Gold Settles Quietly into the Weekend
Commentary for Friday, July 19, 2019 – Gold closed down $1.00 today at $1425.10. This past Monday we closed at $1411.40 so on the week we are up $13.70 – not much really considering all the drama. The price action was however worth a close look – on the open gold pushed to a 6 year high towards $1450.00. But could not sustain this upward momentum as paper traders took profits and gold finished about unchanged.
Still on the short-term momentum remains with the bulls as our shiny friend reacts to FOMC lose money comments, and problems between the US and Iran concerning gulf traffic. And this attempt at recent highs came, surprisingly amidst a rising dollar – the Dollar Index moving up a half point (97.00), another plus on gold’s side.
The fact that prices have moved from $1300.00 through $1450.00 since early January makes this at least a powerful rally and the recent break above $1420.00 may suggest that the consolidation between $1400.00 and $1420.00, in place since mid-June has resolved itself in favor of the bulls.
All the happy news about gold should prompt caution – you know the trader’s admonition – beware of the herd mentality. Also consider that gold is up $80.00 in 30 days – it makes sense that we might be overbought and a round of profit taking is in order.
Still a bull market will climb that “wall of worry” so let’s be optimistic – especially in the longer term as central banks continue to buy gold (a really big overlooked plus) and the world continues to not only print too much fiat paper money but is actually getting ready to double down on a trend which has been in place for more than a decade.
Expect to see a lot of price chop in gold on the shorter term but “gold sentiment” is definitely moving towards optimistic. A few rounds of profit taking will stagger the bigger picture but in the longer run this recent activity could be the early beginning of much higher prices – look for the lost word “inflation” to reenter this conversation for confirmation.
This from Zaner (Chicago) – “Global equity markets overnight were higher with gains around 1% in many markets. Overnight economic news included Japanese consumer price readings for June which were right on expectations and matched the similar reading last year. Also out from Japan overnight was the all industry activity index for May which came in at +0.3% versus expectations for a decline of 0.2%. From the euro zone German producer prices for June contracted by 0.4% and that reading was moderately weaker than expectations. UK public sector net borrowing for June came in at a much stronger reading than anticipated while euro zone current account readings showed a larger than expected surplus. The North American session will start out with May Canadian retail sales which are expected to have a modest uptick from April’s 0.1% reading. A private survey on July US consumer sentiment is forecast to have a modest uptick from the previous 98.2 reading. St. Louis Fed President Bullard will speak during morning US trading hours while Boston Fed President Rosengren will speak during the afternoon. Earnings announcements will include American Express, Schlumberger, Blackrock, State Street and Kansas City Southern before the Wall Street opening.
While the August gold contract raced to another higher high and pierced the $1450 level overnight, it has fallen back notably from that high in a fashion that could lessen bullish resolve. However the net take away from the Fed news this week has provided the brunt of the buying fuel with more Fed members reiterating the need for action. Furthermore global headlines are carrying the potential for other central bank rate cuts and that has created a very favorable environment for the last trading session of the week. In fact while the dollar is not falling precipitously this morning talk in the marketplace is that the US administration might be poised to allow or even pressure the dollar to bolster its trade stance and or to make American products cheaper to foreign buyers. Another issue coming down in favor of the bull camp are suggestions from a J.P. Morgan asset manager suggesting he was prepared to ride US treasury yields all the way down to zero as zero treasury yields could force even more money into alternatives like gold and silver. In fact there continues to be an avalanche of noted analysts, fund managers and even Australia’s Perth Mint Director projecting higher gold prices ahead. The silver market this morning has once again outperformed the gold market with another new high for the move, a new high for 2019 and the highest price since July 2018. We would also add that silver has managed to hold most of its overnight gains and perhaps most importantly silver fund SLV saw the biggest inflow in over 6 1/2 years earlier this week. Overnight total gold ETF holdings increased to 56.3 million ounces versus 55.9 the previous day. Another factor to consider with respect to silver is London bullion market Association figures pegging the turnover in spot gold each week of $200 billion while the amount of silver changing hands each week is much smaller at $34 billion. In short a smaller amount of money directed at silver might have a larger impact on prices. Certainly gold and silver prices are short-term overbought but a number of bullish fundamental themes are still in place. In fact the net spec and fund long might be building in silver but the most recent spec long of 43,872 contracts is a long way from noted overbought readings around 90,000 contracts.
Divergence within the PGM complex continued yesterday with the platinum market generally remaining in favor and palladium prices remaining under pressure. However the bull camp in palladium might suggest the $1,500 level is showing signs of potentially supporting prices with that level also producing a partial double low this week. With the September palladium contract posting declines of $26 since the last COT positioning report, it is possible that the market could become mostly liquidated if prices punch below the $1,500 level. On the other hand, the platinum market forged another higher high overnight and reached up to the highest level since May 15th and it also held a minimal net spec and fund long positioning last week. The gains in the platinum market yesterday were made more impressive by news from Anglo-American platinum of an increase in quarterly PGM production. It should be noted that total platinum ETF holdings remain near all-time highs with 2.596 million ounces. Current platinum derivative holdings are sitting roughly 111,000 ounces above the old all-time highs posted back in July 2014. Uptrend channel support in October platinum is seen at $843.85 today and resistance was taken out early this morning at $857.50. The bulls have an edge but this week’s low to high rally has been $29 already and it could take positive leadership from gold and silver and evidence of additional ETF inflows to target $874.
The path of least resistance is up in gold, silver and platinum, but we must caution traders of the potential for expanded two-sided volatility given this week’s gains and the large amount of bullish views flooding the headlines. In fact, the focus of the gold market appears to be shifting back and forth between rate cut hopes, the direction of the dollar and renewed expectations for US rates to “go to zero”. On the other hand, unlike gold, the silver market appears to be capable of discounting negative outside market forces (like favorable data) and therefore we can’t rule out a consistent trade above the February high of $16.47. Critical support in September silver is somewhat far down at $16.19 given the expanded ranges this week. Uptrend channel support in August gold today is seen at $1,428.70 with the next resistance level seen at $1,462.00.”
This from Allen Syjora (Kitco) – UBS Upbeat On Gold But Says ‘Caution Remains Warranted’ – UBS is upbeat on gold but nevertheless offers some caution for the short term. The metal hit a fresh six-year high this week on dovish Federal Reserve comments. UBS said that global economic policy uncertainty has increased since the financial crisis, likely a result of shifting politics, growth fears and populism. “Risks to the outlook include trade tensions, Brexit, the U.S. debt ceiling, among other things,” UBS said. “gold tends to do well in this type of environment; we think interest in gold as a diversifier, alternative asset and/or hedge against tail risks has room to extend and will be the key driver for higher gold prices ahead.” Still, UBS said that dovish Fed expectations are already factored into prices, so “some caution remains warranted in our view.” Gold could rally toward $1,485 an ounce if the outcome of a Federal Open Market Committee meeting this month is “sufficiently dovish,” yet could also fall below $1,400 and potentially test $1,380 if the Fed outcome is viewed to be hawkish relative to market expectations. “That said, we see a reasonable possibility that any dip ends up being shallow given the expectation that most market participants would likely view a pullback as an opportunity to build positions.”
This from Isabelle Strauss-Kahn – Central banks return to gold – Central banks bought more gold in 2018 than at any time since the early 1970s – and the trend has continued this year. Isabelle Strauss-Kahn, Member of the Advisory Board of the World Gold Council, former Director of Market Operations at the Banque de France and former Lead Financial Officer at the World Bank, explains why.
In the 1990s, gold was an unloved asset among central banks. Reserve managers lent or sold their gold, particularly in Europe, and the gold price fell to a low of US$250/oz. Years of persistent selling triggered the Central Bank Gold Agreement of 1999, under which signatories agreed to limit collective sales to 400 tonnes per annum, put a cap on gold leasing and take a disciplined approach to gold futures and options.
The Agreement delivered two clear benefits: it helped to stabilise the gold price and increased transparency around central bank gold sales. Today, however, sentiment towards gold has been transformed and gold has regained its status as a valuable and highly regarded reserve asset.
In 2018 alone, central banks bought 651 tonnes of gold, up 74% compared to 2017 and the highest level since 1971. A glance back over the past 20 years highlights some of the key changes in central bank behaviour. First, central banks have rapidly and consistently added to their foreign exchange reserves since the Asian crisis of 1998. Reserves are a crucial element in a country’s armoury, providing protection against both domestic and external shocks and acting as a show of confidence to the outside world. Emerging market economies led the charge in this respect, sending worldwide foreign exchange reserves from around US$3 trillion (tn) in 2000 to approximately US$13tn in 2014. Purchases have plateaued over the past five years but still stand at some US$13tn today.
The dollar is the most widely held reserve asset but, according to International Monetary Fund statistics, gold comes third, accounting for 11% of global reserves. Having been net sellers until 2000, central banks have been net buyers ever since. In 2018 alone, central banks bought 651 tonnes of gold, up 74% compared to 2017 and the highest level since 1971. Over the past decade, central banks have purchased more than 4,300 tonnes of gold, taking their total holdings to around 34,000 tonnes today. The trend has continued in 2019, with net purchases reaching 90 tonnes before the end of the first quarter. Notably too, central bank buying has been geographically diverse. Russia has been the most committed purchaser of gold – acquiring almost 275 tonnes in 2018, the largest amount ever purchased in a single year. China has been consistently adding to its reserves as well, but many other emerging market countries have been accumulating gold over the past year and more, including Hungary, Poland, Egypt, Kazakhstan and India.”
Silver closed unchanged at $16.12.
Platinum closed up $2.20 at $845.90 and palladium closed down $3.60 at $1504.80.
Our Patented Employee Survey – Gold’s Direction Next Week?
Of course it’s not really patented but we do have some fun along the way. This is what the GoldDealer.com employees think: 7 believe gold will be higher next week and 2 think gold will be lower and 1 thinks it will be unchanged.
Our Patented Customer Survey – Gold’s Direction Next Week?
Like the employees our customers were given three choices – up – down – unchanged. We limited the survey to a random sampling of 100 transactions – unscientific but worth considering because these people took action: 48 people thought the price of gold would increase next week 41 believe the price of gold will decrease next week and 11 think prices will remain the same.
Precious Metal Closes & Dollar Strength – July 15 – July 19
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