Jalatama Loco London (XULF) Weekly Report 03 – 07 June 2013

XULF Weekly Report 3rd June to 7th June

Last week was a strange week for gold. It finally broke through $1400 after numerous attempts over a 2 week period reaching a high of $1421.80 last Friday and then it seemed as though the bulls simply handed over all their hard work for the bears to take control again forcing it aggressively back below $1400. Gold’s rise until Friday was driven by some uncertainty creeping in regarding growth outside the US following the IMF and OECD reports and the market looking like it was ready to make a technical correction in its bear trend. However clearly the majority of shorting participants seem to be longer term and weren’t affected by the $1400 resistance break and hence added to their positions eradicating all the gains within a few hours. Interestingly USD/JPY, which has had stronger than normal inverse correlations to gold since the launch of Japan’s new QE programme, also dropped showing gold fell out of favour despite the dollar weakening which does not bode well for the metal. We could to see some dollar strength this week as USD/JPY finds support at the psychologically important level 100 yen and as the market anticipates ECB Mario Draghi to be unable to put any kind of positive spin on the Eurozone’s dire recession hit economy when he speaks after the rate announcement Thursday which will put pressure on the EUR/USD. Therefore considering probable dollar strength this week gold might be under more pressure. Gold’s destiny for the rest of the year is very much dependent on how equity markets react to the Federal Reserve’s management of tapering the unprecedented stimulus and how they manage market expectations. Gold has already factored in much of the Fed’s forthcoming tapering of stimulus but equities clearly haven’t which indicates equities could do worse than gold when the Fed finally begins to reduce the programme. It’s also worth noting that if we do see an equity correction gold may even benefit contrary to the consensus opinion as investors diversify and add commodities to their portfolios.

From a technical perspective gold is at a crossroads with conflicting data across different timeframes. The daily chart shows Friday’s candlestick was very bearish engulfing the prior day’s gains however the 10 day MA is currently intersecting with the 20 day MA which signals possible upward momentum. If we get a firm crossover from these 2 moving averages the bulls hope of a sustained correction may still be on the cards. Although the recent increase in volatility isn’t good for the bulls as volatility is usually associated with bear trends therefore any bulls should re-evaluate if we see further erratic price movements.

This week has a very busy economic calendar including US ISM Manufacturing tonight at 10pm, US Trade Balance 8:30pm Tuesday, Italian and Spanish Services PMI data Wednesday afternoon, the ECB’s rate announcement at press conference starting 7:45pm Thursday night and culminating in the US Non-Farm payrolls 8:30pm Friday night. Evidence that the US is creating more jobs and can feasibly lower unemployment towards pre-recession levels will cause whipsaw effects on gold as investors weigh up the impact on the equity markets therefore trade very carefully around this number.