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People have blamed gold's 18 percent decline this year on many different factors: a lack of fear in the market, a bubble that has burst, talk that the Federal Reserve will soon end qualitative easing. But some market participants say the single biggest factor could be the Japanese yen.
"It is difficult to deny the strong correlation between the yen's decline and the consequent collapse in gold," said Jim Iuorio, TJM Institutional Services managing director and contributor to CNBC.com's "Futures Now."
"As in comedy, timing is everything, and the announcement of drastic liquidity in measures in Japan, coinciding with massive long positions in the gold market, led to the exaggerated downward move in gold."
As the Bank of Japan's easing policy has led the yen to decline in value, the U.S. dollar has gained relative value. And a stronger dollar logically means that people are willing to pony up fewer of those dollars for gold, so gold prices should drop.
The trade seemed to have turned around last week, when the yen surged in value. But that wasn't enough for gold to make a serious run, even in the short term.
"At this point, even a stabilizing yen may not be enough to stop the negativity surrounding the gold market," Iuorio said. "When the catalyst disappears, it doesn't always mean that sentiment will revert back."
Worse, the yen's recent strength turned back around on Monday, ahead of Tuesday's Bank of Japan meeting announcement, which some think will lead to more yen weakness.
"In the last week or two, the markets have been disappointed by what dollar/yen has done," said Todd Gordon, founder of TradingAnalysis.com. "But I bought dollar/yen, because I think the Bank of Japan is scheduled to do something on asset purchases to reignite confidence."
(Read More: Dollar-Yen Shake-Out Could Just Be the Start)
In the longer term, Gordon believes that increasing U.S.Treasury yields will drive dollar/yen higher. He says a spike in yields would be good for gold if it reflected inflation fears. But since this move is due to expectations that the Fed will roll down bond purchases, Gordon says it will offer no help to the gold trade.
"This is an inflation-less recovery, and that leaves gold behind," Gordon said.
Japan rebounds and China disappoints, as U.S. stocks forge ahead. So what does this mean for the metals?
Gold traded to a lower high overnight heading into Friday's nonfarm payrolls report, reaching only as high as $1,417.70. Investors and traders raised bets on gold through the week, keeping prices stabilized above $1,400 for much of the time. As uncertainty came into the market and equities were under tremendous pressure, gold once again became a safe haven currency. But the market could still not extend itself above major resistance, or close above that all-important $1,413.20 level.
(Read More: Gold Eases as Payrolls Data Fuel Fed Speculation)
When the jobs data fell in line with expectations, the stock market enjoyed a major bullish reversal, and gold was once again seen as less attractive. The selling pressure resumed, and gold retested major support at $1,380 to $1,383, running stops and reaching a low of $1,377.10 on Friday.
As I mentioned on the "Futures Now" blog, the close is very important, and gold was able to maintain much of its price action back above support and saw an electronic close of $1,383. Much of this session's trade has been sideways, but the session high has come in right against resistance, and the market is now trading $10 down from there.
(Read Rich's previous post: Pro: This Will Determine Gold's Next Move)
After a volatile week for the market, it looks like the bull case for stocks is intact.
The payroll numbers on Friday appear to have shaken the S&P 500 out of its correction phase. The data landed in the "sweet spot"—it was decent, but not good enough to suggest the Federal Reserve will pull back on bond purchases anytime soon. The stock market appears comfortable with the notion that the Fed probably won't announce a reduction in purchases until the October meeting at the earliest, and only in conjunction with evidence of an improving economy.
Friday's close will be paramount for gold.
Gold traded to a high of $1,423.30 on Thursday, after coiling into a tight range early in the session. Early price action from $1,408.50 to $1,410 ran stops, and allowed traders to ride a wave of fresh buying to press this market to new swing highs. With a lower high overnight at $1,417.70, gold consolidated lower ahead of the nonfarm payrolls, and back toward support at $1,408.50.
This payrolls report was the most anticipated data release of the year thus far, as traders were hoping it would give them to get a further indication as to the state of the economy, and consequently the Federal Reserve's monetary policy going forward. However, 175,000 jobs were added, and this is basically in line with the 170,000 predicted. Meanwhile, the unemployment rate suffered a uptick to 7.6 percent from 7.5 percent. With a slight downward revision of the previous month's data, this report gives no significant indication that a change in policy will be coming.
(Read More: No Swoon: Job Creation Continues, Rate Up to 7.6%)
It's already been a hard week for natural gas, but it looks like there's more pain to come.
Natural gas futures were hammered on Thursday, as government supply data showed the biggest weekly gain in inventories in four years. Supplies rose by 111 billion cubic feet, which was more than the 93 million to 97 million expected, and well above the 72 billion cubic feet we saw last week.
Worse, the consequent downdraft happened to coincide with the break of a key technical level at $4, causing many long positions to liquidate.
"The narrative now is whether the Fed is simply pushing on a string," Kass said, "and many market participants are coming to this 'aha' moment."
Kass, the founder and president of Seabreeze Partners Management, believes that the data have been weak, and will get even weaker.
"I have a variant view on both corporate profits and the outlook for economic growth versus the consensus. My concerns have been ignored by the markets, but they have been supported by the cautious guidance by corporations during the first-quarter earnings calls as well as by the recent economic data," Kass said.
(Read More: Housing Grows, Hiring Slow, Sequester Hits: Fed)
The problem is that "central bank liquidity blurs the line of demarcation between economic reality and stock market euphoria." For Kass, market participants are buying into the idea that the U.S. economy is growing, when we're simply seeing the impact of more liquidity.
Housing has experienced an incredible recovery. Though still far from the elevated levels of 2006, the S&P Case-Shiller Home Price Index has increased by 8 percent over the past year, and the S&P Homebuilding sector has enjoyed nearly triple the gains of the S&P 500 over the past year.
But is this growth organic, or is it simply a result of the artificially low interest rates fostered by the Federal Reserve's quantitative easing program?
"The housing recovery we have seen is not, in fact, a QE bubble," CIBC World Markets chief economist Avery Shenfeld told CNBC's "Futures Now."
This is not merely an academic question. As traders hold their breath for the Fed to begin tapering its asset purchases, the question of whether housing can continue to grow without the Fed has become critical.
Shenfeld believes that housing growth will not merely continue—it will accelerate, even if mortgage rates rise due to a Fed exit.
"Mortgage availability actually remains very, very tight," Shenfeld said. "I think that as the mortgage market recovers, which it will with recovering consumer credit, we'll get more support from mortgages for the housing rally in 2014, even if mortgage rates are in fact higher than they have been—because mortgage availability will be that much better."
(Read More: Another Housing Market Bubble Brewing)
After all, mortgage rates are so low that a move higher should not do much damage, the economist said.
"Remember that today, we're sitting on 30-year mortgage rates that are under 4 percent," Shenfeld noted. "Even if we push those rates up another 50, 60 basis points, we're into the mid-4 percent range on a 30-year mortgage. Remember that in the last cycle, anything under 6 percent was a screaming bargain."
(Read More: Best ETFs to Play Housing Boom)
Gold is gearing up to make a huge move one way or another. So which way will it go?
Buyers continue to test the crucial level of $1,422. In the event that $1,425 prints, shorts and those standing vigilant should briskly drive prices back above $1,450, sending gold on its way to test the multiyear low of $1,523. Not too long ago, gold sliced through that low like a hot knife through butter.
On the other hand, if the gold bulls (or the gold bugs) can't get $1,425 to print, the bears live a bit longer.
(Read More: Gold Rises After US Jobs Data Misses Forecasts)
Gold is searching for direction.
Gold followed up on Friday's near-$40 swing lower by stabilizing above major support, and August gold futures retested a high of $1,416.5.
Indeed, as data have become more mixed, the likelihood of seeing a curtailing of the bond purchasing program diminishes. On Monday, Atlanta Fed President Dennis Lockhart maintained that the central bank is committed to its bond-buying program, bringing further support to the metal.
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