Gold Turning Choppy at $1500.00
Commentary for Tuesday, August 20, 2019 – Gold closed up a modest $4.20 today at $1504.60 – surprising really in light of the bad press the US got from both Russia and China after testing a version of the nuclear-capable Tomahawk cruise missile in California. Gold did however move solidly higher in the overnight Hong Kong market but seemed to lose some of that buzz in London and the domestic play.
The pricing on the 30 day gold chart has also been rather flat around $1500.00 since early August. But I think everyone should be committed to this physical market regardless of price given the number of stubborn and still developing problems worldwide.
I would not worry too much about pricing at this point – you could wait and see if this market shakes out somewhat but keep the bigger picture in mind.
The storyline is typical for our times and one you have heard before, but be wary about indifference. There are great monetary crimes being accomplished in plain sight – all in the name of the common good.
Central banks around the world – including ours are or will be cutting interest rates – perhaps significantly to forestall what is really government’s most worrisome problem – recession.
It was not too long ago that the gold community was talking about whether gold would hold $1400.00 – now we are looking at $1500.00 and some are quietly thinking $1600.00.
Granted there is an underlying nervousness in the gold trade as prices move higher. This is the natural progression of a new and fundamentally bullish market. Questions about profit taking are real and a big round of profit taking would throw cold water on this market.
But it would recover just as quickly in my opinion because the thinkers of the world are worried. Why has the typically huge creation of fiat paper money not accomplished its goal?
It’s not like nothing happened – there was improvement – but not enough to take the next usual step. As the economy improved the US and Europe did not call in at least some of their “markers” – they did not pay back the borrowed money.
Why? First, the “recovery” was not worldwide – it was poky for lack of a better word.
Second, even though things were considerably better in the US – the FOMC could not raise interest rates as promised because the rest of world kept their rates near zero or in some cases introduced negative rates – hoping to jump start old and debt ridden economies.
In other words the problem world bankers now keep to themselves is the question as to whether the “old system” of paper financing which worked well since World War II has finally become “too tired” to produce another round of prosperity through cheap money and more red ink.
Don’t be afraid to buy weakness here – in my opinion we are looking at the beginning of what might be a fundamental change in both the gold and silver bullion markets – a change which will not come and go but will push prices higher over a number of years.
This from Zaner (Chicago) – “Global markets have been relatively subdued, but have maintained a mildly positive tone coming into this morning’s action. Monday’s news that the US will delay banning Huawei was seen as a positive sign for US/Chinese trade talks, while the first reading for China’s new loan prime rate showed a slight decline in rates. Asian shares were generally higher and were led by gains in the Japanese Nikkei and South Korean Kospi indices. The latest reading for German PPI was in-line with forecasts, while Swiss trade balance figures showed a decline for exports and imports. European shares were showing mixed results early in the day as the Italian MIB was under pressure due to fresh political turmoil. The North American session will start out with a private weekly survey of same-store sales, and will be highlighted by a June reading on Canadian manufacturing sales that are expected to have a moderate decline from May’s 1.6% reading. Fed Vice Chair Quarles will speak during late afternoon US trading hours. Earnings announcements will include Home Depot, Medtronic and TJX before the Wall Street opening while Alcoa reports after the close.
Gold and silver were higher overnight as they continued to consolidate inside the extremely wide ranges from August 13th. This follows a two-day setback in which a “risk on” mood developed in the markets following supportive measures by the Peoples Bank of China and the German government and hints of a moved by the ECB next month. The long term trend still seems to favor gold and silver, especially if we are moving to an era of lower rates. An argument that was made by fund manager Mark Mobius late yesterday, who cited prospects for easier monetary policy from the Federal Reserve and other central banks to support growth that’s been impacted by the trade war between the US and China. He also suggested that the increasing use of crypto currencies will boost demand for hard assets like gold. This week is light on scheduled data, so the market will be looking to the FOMC minutes release on Wednesday and the Fed’s Jackson Hole symposium on Thursday for direction. The question on everyone’s mind is whether Fed Chairman Powell will pave the way for a 25-basis point cut (or more) in September. The Bundesbank has warned that Brexit could put the German economy into recession this fall, and that only increases the pressure for the ECB to cut rates. Another supportive factor to gold is central bank buying, and data released overnight showed several countries increasing their gold reserves in July: Kazakhstan raised gold holdings by 150,000 ounces, Russia +390,000, Mongolia +40,000, Argentina +220,000. Other countries increasing in June included Qatar at +250,000 ounces and Belarus +50,000. Indian jewelry merchants are worried about much slower gold sales this year due to high prices, high taxes and an uncertain economy. One analyst stated that Indian gold demand usually reaches 400 tonnes in the second half of the year, but this year it could be closer to 300 tonnes. Exchange-traded funds added 79,918 troy ounces of gold to their holdings in the last trading session, bringing this year’s net purchases to 6.58 million ounces, according to data compiled by Bloomberg. This was the fourth straight day of growth.
Palladium continued to work higher overnight following yesterday’s gains, but platinum eased back. Both markets benefited from the boost in risk attitudes yesterday because of the potential for stronger demand. September palladium has broken out of a two-week trading range and traded to its highest levels since August 1st. The market closed above the 21-day moving average for the first time since July 29th on Monday and held above there overnight. Look for resistance in the $1,495.50-$1,500 area, with a gap at $1,521.30-$1,524.40 as a convenient upside target. October platinum followed through on Friday’s outside reversal higher with further gains on Monday and it consolidated those gains overnight. Key resistance could be $863.70, which is the top of the downward sloping channel drawn off the July highs.
Long term factor are supportive to gold and silver, but the technical setup looks bearish. Stochastics in both markets recently crossed negative from an overbought condition, and the markets also saw some divergence with open interest at their recent highs. In addition, recent COT reports showed speculators hovering around record net long positions with the trend-following funds losing interest. From a fundamental standpoint, we expect the precious metals to take their lead from the Fed, garnering support from suggestions of a rate cut but prone to disappointment if it is not as strong as hoped. Look for support in October gold at $1,483 and $1,470, with resistance at $1,539.50. Support for September silver comes in at $16.72 and $16.51, with resistance at $17.50.”
Silver closed up $0.21 at $17.12.
Platinum closed down $4.00 at $850.10 and palladium closed up $14.50 at $1487.80.
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