The U.S. economy grew 4 percent annual rate in the second quarter, according to the government’s first estimation of the gross domestic product. This number maybe be a bit overestimated as the government tend to overestimate these numbers. My guess is that, it probably is. For Q1 GDP the initial reported GDP was a gain of 0.1% which was revised to -2.1% and down to -2.9%. If the GDP revision does not change, and the reading stays at 4%, it should offset the Q1 GDP numbers. If that happens I will believe that the US economy is not stellar but on track.
The stock market lost around 1.9% today giving back all of it gains for the year. The stock market does look like it has more downside. To be frank, I think that this is just the tip of the iceberg. I am expecting at least a 10-15% correction over the next few months. Gold lost around 30 points in the last two days. It may find support at the 61.8% retracement level and rally tomorrow. The up trend is still very well intact. If gold break this level at 1280, it may quickly go down to $1269, although this is very unlikely.
The rally from the multi-year trend-line does look a bit like an elliot wave although the corrective waves looks a bit odd with 5 wave counts instead of 3. I think a good explanation for this could be the unnatural naked selling that happened around the 1330 level. It does look skewed, but I believe that the zig zag correction is complete and gold is ready for the next leg up. As I have said in my last post, when the stock market really roll over, it will be very bullish for gold.
I planned to start blogging regularly after I finished posting more content, but I felt the need to let you know about the gold market which I believe is going start a new bull market. If you have been following the news you will know about the things going on in Israel, Ukraine and Iraq.
People buy physical gold during times of geopolitical crisis, and I think that this will be a great driving force for the gold price for the next few months. What I think would be an even bigger driving force is the US economy. The GDP contracted by -2.9% in the first quarter. As you many know, the US stock market didn't even flinch at these numbers and people think that this is a bullish sign. The Fed, of course, blamed it on the harsh winter. The winter definitely affected the GDP in my opinion, and we may get a decent rebound in the second quarter. But, I think the winter masked the real structural problems in our economy. We will just have to see what the initial Q2 GDP is coming Wednesday.
Gold has been on the downtrend for more than 2 years, and had been basing for a few months. As we speak it has rebounded from a multi-year support. The risk to reward is low. There are several ways to invest in gold; you can buy physical gold, gold stocks or etfs. Personally, I am invested in the gold miners etfs GDXJ and GDX. People are overly complacent and bullish in the US stock market right now. I think the reason is the Fed's money printing, quantitative easing and low interest rate policies. If the US stock market starts to roll over this will be really good for the gold market as people will look for higher yield. Let's wait and see if the inverse head and shoulder pattern develops. Keep your eyes peeled.