EVN $3, page-42

Very good point glend. Gold also rallying with equity markets of late; mainly because the bond markets are talking a lot louder while also saying the exact opposite. Important traditionally inverse relationships breaking down seem to be suggesting an inflection point. Silver action on top of this over last two weeks has also been of great import – historically it’s been nigh on impossible for gold to make sustained moves without silver beginning to follow. The fact that it’s also blown past from time to time is very encouraging.

Gold and silver’s strong performance overnight was despite three distinct and pronounced attacks. That each subsequent attack had less and less impact also seems to indicate that the paper shorts are losing their vice-like grip on price.

A WORD OF WARNING – NON-FARM PAYROLLS THIS FRIDAY.

A swan or a goose?

The Swan
A weak number will remove a significant hurdle and potentially clear the way for the gold price to continue higher in a sustainable fashion, albeit with the attendant pullbacks and consolidations. It would also likely push any prospective interest rate increases out much farther, and in fact, may increase the odds of a rate cut (the Canadian CB has recently released some modeling showing how their economy would apparently function quite well at -0.5% - then again, they’ve just sold all their gold).

The Goose
But if our erstwhile Fairy God Mother waves her magic numbers wand and suddenly discovers another 200k+ waiters who’ve worked at least one hour a week in June, expect some sustained attacks on the paper price. It will be interesting to see if the shorts are building toward record numbers again, as was the case in the lead-up to Brexit. It will also be worth noting just how much the market believes a strong number, particularly given that the last three months’ numbers have all been subsequently adjusted downwards, and in the same month that the unemployment figure went down to 4.7%, 640k working-age people were reported to have simply left the workforce (not ‘retired’ or ‘won the lotto’ or ‘took a sabbatical to write the Great American Novel’ – just left).

The Three Bears
Of course, the other outcome could be what one analyst I follow calls a ‘Goldilocks’ number – one that’s ‘just right’. Sitting right on the 50/50 line of the “is this good news/bad news, for gold/markets, should we buy/sell?” dichotomy, it could be that nothing much happens at all. Then we could all just have a good lie down. Ultimately, the NFPs may have a lesser overall effect one way or the other within the context of myriad deteriorating US domestic data. The EU banking crisis is merely the canary in the coalmine for the broader EU economy, and all of Japan’s efforts over the last 6 months have turned to dust (USD/JPY 100 handle, 20 YR bonds to zero yield today, Nikkei down 1.85% today and 15% YTD).

The Bull
In any case, I would suggest that any short-term pullbacks in the POG could represent an opportunity to add to an already strong position. Considering EVN’s absolutely stellar performance over the last eighteen months, anyone hoping for a significant pullback to get back in may well see their ideal price disappearing into a dot in the rearview mirror.