Gold futures were under assault again this week as August futures lost $32.60 for the week while the front month September silver contraxct lost a whopping $1.20 as heavy selling dominated in this holiday shortened week. Since reaching a yearly high up at 1297.7, gold has lost six percent in the last month while at the same time falling for five straight weeks.Silver futures suddenly dropped before quickly bouncing back in another “flash crash” that renewed fears that computer-driven trading has gone too far. Around 7:05 p.m. ET Thursday (7/6/17), the contract for September delivery plunged 11 percent from $16.14 per troy ounce to $14.34. Traders could not name a fundamental reason for the drop, but considered it another case of computer-driven trading that disrupted markets during a period when few were actively trading. Like most other recent flash crashes, the drop in silver occurred outside of New York business hours and in the early hours of Asian market operations.
The key event next week will be Fed Chair Janet Yellen’s semi-annual testimony before Congress Wednesday and Thursday. She has been fairly optimistic on the U.S. economy, noting modest growth. At the same time, she has dismissed low inflation concerns as “transitory.”The minutes of the June Federal Open Market Committee meeting, which were released on Wednesday, the Fed noted a growing divide on inflation expectations. “Several participants expressed concern that progress toward the Committee’s 2 percent longer-run inflation objective might have slowed and that the recent softness in inflation might persist,” the minutes said.
Also bearish for gold lately is the muted reaction to weakness in the Dollar. The Dollar index has been a good indication of gold’s direction, but the correlation recently has been breaking down. Gold has seen little benefit from a relatively weaker Greenback which has been hovering around a seven-month low. In my view the greenback is being pressured by a stronger euro as markets price in more European Central Bank tightening. In a small surprise this morning the U.S. economy added 222,000 jobs in June, the Labor Department said. Economists polled by Reuters expected an increase of 179,000. In my view Gold’s weakness stems from the hawkish rhetoric from major central banks and the adjustments to interest-rate expectations. Central banks around the globe have been signaling their intentions to tighten monetary policy in the near future. Minutes from the European Central Bank’s June meeting showed officials discussed shifting their bias from easing to neutral.
Heading into next week my technical swing numbers come in as follows. Support for August gold comes in at 1196.6 and with a close below here, next support is down at 1183.6. Resistance is up at 1219.6 and then up at 1232.6. For September silver , support is down at 1547, and then down at 1505. Resistance lies first at 15.85 and then up at 16.14.