Gold – Testing Support
Commentary for Friday, July 23, 2021 (www.golddealer.com) – Gold closed down $3.60 today at $1801.40 silver closed down $0.15 at $25.22. The gold market this week would appear bearish to a pessimist, but this may turn out to be a typical knee jerk reaction. Yes, prices have trended lower, but it is important to note that volume numbers have also dropped considerably. So, you might want to make the case that sellers have dried up and a bounce to higher ground is in the making. This more positive take would suggest gold traders are not as radicalized as it might appear. There are other factors which suggest gold bulls are not ready to jump out the window. Zaner (Chicago) while still cautious makes this observation. “We are very impressed with the gold market’s ability to maintain gains yesterday in the face of reports from the IMF that they might sell some gold holdings to finance their battle against world poverty. In the past, the mere mention of an IMF gold sale would have sunk prices aggressively and in turn might have sparked a capital/margin washout.” So, for now, “keep your powder dry” is becoming my favorite saying. Let’s see what next week has to offer. Last Friday gold closed at $1814.50 / silver at $25.78 – on the week gold was down $13.10 and silver was down $0.56.
The good news is that delivery on 2021 US Gold and Silver Eagles is getting better (still not “normal” but improving). And we are finally receiving early .9999 fine silver round orders. The bad news is that “any new orders” are still 3 to 6 weeks coming from the manufacturer. My guess, however, is that delays will soon shorten.
Should you decide to use our Delayed Delivery Program please talk with your service rep and understand how this program works. It is handy if you want to lock in the price “now” and insist on new product – but is not for everyone. Just like us – you must pay upfront to “lock in” prices and you can’t “change” your mind. So, unless God has blessed you with patience, please ask your rep for other options and thank you for your understanding.
Gold on Monday presented its usual confusing picture as the dollar reached for three-month highs and Treasury yields continued to weaken. The overnight Hong Kong and London markets broke down ($1795.00) while the morning domestic pricing had traders scratching their heads. The market pushed back – remained left-footed but clawed its way back to almost unchanged in the aftermarket. To some degree the stronger dollar was offset by lower Treasury yields. There may be shifting strategic factors to consider this week, some of which are not good options.
Zaner (Chicago) believes this initial weakness may turn into a systemic problem. A combination of surging US and global infections already creating shutdowns in other countries is coupled with slowing growth, less risk appetite and growing inflation fear. This is the classic deflation scenario which has been around for years but never got traction because the massive amount of fiat currency being created seems to make this option unlikely.
Some believe a combination of rising pandemic worries and deflation will reinvent the original “fear” scenario which pushed gold to all-time highs. This never appealed to me, but in this wacky financial and depressing pandemic world who knows? It seems unreasonable that with the mass production of at least two miracle vaccines the world is struggling with this menace.
On the plus side gold’s bullish technical picture is intact. But threatened. On the negative side the bullish scenario is punished for not capitalizing on significantly lower Treasury yields.
It is too soon to venture a guess but if traders do not buy this dip and push prices higher the buzz will fade. Especially now that higher interest rates or tapering are being reconsidered.
The “idea” that the Fed may do “something” is now an official trading ghost which comes and goes on a regular basis. And it stands beside the reality that gold faces “tough overhead” resistance between $1800.00 and $1900.00. This combination creates bearish mojo.
And consider that Powell is a master at balancing interest rates without using his “tool kit”. For now, all that is necessary is a “hint” in the right place. Still, the Fed would not have to do much to satisfy those worried about inflation. And whatever that might be will stifle what the bulls see as the continuation of a long-established gold bull market looking for a newly forged “bottom”.
Veterans in the physical gold world keep their base intact by remembering that in the new “trillion-dollar dimension” of central bank generosity there is a “gold price” which will move everyone off the sidelines. Of course, that number is never obvious although everyone and their brother like to believe they possess such wisdom. So being watchful through this “transition” makes sense. Yet, I believe the “bottom” of this current gold cycle is closer than most believe. On the day gold closed down $5.80 at $1808.70 and silver closed down $0.65 at $25.13.
On Tuesday the gold market was initially strong – moving towards $1830.00 in early trading most likely because of a rise in safe-haven demand as the US warns travelers about surging Delta coronavirus cases. Rising infections reduce risk sentiment because the virus threatens business recovery, hurts assets like stocks and oil and encourages safe haven assets like gold.
So just when you thought the market was making sense and it was safe to come out from under the bed gold reversed itself and dropped like a rock. The dollar roared as confusion suggested a nervous trade. The Dollar Index pushed to yearly highs (93.20) because the financial community considers it a reliable place to “park” money in uncertain times.
So, what is going on? I think Zaner got closer than anyone when they called the initial push to higher ground in early trading a “bounce”. They continue to worry about a possible deflationary scenario which would hurt bullish sentiment.
It was amazing how fast traders closed their initial long gold positions and it is clear this market offers a hair trigger, regardless of the working scenario. Call today’s radical trade a great example of the traditional bull trap or false signal as the deflationary scenario gained strength.
If you ignore this “noise” the technical picture still offers a small edge to the bulls. But struggles because gold cannot capitalize on 5-month low Treasury yields. This is a semi-big deal because low yields would suggest the FOMC is not going to make quick changes in its financial policy. This alongside returning safe-haven demand should have gold trading easily above $1800.00 instead of recycling the support conversation traders seem found of these days.
It is difficult to say how much of this mess is being created by the resurgence of the Delta variant, but one thing is sure. It is getting publicity and just a few days ago was pretty much ignored. The lesson to be learned should be obvious – stay vigilant and safe. Today gold closed up a disappointing $2.20 at $1810.90 and silver closed down $0.15 at $24.98.
On Wednesday the price of gold drifted lower. The Dollar Index came off highs (93.00) which likely muted the decline. The lack of fresh bullish information and the surge in virus infections has diminished gold’s “inflation focus” and contributes to this relative weakness. Reuters – “We’re back in this push-pull market condition with some factors affecting the gold market positively and others negatively,” said David Meger, director of metals trading at High Ridge Futures. Meger noted that the possibility of the Fed’s transitory inflation view being proved correct, especially given rising COVID-19 cases, was a negative for an inflation-hedge like gold, but accommodative monetary policy in that scenario would support gold. U.S. Federal Reserve officials will meet next week, while the European Central Bank meeting is on Thursday. “More tapering talk amongst FOMC officials could drag gold back into the sub-$1800 levels, though more dovish messaging and market participants embracing such cues, could alleviate some of the downward pressure on gold prices,” said Han Tan, market analyst at Exinity Group. “As long as the greenback remains as the dominant safe haven, spot gold is expected to remain suppressed.”
You do not have to be a professional to see this ride continues bumpy and uncertain. There are too many variables in the short-term mix. Still, more is made out of daily fluctuations than is necessary or wise. Today’s so-called $1800.00 litmus test should be taken with two grains of salt. The gold price changes we now see do create psychological “weight”. But may not be that meaningful. Using the August futures contract gold’s 100-day moving average is $1794.00 and its 200-day moving average is $1834.00. These form a tight range if you consider that gold saw a double bottom in March ($1700.00) and a recent top ($1900.00) two months later.
The pessimist will ask if gold could break down at the 100 DMA. It could, if the bears increase in number. But my point is that the difference between the 100 and 200 DMA is small, and it would be silly not to give gold the benefit of the doubt. The virus is back, the Fed has not changed interest rates or its bond buying program, and the inflation picture is confused.
I do not think you will see all-time highs in gold by year end. The hyper-anticipation has faded and takes the sizzle out of the short-term trade. But Goldman Sachs is still looking for $2000.00 gold because it does not expect wide-spread shutdowns. On the day gold closed down $8.00 at $1802.90 and silver closed up $0.26 at $25.24.
Gold Thursday looked sleepy and typical for the summer months. It traded on both sides of unchanged. Reuters claims that prices are subdued because risk appetite is recovering (money is flowing into stocks). It is amazing that one day the stock market moves lower, worried about a bounce in Covid infections and a business slowdown. The next day money is back – full speed ahead. Earlier this week folks worried – they sold stocks and bought gold. Today they bought stocks. It would be tragic if the pandemic scenario faded as the pandemic reinvented itself.
This from Associated Press “Across the U.S., the seven-day rolling average for daily new cases rose over the past two weeks to more than 37,000 on Tuesday, up from less than 13,700 on July 6, according to data from Johns Hopkins University.”
The Dollar Index dipped in early trading yet recovered nicely. This obviously does not encourage the bulls. Gold also made new lows overnight which hurts the technical picture. President Lagarde (European Central Bank) comments that their low interest rates and substantial bond buying program will remain in place. Typically, this would embolden the bullish scenario – today gold prices yawned. The reasoning here is that the traders have factored in a dovish EU – which has consistently failed to spark higher inflation numbers. This may be the reason they continue to worry about deflation as a stubborn pandemic threatens.
Jim Wyckoff (Kitco) – “Technically, gold futures bulls have lost their slight overall near-term technical advantage as a price uptrend on the daily bar chart has been negated. Bulls’ next upside price objective is to produce a close above solid resistance at the July high of $1,835.00. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at $1,775.00. First resistance is seen at the overnight high of $1,804.30 and then at Wednesday’s high of $1,814.40. First support is seen at $1,791.00 and then at $1,785.00.”
As the week draws to a close the metals look for fresh information which will convince the paper trade and push the bullish/bearish narrative. At this point, there is a negative bias, whether this tipping grows will depend on how much sand the short paper develops in the short-term. On the day gold closed up $2.10 at $1805.00 and silver closed up $0.13 at $25.37.
Gold pricing Friday was a mixed bag, at first testing support then clawing its way back to almost unchanged going into the weekend. Still, the combination of a stronger dollar and increased risk appetite undermines the bullish scenario. The Dollar Index is holding at a 3 ½ month peak as Treasury yields firm according to Reuters. This is fertile ground for the bearish sentiment.
So, traders tested support, which figures in the paper market as commentators struggle with developing a coherent gold picture. But I think there is still not enough negative mojo as this most recent dip quickly led traders into oversold territory.
Why was the “test” short lived? Will weakness continue next week? It is likely these negative factors will stay with us because the paper trade remains distracted. To be fair there are plenty of bullish gold factors floating around but these positive stories are turning into a grind and are periodically ignored. The Europeans for example continue to embrace negative interest rates because they are worried about “something”. Not to be frivolous – but their concerns are warranted. They are worried about the much touted “quick” recovery and growing concern over deflation. On the other hand, America’s Pollyanna attitude in the face of a rising and dangerous threat grows. With only 50% of the US vaccinated it would be a mistake to get careless.
Grant on Gold – (1) Gold probed back below $1800 during the past two sessions, as the dollar seems to be winning the battle as the preferred safe haven (at least at this point) amid rising concerns about COVID and the possibility of new restrictions. (2) Silver fell to a 14-week low on Wednesday and exceeded the 78.6% retracement level, weighed by rising COVID concerns. The white metal continues to trade like an industrial metal worried about a COVID-related economic slowdown. (3) Platinum fell to a 3-week low of $1054.50 on Tuesday, but minor chart support at $1049.50 contained the downside, keeping the more important $1019.00 low protected. (4) Palladium is up more than 6% from Tuesday’s low at $2567.82 and attempting to move back into the upper half of the recent range.
This from Neils Christensen (Kitco) – Silver’s price weakness is exaggerated – Metals Focus – The silver market faces some short-term headwinds as focus on the potential for tighter monetary policy; however, the precious metal’s drop to a three-month low below $25 an ounce has exaggerated the market’s weakness, according to one research firm. In a report published Wednesday, analysts at Metal Focus reiterated their positive outlook for silver, looking for higher prices by the end of the year. In the report, the analysts said they see the recent selling pressure as more strategic rather than a fundamental shift in investor interest.
“It is worth noting that much of the recent selling in silver has come from tactical players, as evidenced by a sharp reduction in managed money longs on COMEX. Silver ETPs also witnessed outflows, albeit modestly, leaving holdings just 5% below February’s all-time high. With trend following selling largely done and the hawkish tilt factored in, this should leave scope for fresh investment inflows later this year, leading to a healthy rebound in silver prices in the coming months,” the analysts said.
The analysts also noted that silver investors don’t have to fear rising interest rates anytime soon. “Across many economies, labor markets remain a long way from their pre-pandemic state. Against this backdrop, the continuation of ultra-loose monetary and fiscal policies in the U.S. and elsewhere seem inevitable,” the analysts said.
While paper demand for silver has dominated the marketplace, The U.K. research firm noted that investors are taking advantage of discounts in the physical metal. “Our bullion coin survey suggests that silver bullion coin sales jumped by 48% and 22% y/y in North America and Europe respectively in H1.21. A further sign of retail strength has emerged lately, with the launch of the newly designed silver Eagle selling out (although the initial quantity offered by the U.S. Mint was relatively low),” the analysts said.
Looking past investment demand, Metals Focus said that they still expect to see healthy industrial demand even as the spread of the COVID-19 Delta variant weighs on economic growth expectations. “Silver’s industrial offtake in 2021 is still on track to achieve a new annual high for our series back to 2010. Much of this year’s growth is due to photovoltaic (P.V.) demand, as new capacity additions year-to-date have exceeded previous expectations. Going forward, growing commitments to carbon neutrality across several key economies, coupled with a solid pipeline for P.V. projects, should help underpin silver demand.”
On the day gold closed down $3.60 at $1801.40 and silver closed down $0.15 at $25.22.
Platinum closed down $29.20 at $1059.60 and palladium closed down $42.20 at $2660.60.
My Brothers and Sisters, we always thank you for your business and fellowship. If you have unusual circumstances, need cash or are looking for a special visit – talk to Harry. Many on our staff have now received the vaccine as we continue to enforce rigid safety standards between people and product. Be careful, this virus remains a danger. At the same time trust that God will soon get us back to normal. Richard Schwary
Risk Disclosure – The content in this newsletter and on the GoldDealer.com website is provided for informational purposes only and our employees are not registered financial advisors. The precious metal and rare coin markets are random and highly volatile so they may not be suitable for some individuals. We suggest before deciding on a course of action that you talk with an independent financial professional. While due care has been exercised in development and dissemination of our web site, the Almost Famous Gold Newsletter, or other promotional material, there is no guarantee of correctness so this corporation and its employees shall be held harmless in all cases. GoldDealer.com (California Numismatic Investments, Inc.) and its employees do not render legal, tax, or investment advice.