Gold Continues to Fall but Recovers from Extreme Lows Overseas

Oh my mama told me there’ll be days like this – Van Morrison

Friday’s article was titled “Both gold and silver sustained major technical chart damage in trading today”. The major selloff that began on Friday continued as gold trading reopened on Monday morning (Sunday in Hawaii and the mainland) trading to a low of $1677.90, before slightly recovering from that dramatic low closing $68 off of the low. As of 5:04 PM EST gold futures basis, the most active December 2021 Comex contract is currently off by $31.50 and fixed at $1731.60.

Gold opened just $0.70 from the high of the day which was $1765 and had a virtual meltdown trading down $88 when it hit the low of $1677.90. Gold opened at $1805 on Friday and closed near its low of $1763.40 (Friday’s low was $1760) gold dropped $127.10 from Friday’s open to a low today.

The major damage created today occurred in Asia and as MarketWatch put it, “There was a “flash crash” in gold as prices briefly sank to as low as $1,684 an ounce in early Asian trading before recovering to about $1,732.30 down nearly 3% from last week’s price.”

The Dow Jones estimate was that July would bring an additional 845,000 new jobs last month, with the actual number coming in at a robust 943,000 jobs added. Economists also forecasted that the unemployment rate would move from 5.7% to 5.5%, with the actual numbers coming in at 5.4%. The economic recovery in the United States has come a long way considering that the unemployment rate at the high of the pandemic was at 14.8%. Although the current unemployment rate of 5.4% is still above the pre-pandemic number of 3.5%, these numbers most certainly indicate a rapid economic recovery.

CNBC reported on Friday that, “Hiring rose in July at its fastest pace in nearly a year despite fears over Covid-19′s delta variant and as companies struggled with a tight labor supply, the Labor Department reported Friday. Nonfarm payrolls increased by 943,000 for the month while the unemployment rate dropped to 5.4%, according to the department’s Bureau of Labor Statistics. The payroll increase was the best since August 2020.”

Add to these stellar numbers average hourly earnings also increased more than expected and rose 0.4% for the month and are up 4% from the same period a year ago. While gold sold off steeply on Friday U.S. equities reacted extremely positively to the report and both the Dow Jones industrial average and the S&P 500 getting new record highs at the open of trading on Friday.

Almost every metric relating to employment in the United States showed strong gains with the labor force participation rate ticking up to 61.7%. This is the highest level since March 2020, the official beginning of the global pandemic. According to Robert Frick, corporate economist at Navy Federal Credit Union, “This not only was the jobs report strong by nearly every measure, but it also signals more good things to come,”.

One of the major differences between the tepid ADP report released on Wednesday, August 4, and the Labor Department’s nonfarm payroll report released on Friday was an extremely strong gain in new education hires of 261,000 new hires. Since the ADP report does not cover government employees this partially accounted for the huge differences in the numbers reported by ADP and the Labor Department.

Although the low in gold today matched the double bottom that occurred at the beginning and end of March 2021, and the $68 recovery off of the intraday low is respectable, many analysts are under the impression that there could be more downside ahead. This was reported by a regular contributor to MarketWatch, Mark Hulbert who reported that there is still not enough gloom to even trigger a contrary and by signal. The reason there is no contrary buy signal is that current market sentiment is not sufficiently pessimistic. And drawn from an average, “of gold market timers’ average recommended gold exposure level (as measured by the Hulbert Gold Newsletter Sentiment Index, or HGNSI). This average currently stands at minus 4.8%, which means that the average timer is allocating a small portion of his gold trading portfolio to going short. Past contrarian gold signals have come when the HGNSI was even lower.”

Lastly, one interesting component of today’s dynamic range is although the low matched the double bottom in March 2021 it closed at the 78% Fibonacci retracement which was created from a data set beginning at the double bottom at $1677, up to the recent highs at $1920. Whether it was short covering or traders buying the dip which move gold off of its lows is an unknown although it would seem more likely a direct component of traders taking profits on short positions.

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Wishing you, as always, good trading and good health,

Gary Wagner