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GBR Market Wrap: Gold Dips, More Volatility is in Store

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In this Week’s Issue: Aug. 26, 2011

Weekly Snapshot

• U.S. real GDP grew at an annual rate of 1.0% in the second quarter of 2011 (ESA)

• U.S. consumer sentiment fell to 55.7 this month from 63.7 in July (Bloomberg)

• Greek two-year bond yields at 44%, highest levels since the launch of the Euro (Bloomberg)

• U.S. orders for durable goods in July 2011 increased 4.0% to $201.5 billion (ESA)

• Germany’s Ifo business climate index in August dropped to 108.7 from 112.9 in July (AP)

• In June compared with May 2011, Euro area industrial new orders fell by 0.7% (Eurostat)

• Steve Jobs decided to step down as chief executive of Apple (Economist)

• Gold at new all-time record of $1,911.46 before falling $200 in three days (FT)

• Congressional Budget Office sees $1.3 Trillion budget deficit for 2011 (WSJ)

• U.S. home prices fell 5.9% in Q2 from a year earlier, biggest drop since 2009 (Bloomberg)

• Moody’s cut its rating on Japan’s government debt by one notch to Aa3 (Reuters)

• Head of rating agency Standard & Poor’s stepping down, to leave company at year’s end (AP)

Market Barometers



Weekly Chart

Many of my generation have idolized Steve Jobs; as someone once put it, he is the only man-crush one should have… Whether you are a Mac or a PC, you cannot deny that this man had the vision and the tenacity to transform entire industries. In the eyes of some, Jobs is able to walk on water or so it seems for all of those who are engulfed in his Reality Distortion Field. Although he remains actively involved in the company as chairman of the board, it is unclear to what extent Steve Jobs can continue to influence strategy and be the main visionary of the company.  Sadly, the question is purely a medical one. As a reminder of how Steve Jobs transformed Apple, numerous industries and the entertainment behavior of at least one generation, please consider the chart below.

Click on image to view larger version

All That Jitters…

It continues to be all about gold. But as we examined last week, the move into gold is a “rocky” adventure, at least at these price levels. After reaching yet another nominal all-time high, gold dropped about $200 in just three days. Had you been caught in the buying spree, that kind of downside movement wasn’t an easy one to digest. From our perspective, it looks as though volatility in precious metals as well as other commodities isn’t going to disappear anytime soon. To get a sense of just how much gold prices have swung, let’s consider a few technical angles for this shiny metal.

$200 down and over $100 back up in just a week, phew…


A very popular tool is the use of Fibonacci retracement levels (38.2%, 50%, 61.8%), which are often indicative of profit taking or a sort of pause in the underlying trend.  The three-day price drops ended at the 50% retracement level, an almost text-book like move.  As long as these retracement levels hold, technical traders will favor the upside.


Putting things into perspective, you can see how parabolic the price increases have been just this past month. We have seen similar parabolic moves before most recently in silver. Although prices may remain volatile, the major trend still points upward. Gold prices have a long way to go down before this major trend is in danger of reversing. But rest assured that there is more volatility in store. The flight to the illusive safety of gold will continue to be choppy.


Recommended Read

Higher gold prices have been a symptom of a distrust in fiat currencies, namely the Dollar and the Euro. Please consider: Much Ado About Debt: Dollar vs. Euro. Granted, Axel Merck is talking up his book by promoting his own currency fund, but it is nevertheless an excellent assessment of U.S. Policy and its impact on the Dollar.

FedSpeak Translated Into Plain English

Please consider this enlightening interview with Philly Fed President Charles Plosser. Rather than engaging in the art of reading tea leaves, here’s a no-nonsense plain English talking Central Banker. Don’t you wish we could get the same type of concise info from all Economists?

Good luck and good investing!

Clemens Kownatzki, MBA is an adjunct professor of financial risk management at the Graziadio School of Business and Management, as well as the founder and CEO of FX Investment Strategies, a Registered Investment Advisor. In addition to running his investment advisory firm, he is a contributing author at and He also authored the book, Money Music 101, available on Amazon and Kindle, in addition to publishing the popular investment blog along with a weekly newsletter.Disclaimer

Neither the information nor any opinion contained in this communication constitutes a solicitation or offer by us to buy or to sell any securities, futures, options or other financial instruments or to provide any investment advice or service. Each decision by you to do any investment transactions and each decision whether a particular investment is appropriate or proper for you is an independent decision to be taken by you. In no event should the content of this communication be construed as an express or an implied promise, guarantee or implication by or from us that you will profit or that losses can or will be limited in any manner whatsoever. Past results are no indication of future performance. Please note that there is no requirement and no commitment to make any payments to FX Investment Strategies LLC in order to access our published information be it via email or via website publication. All information is publicly available without any required monetary consideration. Any payments or donations made by you are deemed to be voluntary and cannot be considered as payments for investment advice given to you.

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Author of the article
Clemens Kownatzki, MBA
Clemens Kownatzki, MBA
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