Gold was suggested in the newsletter for week 30 to be prone to some consolidation and profit taking after its recent and strong run-up over the past three weeks, where it added 7 pct since its low of 638.8$ an ounce on June 27th.
Confirmation of this consolidation was found in the global sessions on Monday and Tuesday as investors became wary on freshening up positions in a seemingly saturated market, noticeable in lower daily volumes.
What happened subsequently in the week was a strengthening of the dollar, putting the euro into a technical correction rather than a fundamentally driven reversal, although the correction proved more intense than anticipated, as it unraveled on Wednesday and Friday, sending the greenback nearly 1.4 pct higher.
Worse than expected data on the current U.S. Achilles heel, the housing sector, fueled further fears that the broader economy might suffer more from the housing-led slowdown than was until now expected, combined with fears of a spillover of subprime mortgage woes into a general credit crunch.
While this data could have supported the Euro, the effect was largely masked by the unraveling technical correction, pushing down gold as a dollar-alternative investment along the way.
Looking back on gold’s actions over the last week, the metal has held relatively well and underwent an only minor correction.
The metal has lost 3.6 pct, but some of these losses are accountable to the unwinding of an overbought condition, relieving chart pressure on the short-term. Although the timing for such an externally driven correction is never favorable, things could have been much worse if it happed earlier – i.e. one month ago -, when gold’s performance was to be called all but inspiring and as critical support lines were in sight. In this light, the reestablishment of an upward trend since the lows of June 27th has done well in absorbing the correction, and bodes well for the continuation of the trend, which may be further supported by oversold indicators on the short and longer term.