Gold's breach above $1,400 ignites talk of renewed bull market - Wealth Managers

Miserable durable-goods report raises fresh doubts about recovery

Gold burst past the key $1,400 level in Asian trading, before U.S. markets opened Monday, but fell back into the $1,390 range as the day progressed. Still, the metal's performance of late prompted talked of a renewed bull market.

In one gold-bullish narrative in the mainstream media, CNBCpublished a story headlined "Gold within striking distance of bull territory." 

"When you look at gold, it only has to travel back through $1,416 to re-enter the bull market. So we're pretty close to that and it [the gains] has been the result of physical demand, geopolitical issues and also in the U.S. and what's happening with tapering," Jonathan Barratt of Barratt's Bulletin told CNBC.
OCBC bank officials attributed gold's advance to Friday's poor new-home sales report. "Further weakness in the U.S. housing market triggered some downplay over the possibility of a QE [quantitative easing] tapering, with gold rising past its $1,400 this morning," said in a note on Monday. "In fact, the positivity has been observed since last week, with net-long positions gaining."
MarketWatch tackled the bull-market issue with its own post (titled "Gold near a bull market? This week may not answer the question"): "For a myriad of reasons, investors have been moving back into gold. Short-covering by hedge funds, a recent pullback for stocks, waffling by Fed members over tapering and technical factors are all among the explanations," it said.
Gold ETFs showing signs of life
Another bullish sign for gold: Investors are moving back into ETFs. "Exchange-traded products recorded their biggest daily inflow since Jan. 1 on Friday at 5.8 metric tons, with holdings of SPDR Gold Trust rising by 6.6 metric tons," MarketWatch reported.
"Flows for the month-to-date remain negative at 17 tonnes, but the pace of outflows has showed signs of slowing as equity markets have weakened and prices have risen, meaning fewer ETPs are loss-making," said analysts at Barclays. "Given that we continue to expect tapering to be announced in September and that we expect the dollar to strengthen, ETP holdings are likely to remain fragile but flows will remain a key area to track." 

"Physical demand is very strong, and that is lending support to prices, and we think it's time to increase our holdings," saidMichael Mullaney, chief investment officer for Fiduciary Trust Co. "The economy is improving, but there are some misses, which intensify the debate on tapering and increases demand for gold as a safe-haven investment."
September tapering "could be premature"
Speaking of tapering, the Federal Reserve wrapped up its annual Jackson Hole, Wyo., conference over the weekend, and "most business economists in the U.S. expect the Federal Reserve to begin to slow bond purchases before the end the year, perhaps starting in September," one poll found.

However, some economists are not so sure. Barry Eichengreen of the University of California at Berkeleynoted: "There is a desire to return to conventional monetary policy, but we don't have a normal economy." A September move "could be premature."

He said he was surprised how little "visible alarm" there was from Fed officials about recent volatility in emerging markets tied to the Fed's tapering plan.

"I think it is too soon" for the Fed to taper, agreed Susan Collins, dean of the University of Michigan's Gerald R. Ford School of Public Policy, noting recent mixed indicators.
Durable-goods, home-sales data disappoint
Those mixed indicators include Monday's big economic report, following on the heels of Friday's home-sales number, both of which underscore their concerns: "The Commerce Department reported the latest durable goods numbers which were a total disaster: the headline print plunged by 7.3% on expectations of a -4.0% decline driven by a drop in airplane orders," Zero Hedge wrote. "Well, airplanes orders did indeed slide by 52.3%, but it was weakness in transportation (-19.4%) and computer (-19.9%) orders as well as manufacturing (-9.8%) that took the market by surprise. This was the biggest miss to expectations since August 2012." 

However, even if the Fed does taper its stimulus program in September, it won't be ceasing its bond buying altogether, and Chairman Ben Bernanke in past statements has reserved the central bank's right to increase asset purchases as necessary if the economic data justify such a move.

And around the world, central banks (such as those in Japan and England, for example) are continuing with easy-money policies. "We don't think that all central banks will phase out from unconventional monetary policies," International Monetary Fund Managing Director Christine Lagarde said. "In Europe and Japan there is a lot more to be done."
Debt-ceiling fight "looking kind of 2011ish"
And keep your eyes peeled for "black swans" out of Washington, D.C. Even the gold skeptics at Business Insidersay the biggest danger for the economy is not tapering but looming budget battles in the nation's capital:
"The bigger immediate story for the market is the fiscal fight, which is getting almost no attention outside of the political press, but is looking kind of 2011ish.

"First at the end of the summer, a new budget needs to be passed. There's a 'shut it down' caucus inside the GOP that wants to halt the government if Obamacare isn't defunded, which is something that will never happen, but which is causing John Boehner some headaches, as he tries to defuse this wing of the party.

"More ominously though is the debt ceiling, which comes later in the fall, and which once again the GOP will attempt to use as leverage to get what it wants (spending cuts, perhaps something related to Obamacare). And unlike with the normal government shutdown (which would be very damaging to the GOP politically) the party feels the threat is serious enough that the White House would have to blink, preventing an outcome that would make the party look bad.

"It could all get nasty, and nobody is talking much about it." 
Gold heading into its strong season
"Kind of 2011ish," the report notes. Remember what occurred in 2011 during the debt-ceiling standoff? Standard & Poor'sdowngraded the U.S. credit rating, which slammed the dollar and sent gold soaring to all-time nominal highs that September. 

A new budget battle could do the same to the dollar just as gold's seasonably strong period gets under way this fall. With gold already showing signs of renewed vigor, the time to prepare is now.

As for what to watch this week in gold, iiTrader CEO Rich Ilczyszyn advised: "Major support this week will come in at $1,383 to $1,384.10 as the uptrend continues. A close below this band will likely signal a consolidation lower. Only a close below $1,352 will signal a failure. So how high can gold go? The major upside target on the week is $1,422. In fact, we expect to see this price within the next session." 

More information can be found online at http://www.goldbullionadvisors.com