Gold: Today's Rally to $1299.70 is Unhealthy

Gold

Pray for Rain?

Gold has profit taking above
There is a gap below that 'needs to be tested' for increased likelihood of a sustainable rally.
Short term the market is overbought, and Friday's buyers are out of the money already

Ideally, over the next 3-5 days: we wanted to see Gold fill the Comex gap underneath, and in the process shaking out some weak longs and luring some shorts to pile in. First touching the $1285 area, close with a positive settlement on a lower day. Then we could see a nice orderly rally out of a bull flag. But so far that is not the case. Instead we have more buying at the top end of a range that has earmarkings of Friday's behavior.

The sellers right here are commercials and large funds taking profits. And the sellers' stops to buy back are much higher (if they exist at all), than the stop-losses placed underneath from this headline-chasing momentum fund buying. Can we continue higher despite our "perfect" scenario. Sure. Guys like Ray Dalio are showing no signs of back-tracking on their "risk-off" stances. But we are not buying here. We want the hot money to short Gold, not get long. And guys like Dalio are longer term traders with deeper pockets and more apt to tell us they've changed their risk-off and sold their Gold after the fact.

George Gero describes Gold nicely without judgment before the open:

Today gold is steady ahead of summit of bankers including Chair Yellen, ECB Draghi and many more all of which may keep market watchers with one eye on headlines. Keep the other eye on open interest, more new longs.. Gold over 508,734 as we mentioned Friday on cnbc, copper 329335, silver 191783,and gold options on futures 1,144,348, all these indicate asset allocations returning to metals again. Stocks iffy and more political, geo political headlines await as we look for more 1300 area to come.

Gold is higher today, and that for us is unhealthy. It is the increase in OI that worries us. It is the momentum funds looking for more $1300 and buying based on headlines of:

$1300 GOLD YAYYYYY! BUY IT NOW BECAUSE YOU WONT GET A CHANCE TO EVER AGAIN that scare us. Friday's rally brought new longs. Activity and info confirmed for us asset allocators bidding, but momentum funds chasing the price.

And based on that day's close, some of them finished out of the money. If we do not close higher today, they may bail given their gnat-like tolerance in metals. Traders with a 6 month horizon may find themselves annoyed by the funds with a 6 minute horizon right here, right now.

We fear the supernova spike/reversal right here and feel the market is much more likely to extend higher on a more sustainable basis if it consolidates a bit here and takes out some weak longs. We prefer the market establish a base here. Higher now without closing above Friday's high means the likelihood of a significant sell off in 3 days increases. That fear would ratchet up MORE if we took out Friday's high today but closed lower than the day's VWAP

via Vince Lanci:

The question is, do you want a $10 rally today, or a $35 rally over the next 3 weeks? Its a matter of perspective and time frame. But less upside volatility now means more upside later. Better someone sell it in the hole this week than momentum funds trample each other getting in today.

The caveat as Michael Moor noted to us today is 'Longs should not want to trade below $1282.90 intraday.'

This is consistent with our Bull flag hopes. A break below that would almost certainly negate a flag formation and thus bullish sentiment.

Gold for December delivery is trading $1297.00 as we write this, up $5.40 on the day

SPOT GOLD 1 MINUTE CHART

Real time interactive charts HERE

There is a gap on Comex charts between $1286.20 and $1283.50. The smackdown was expected on first penetration of $1300. The market may linger between the gap and recent highs for 3 to 5 days creating a bull flag base for a higher push. Our opinion is that unless Gold penetrates $1314 rallies should be sold to book profits during this time.

Alternatively, shorting rallies this week might be a good intraday play to capture swings as the market gyrates between the gap and new high. Separately, and not necessarily at odds with our analysis, Michael Moor would prefer the gap be tested sooner rather than later in his summary below

We can see bitcoin profits being taken while hot money is buying Gold with that same manic ajax-snorting expectation of profits. And we do not like it.

As long as the market is between $1284 and $1306, we see rallies as a sale, and selloffs as a buy for the next 3 days. Sell it now if you are booking profits. Then hope it breaks $1314 and buy back in.- Soren K.

Moor Analytics

emphasis ours- Soren K.

Analysis written by Michael Moor

Gold (Z) 8/18/17

On a macro basis: The maintained gap higher on 7/18 left a medium term bullish reversal intact below that warned of higher trade for days. We have seen $67.8 of this so far from (Q) into (Z) with a roughly $7 spread differential. The solid penetration above 12417-21 warned of solid short covering in the days/weeks ahead, with a good likelihood of a run back up toward 12980 (+). We have seen $63.8 of this so far, taking out 12980 on 8/11.

On a shorter-term basis: The maintained gap higher yesterday left the short term bullish reversal warned about below, which warned of decent higher trade. We have seen $11.5 of this before backing off the high. Decent intra-day trade below 12829 will negate this definitively. Although this has not been negated, I warned to be out of longs for the time being if we broke back below the 12978-88 and 12954-60 areas, below which I would look for decent profit taking to come in—we have seen $6.3 of this so far. If we leave a maintained gap lower intact above on Monday, this will leave a short term bearish reversal intact that will warn of decent lower trade, likely for days. Decent trade below 12801 (+ 1 tic (10 cents) per/hour starting at 6:00pm Sunday) will project this downward $28 minimum, $34 (+) maximum based off a ‘well formed’ formation; but if we break below here decently and back above decently, look for decent short covering to come in.—likely back toward 12980 (+).

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