Friday, September 6, 2013

Gold Ahead of Payrolls, Ctd.

by Pater Tenebrarum


Over the past two trading days, gold has suffered an extended bout of pre-payrolls jitters. This was to be expected, as the gold stocks, as they almost always magically do, signaled it once again. The easiest trade in the world is to  short gold when gold stocks clearly underperform it and go long when they strongly outperform it.

Here are a few additional observations prior to the jobs data release. Obviously, so far gold has held above the major support at $1,350, but it is not  too far from there at the time of writing, so there will likely be a 'moment of truth' at some point between today and next week.

Gold-3-daysGold, December contract over the past two days, 20 minute candles - click to enlarge.

Interestingly, 3 month GOFO, which had briefly turned positive in recent days, has turned negative again yesterday. However, the more interesting action was in gold stocks. They were weak on Thursday, but Wednesday and Thursday together still saw them outperform the metal. Nothing untoward has occurred on the chart, but it sure does look now as though at the very least a test of gap support and the 50 dma is in store. Given the volatility of the sector,  these levels may well be undercut even, but the (short term) bullish case would be better served if they hold:

HUI-dailyHUI, daily – approaching the 50 dma - click to enlarge.

Looking at the ratio of the HUI to gold, we can see something interesting: just as a slightly negative divergence with the gold price was in evidence at the recent peak, a slightly positive divergence has formed in recent days:

HUI-Gold ratioHui-gold ratio, short term divergences with gold (green line at the bottom) - click to enlarge.

Obviously, it won't take much to erase the recent positive divergence, but it definitely exists at the time of writing. Since the negative divergences seemingly always 'work', then perhaps the positive ones will too for a change, but we will have to wait and see.

BLS Jobs Data – How Reliable Are They?

There are more and more reasons to be skeptical about the jobs data. For instance, Mish points out the very large rise in Gallup's unemployment rate over the past month. We promise to eat our hat if the BLS numbers come even remotely close to what Gallup reports. Zerohedge recently reported on the growing gap between the BLS payrolls increase and JOLTS data (Job Openings and Labor Turnover Survey), which almost never drift apart as much as they have done this year. 

Charles Biederman recently noted that treasury withholding data are at odds with the payrolls report as well. Here is a chart illustrating the situation:

Withhold Receipts and EmploymentTreasury withholding receipts and employment. No jiba – click to enlarge.

Obviously these are often drifting apart, but growing and persistent gaps between the two data series should raise eyebrows as well.

This is all the more reason to believe that the data themselves are far less important to the gold market than often appears to be the case – as always, it is the reaction to the data that will count, and that does not necessarily mean the immediate reaction. Rather, we would expect the market to begin to show its hand in the course of next week.

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