Midweek Market Update

Market updateDear PGM Capital Blog readers,

In this midweek’s blog edition, we want to highlight some of the most important events for the week of July 28 and August 1, 2014.

  • Heavy Data Week
  • Must see internet links
  • Technical market outlook


Heavy Data Week

After the much anticipated earnings data from the past weeks that weren’t in any way special or exciting, all eyes are this week on the data that will be released and investors will adjust their decisions based on what will be reported. These are some of the most important numbers investors will be looking at:

  • US GDP Data for Q2 2014 (release July 30 @ 8:30 am)
  • Fed’s Monetary Policy Statement (release July 30 @ 2:00 pm)
  • Euro Countries CPI numbers (release July 31 @ 5:00 am)
  • US Nonfarm Payrolls (release August 1 @ 8:30 am)
  • US Unemployment Rate (release August 1 @ 8:30 am)

The general consensus for the US GDP is at a very optimistic 3.0% after the disappointing -2.9% number that was released for the first quarter of 2014 and most of this was blamed on the bad weather. Most analysts expect a rebound from the -2.9% Q1 GDP and everything under 3% is seen as disappointing.

Our opinion is more reserved and we would not be surprised if the very optimistic 3% GDP consensus will not be met. Expect some heavy volume action on the markets after the release of this number.

From the FED we don’t expect anything special, the interest rate should remain unchanged and the MBS and Treasury Purchase Program should be cut each by US$ 5 billion, which will be in range with the general consensus. It should be interesting to read between the lines of the FED’s statement and see if we can get an outlook on future FED decisions.

The NFP numbers are harder to predict since they have been a hit and miss from the general consensus in the last few months and we expect that anything is possible, the general consensus expects 235K (K stands for thousands) jobs to be added.

The US unemployment rate should stay relatively stable around 6.1% which is in line with general consensus.

This weeks data should give some certainty and direction for the equity markets and we will know more by the end of the week.

Must see internet links

Please take your time to read/watch the following links that we have posted below.

Technical Market Outlook

This week we will take a look at Gold. We are expecting for Gold to end its short-term correction within the next 2 weeks from its recent high at around US$ 1345 on July 10. Gold has traded sideways in a range between of 1240 and 1350 in the recent weeks/months and there was no danger of breaking the double bottom at 1180, which to us is a clear sign that the worst might be behind us and we are right now in a neutral sentiment heading for the next long-term bullish sentiment.

There are a couple long-term technical indicators that support that there is a high probability of an upcoming bull-run that will take the price of gold higher till the end of the year.

One of the important long-term technical indicator is the MACD (moving average convergence/divergence) on the monthly chart!

Below is the monthly chart (this is the long-term chart) for Gold measured in US Dollar together with the MACD indicator. Click to zoom into chart

Click to zoom

This is a chart that goes all the way back to the year 2000. We marked the important MACD crossover events in the chart corresponding with the long-term (multi month/year) direction. What can be seen, is that every time there was an crossover event in the MACD we saw definitive direction for the gold price.

The previous crossover event that was posted in January 2012 confirmed that the intermediate top for the gold price was set in September 2011 and that a correction and a consequent bear market was to be expected. The bear market that followed the cross-over in January 2012 lasted 18 months and posted a double bottom in June and December 2013 until a new bullish crossover was very recently posted in July 2014.

There are a lot of other technical indicators to support the notion of an end of the precious metals bear market, that is why its important to take a closer look at leading indicators to confirm this outlook. The most accurate leading indicator are the gold miners. The gold miners very accurately anticipate what will and can happen in the future markets and the gold miners also did lead the way in the last bear-market by starting to heavily under-perform before the first big sell-off in April 2013. The gold miners are best represented by the ETF with symbol GDX (NYSE), which is the biggest gold miners ETF and is frequently used in technical analysis.

In the below daily chart we overlay the gold price (in blue) against the GDX price (in orange). Click to zoom.

Click to zoom

What we can clearly see is that the gold miners started to separate itself from the gold price since June 2014 and is steadily outperforming the gold-price on a daily basis. This can be seen as a mid-term bullish sign and we can expect the gold price to follow the miners soon (within the next 2-3 weeks).

With the bullish MACD crossover in the monthly gold chart and the gold miners starting to outperform, we expect a bullish second half of 2014 for the gold market.

Caution: For these bullish signals not to be killed, the gold price needs to stay above the critical support of USD 1240 and more importantly the double bottom at 1180. If these levels cannot hold, more downside can be expected.

For investors who want to make the most out of a possible starting gold bull-market, we advise to have exposure in the gold miners since miners will outperform the price of gold in the early stages of a bull-market by a factor 2. In later stages of the bull-market it is advised to hold gold-bullion and silver.

Last but not least, before following any investing advice, always consider your investment horizon and risk tolerance and financial situation.

Yours sincerely,

Michael Panneflek

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