While the gold market damaged its charts Tuesday, it repelled that lower probe and managed to trade $13 an ounce above the low of the day as if the $1,387.50 level was some form of support. Obviously gold is seeing some long liquidation ahead of the Powell testimony as it would seem as if a number of markets think Powell will shift the rate cut pendulum away from a cut.
However, the gold market is being supported by ongoing press coverage of favorable demand stories regarding additional central bank purchases and rapidly expanding global gold ETF holdings. While the purchasing by central banks has been widely touted for several quarters, headlines pointing to definitive inflows into ETF holdings were limited until two weeks ago.
In fact, according to the World Gold Council, global gold exchange traded funds saw an inflow of 127 tonnes in June to stand at 2,548 tonnes. It should also be noted that gold last week managed to extend a daily pattern of inflows into ETF's to 14 days before an outflow was posted.
It should also be noted that SLV (silver ETF) posted its biggest monthly inflow in two years and has seen inflows every day this month.
Unfortunately for the bull camp, the action in the dollar so far this week has been limiting and could become damaging in the event that 3rd day of notable gains is seen. It is possible that gold will see expanded volatility today due to US Fed Chairman testimony to a congressional committee, as that testimony could yield direction on US central bank rate policy.
In our view, the Fed chairman is likely to be generally upbeat on his economic views and that will probably serve to notch down the prospects of a rate cut in the next Fed meeting. A large portion of the May through June rally in gold was forged on a list of bullish forces, and a number of those bullish factors have been reversed!
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