Press reports blamed this week’s decline in the gold price on high
frequency trading programs (what else?), which allegedly shook out the weaker
gold positions. Ever since the
publications of Michael Lewis’ latest blockbuster book, Flash Boys, HFT trading has become the media’s favorite financial
villain. Every pullback or short-term
market hiccup is now blamed on HFTs, and while there’s undoubtedly some truth
to the allegations, the underlying technical structure of the market is being
overlooked.
The most dominant factor governing gold prices isn’t HFT trading
algorithms, but lack of a major fear catalyst.
Without the necessary level of anxiety – be it geopolitical or economic
in nature – investors are likely to continue ignoring gold in favor of riskier
assets, or else assets with sustained forward momentum prospects (such as
Treasuries). For now the gold price
continues to languish as fears over Ukraine, China, et al, take the back burner
to more upbeat news concerning positive U.S. corporate earnings and economic
headlines.
For example, news headlines touted the strong recovery in the U.S.
job market. New claims for jobless
benefits are now near their pre-recession lows, according to a Reuters report
on Thursday. Meanwhile the latest
manufacturing data for the Md-Atlantic region accelerated in April. Earlier this week the latest retail sales and
industrial production data gave equity investors reason to cheer. Conversely, it was all the more reason for
gold traders to liquidate positions as a defensive stance was viewed as
counterproductive in such a positive news environment.
From a technical perspective, the price of gold (basis June
futures) has not only slipped back below its 15-day moving average but is now
also below both the 30-day and 60-day moving averages. The short- and intermediate-term trend lines
for the gold price have now been broken and gold is in a vulnerable
position. As you can also see in the
following chart, our special stochastics indicator (below) has confirmed the
recent sell signal….
[Excerpted from the Apr. 17 issue of Gold & Silver Stock Report]
