Gold: Technically Teetering???

Note: With this column, Minyanville is pleased to officially welcome Greg Weldon as its newest professor. Greg has significant experience covering the markets from a macro level perspective. We're confident you will quickly come to see the value of his work and we are glad to have him in the 'Ville.

UNDER THE MACRO-SCOPE


Observe the long-term weekly chart of COMEX Gold, on display below, and the primary potential downside pivot point becomes OBVIOUS, tagged as the May low set at $372.00.

Clearly, a downside price penetration would negate the secular uptrend, implying at LEAST a deep downside correction, or worse.

Indeed, we can easily 'tighten' our technical perspective by utilizing the long-term 52-week exponential moving average, which converges near-perfectly with the neckline of a would-be head-and-shoulders topping pattern ... pegged at $388.70.

So, given the HUGE and EVER-EXPANDING current account deficit in the U.S., amid INTENTLY IMBALANCED eco-final-demand growth dynamics and persistent cost and wage disinflation ... WHY might the greenback be rallying, and thus exerting a negative influence on bullion, from the inter-market perspective ???

How about ... capital flow INTO Asian stock markets, on the alleged eco-growth-reflation theme !!!!

We note a recent investment bank report revealing a capital OUTFLOW from equity markets belonging to the six Asian 'Tigers' (Taiwan, Thailand, Korea, Philippines, Indonesia, and India) during the first two weeks of July.

Indeed, over the first four months of the year, the AVERAGE WEEKLY INFLOW of foreign capital into the equity markets of these six countries was nearly $1 billion ...

... PER WEEK.

And this does NOT include China, Japan and Singapore, all HUGE recipients of foreign portfolio inflow, particularly Japan.

Foreign exchange market risk is skewed by equity market driven capital flow dynamics, to the point where ASIAN currencies are HIGHLY VULNERABLE.

IN FACT, note the NEW LOWS in the Chinese forward swap market for Renminbi.

Bottom Line: the US Dollar is breaking out to the UPSIDE against a variety of Asian currencies, such as the Thai Baht, seen below.

And then there is Europe.

Portugal is talking income tax cuts, while the opposition points out that the enactment of such would BLOW Maastrict out-of-the-water.

Germany's IFO Survey, while trumpeted in the media as a sign of eco-strength ... was, in reality ... ANYTHING BUT.

The Construction Diffusion Index hit a NEW LOW, the Retail Index was barely changed, at deeply negative level, in fact, its third worst of the last YEAR ...

... while the Wholesale Index has been 'better' than minus (-) 15 during only four times in the last two years, and July was NOT ONE OF THEM.

So where is the German 'eco-beef' ???

Manufacturing, where the index rose, and remains the ONLY index in positive territory. In other words, Germany is all about EXPORTS, with NO domestic impetus at ALL ... less so, if the ECB were to tighten monetary policy. No wonder the German Wise Men, revised EXPORT growth in 2004 to expect a +10% expansion, twice the originally forecast growth of +5% ...

... while revising OVERALL growth to JUST +1.7% , from +1.5%.

HARDLY ... 'overt strength'.

And finally, the Italian ISAE Business Sentiment Survey for July, was a MESS, with a three-month erosion in most ALL categories, with specific weakness in Consumer Goods, and Employment.

Thus, the USD is now threatening a full-scale upside breakout against Europe too ... as suggested by the chart below, plotting the USD versus the Swiss Franc.

REWIND:

The USD is breaking out to the upside versus Asian currencies.

The USD is breaking out to the upside against European currencies.

Gold priced in USD is breaking down.

A 'text-book' inter-market 'fit' ... indeed, a TRIPLE-PLAY.

We have become increasingly bearish on the bullion market.