The Week In Hindsight 14 February 2014

Gold extended its rebound this week as US retail sales put in a dire performance for January as the technical picture for gold improved. This lead the precious metal to break above the $1300 level after a brief period of deliberation which has lead forecasters to begin calling for a return to the $1400 per ounce level.

Our view is that while technical buying may push prices up in the near term, supported by concerns surrounding the US economy; the fundamental outlook for the metal remains unchanged. This because we feel that current sentiment surrounding the US recovery underestimates the economy’s potential strength and at the very least represents a conclusion drawn without sufficient information.

With Arctic weather conditions hampering commercial activity across large parts of the United States it comes as no surprise that retail sales and jobs growth for the month of January were disappointing. The true test for the recovery will come when adverse weather conditions begin to recede, until this time economic barometers are likely to under perform which will continue to distort the true picture surrounding the health of the US economy.

As a result, gold could continue to climb higher in the near term. Despite this, with confidence levels still growing, as indicated by Friday’s consumer confidence report; we feel it is unlikely that the US recovery will be derailed by any notable measure. In addition to this the Chair of the Federal Reserve, Janet Yellen, has stated as recently as this week that the FOMC currently intends to continue tapering the pace of its asset purchase program back to zero and that it would take a substantial deterioration in the economic outlook to reverse this.

For these reasons, we would view any return toward the $1400 mark in gold as a very clear signal to go sell. For those not yet in on the action, short positions are the best option.