many big investors capitulated," said Adam Sarhan, chief executive ofSarhan Capital, referring to a final wave of selling at the market's bottom before prices rose again.
After touching $1,406 briefly on Monday morning and running even higher amid the Syrian crisis, bullion has recovered more than $200 since the end of June, when prices hit three-year lows of $1,180 amid talk that funds were being forced to sell to meet client redemptions. On Aug. 9, the yellow metal's breakout of its "handle" coincided with its breach of its 50-day moving average, indicating gold had bottomed and hedge-fund managers could aggressively buy back their gold positions, Sarhan said.
Next momentum target: 200-day moving average
With gold now trading above its 50-day moving average and below its 200-day moving average, the 50-day is heading for a break above the 200-day, a significant bullish formation known as "golden cross" which would suggest the metal's momentum is growing..
Rick Bensignor, head of trading strategies at Wells Fargo Securities, is watching for it to break the 200-week moving average around $1,471. "I can't say it's out of the woods yet. Technically it's too early to necessarily say that this is anything more than a short-term bounce in a somewhat negative market," he said.
More bullish on gold is Citi futures specialist Sterling Smith. "Momentum has shifted in gold," he said. "Gold is very much a momentum-oriented market, and after months and months of downward (motion), we've finally seen momentum turn positive. … We're coming into a good seasonal time of the year. We're getting past the summer doldrums and the market should be able to pick up a little bit. Along with this we should see some good buying coming from India, and I think we're going to see improved Asian buying, so the physical market should be able to improve a little bit. I think we can probably take the market above $1,500. I think if we can get above that, taking the market above $1,600-$1,625 by the end of the year is not out of the question."
Trend is your friend: Stocks weak, gold strong
"A lot of time gold historically performs very well between the months of July and October," agreed Greywolf technicianMark Newton. "Gold's been trending up for the last couple of months. … The target I have is right near $1,525, which is the area where gold broke down from early in April, and so that's a decent target. Gold might be a better place to invest than stocks, I think, over the next couple of months. The trend in stocks has been shaky to say the least really since the beginning of August. … We're in a seasonably weak time for stocks, and gold is in a bullish-type season."
Also adding fuel to gold's fire is a growing awareness of the fiscal fight looming in Washington starting in September, a situation underscored Monday in a letter sent to Congress by Treasury Secretary Jack Lew. In it, he urged lawmakers to raise the debt ceiling to to allow the government to borrow more money, saying it could default on its obligations if they don't act by Oct. 15.
"Act as soon as possible" on debt ceiling
"Congress should act as soon as possible to protect America's good credit by extending normal borrowing authority well before any risk of default becomes imminent," Lew wrote. "If investors should become unwilling to loan the United States money, the United States could face an immediate cash shortfall," Lew said.
By mid-October, Treasury would be left to fund the government with "only the cash we have on hand on any given day," now estimated to be about $50 billion.
"Operating the government with no borrowing authority, and with only the cash on hand on a given day, would place the U.S. in an unacceptable position," Lew said. "A cash balance of approximately $50 billion would be insufficient to cover net expenditures for an extended period of time."
Since May, Treasury has been using extraordinary accounting measures to avoid hitting the debt limit, but these tools will be exhausted around October 15, Lew said.
The revised timeline puts more pressure on lawmakers and the White House to find a way to increase the $16.7 trillion debt ceiling.
If the debt ceiling isn't raised, the country could face a rerun of the financial crisis that shook the nation in the summer of 2011, when Standard & Poor's took the unprecedented step of downgrading the U.S. credit rating. Gold later shot up to its all-time nominal high above $1,920 an ounce.
More information can be found online at http://www.goldbullionadvisors.com
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