This is an update to my post from July 31st where I called for a gold breakout. Well it is underway and needs to be examined further. As I write this North Korea launched a missile over Japan which has spiked gold further. A lot of folks are looking at gold prices as little more than geopolitical noise but gold has rallied with or without these headlines as of late and I believe gold does not need this drama to continue to rally. First off here is the monthly chart of the GLD. That is a bullish chart...plain and simple.
Next I want to point out something very interesting. Gold's rally started the day the new gold futures contract started trading in Hong Kong. This contract can be traded in USD or RMB and is deliverable.
Below is a chart from Kitco showing the trading window where Hong Kong is open. (My Annotations)
As the exchange laid out here and as you can read below - there is now "round-the-clock, dual location coverage for gold futures trading" Simply put there is more liquidity exposed to more currencies in more parts of the globe now than there was just a couple of months ago. We have seen a few nasty selloffs during low liquidity times overnight with huge dumps of large positions. This of course drives plenty of gold bugs to blame all of the bad guys for manipulating the price and whether they are right or not does not matter. If a big position is dumped now, a trader in Asia can buy the dip in a way that was not possible until now. Gold futures were attempted a couple of other times and failed in Hong Kong, but this time the contracts are deliverable and are attracting legit volume in dollars and yuan both. The rally in price in gold and silver that perfectly coincides with this launch may just be a complete coincidence, but it should not be ignored by investors either.
I will continue to think about the price of gold vis-a-vis the Hong Kong launch and if anyone has more to add feel free to write me. With that said on to some more charts. Below is the price of gold in CNY and again....the price exploded on July 10th which was the launch of the HK gold contract. Sort of an interesting chart to keep an eye on. The price broke out today.
A lot of folks watch gold as it trades with USD/JPY...well it is noteworthy that gold broke out against the Yen today.
So to recap - the price of gold broke out today versus the dollar, yen, and yuan...just sayin. Okay so what about the miners you ask? Well...they broke above the 2011 down trendline with a strong close today.
Okay so let's take a step back and analyze all of this compared to what I wrote a month ago. Gold was at $1275 when I wrote that so we are only $50 higher which is not that big of a deal...but major technical events have occurred. The price of gold and gold miners has taken out a 6 year downtrend without much bullish sentiment or speculative positioning loading the boat (so far). Today marked a breakout in the USD, JPY, and RMB. Frankly I expected to be much more afraid of this time in the market but right now everyone thinks just a few gold bugs have bought fearing a nuclear war. I think this market is real and this breakout is real. With that said, the DeMark exhaustion indicators (red 13 today) are a red flag at the moment and some of this current price is in fact some fear that will probably blow over. We may have to revisit some trendlines soon, but I view gold through the lens of the last 6 years being a cyclical bear in a secular bull and with that, the bull may be back on. I will continue to manage this trade closely but I did add to my miners today with the break of the 2011 line which I referenced in the July article as a confirmation point for me.
Also a bonus chart for those screaming about how gold priced in euros is getting killed...sorry but that is a beautiful chart on the weekly that recently bounced off of the trendline that is about 4 years old.