For the past two weeks the Gold futures market has come under extreme pressure primarily due to a very strong U.S. Dollar and rapidly rising treasury instrument yields. The Gold market has fallen from $679.00 (June 4th) to $648.00 (June 8th) and unable to sustain any type of rallies.
The strong U.S. Dollar and high yields from the Treasury Instruments are affecting the Gold market in two significant ways: 1) the high yields are very bullish for the U.S. Dollar, and 2) Monies normally designated to the Gold market seem to be shifting to the Treasuries presently.
In my opinion I believe the public and fund managers alike prefer trading bull markets. The inability of the Gold market to secure any significant rallies lately leads me to believe that public money has preferred the equity market of late, and now is beginning to prefer the increased yield that treasuries are paying.
The community of Gold traders certainly seems to be shelving some rather important and typically bullish elements. I believe the gold trading community is ignoring rising energy prices, the South Africa Gold production cut, and rising cost of grains (food prices inflation), and the non-stop Middle-East tensions that span from Beirut to Iraq. The tension in the Middle East should effect the Crude Oil and in my opinion should be negative for the U.S Dollar. I hope I am wrong, but I believe that geopolitical issues will not improve in the near future.
It may appear that I am the eternal Bull. However, as a former floor trader I traded both sides of the market and in fact preferred the short side (public buys first). I have learned to stick with your research and game plan. My opinion is that Gold is going to move higher over the long-term. My technical guideline numbers for the August ’07 Gold futures is for initial support in the range of $640.00 to $642.50 per ounce, with initial resistance to come in around $680.00 per ounce. If August Gold trades through $680.00, it is my belief we will get a resurgence of the public and fund managers seeking a “safe haven” rally.
Since I am long term bullish I am recommending spread and/or option strategies to have a better risk to reward scenario. I’ll be glad to discuss these with anyone who would like to contact me.
Manduca Trading, LLC