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Gold – A Rocky Road to $2000 +

Gold – A Rocky Road to $2000 +  

Commentary for Friday, June 12, 2020 ( – Gold closed down $2.70 today at $1729.30. Last Friday we closed at $1676.20 so on the week we are higher by $53.10. 

On Monday of this week gold traders were eager to see if the big sell-off last Friday would now produce a round of bargain hunting. The overnight Hong Kong and London markets were choppy, but the domestic trade pushed into the green closing up $22.10 at $1698.30. So, there was bargain hunting, but I think this move to higher ground was more technical book squaring and covering not a continuation of previous safe-haven financial protection.

Metal traders will be watching Wall Street this week trying to figure out if Friday’s surge in May jobs is a precursor to virus and business recovery. If so, we will likely see some “step down” buying and selling as investors “feel their way”. If not, metals will likely recover if stocks take a breather or Wall Street enthusiasm fades.

Still there are bigger questions pushing the longer-term metals picture. Like bankruptcy fallout for businesses, continued government bailout funds, higher inflation numbers, upcoming presidential elections and changes brought about by civil unrest.

These questions, many of which present unforeseen consequences will take time to reveal themselves. So, it is reasonable to assume we will see choppy and volatile pricing well into 2021 supporting a core position of precious metals as failsafe “insurance”.

Tuesday of this week gold moved higher from the open confirming Monday’s bounce and giving traders a better sense that bargain hunting was in place. Last Tuesday was also the beginning of the FOMC 2-day meeting. Everyone will be eager to hear what Chairman Powell has to say tomorrow, but most believe he will reinforce his position that the Fed will do whatever is necessary to help a struggling economy. This has already translated into higher prices for the metals and will continue to support gold. Gold closed up a respectable $16.40 Tuesday at $1714.70, supported by a weaker dollar. We are up $350.00 on the year so expect profit taking along the way to higher pricing fueled by low interest rates which might last for years.

It might also be fun to speculate on gold imports into India – which have essentially collapsed over near record prices. Will India chase this market as inflation returns and these higher prices become the new normal? And if so, could this “coiled spring” push gold into the stratosphere?

Gold opened Wednesday moderately active and pushing to $1730.00 but quickly sold off closing down on the day $1.40 at $1713.30. Significantly however the aftermarket pushed higher by more than $20.00 pushing past that $1730.00 overhead shelf and challenging old 30-day highs of $1750.00. Most likely over dovish monetary comments by Powell.

Thursday gold was choppy but at the higher end of its trading range, supported by a weaker dollar and a drop in the DOW over Powell’s grim assessment of virus damage. There is now a more sobering assessment on Wall Street over recovery so safe haven buying has returned accompanied by what might be the first serious worry over what has become unmanageable long-term debt and how gold bullion fits into the picture. 

It may seem early but now is the time to look for the gold dialogue to change from “safe haven” to “inflation protection”. The talk of coming inflation has always been a weak point in the gold community because the numbers just did not make sense. Yes, recent money expansion was gigantic but any reasonable inflation fear in the US did not materialize.

This “new reality” is just beginning to show up in promotional pieces but this time around it has real potential. Recent escalation in food prices may be the result of pandemic hoarding or perhaps these high numbers are the first sign that the inflation genie is out of the bottle. Finally, gold was supported today by serious talk about a “second pandemic wave” which is scary. Thursday gold closed up $18.70 at $1732.00. Any break above $1750.00 would be significant.

Friday’s market had great potential but lacked buzz. Gold was higher overnight in Hong Kong and London and higher in the domestic trade but settled almost unchanged. We are again pushing toward $1750.00 which gold has tried to overcome 4 times in 6 weeks.

Before the market close gold lost most of its early gains finishing the day down $2.70 at $1729.30. I believe today’s subdued closing hides underlying tension in this market. We are selling product as fast as it comes out of sanitation.    

Finally, going unnoticed has been Iran’s significant increase in uranium production since negotiations with the US broke down in 2015. This of course allows them a shorter time interval in developing a nuclear weapon and creates even more tension in the Middle East. Consequences to the price of oil, confrontation with US war ships in the gulf and increased safe haven demand for the metals if this pot boils over should not be overlooked.

Silver closed down $0.41 at $17.46. Still considered cheap by the physical community it is impossible to keep any large position of silver bullion in stock. Everything disappears in a matter of days – higher or lower prices – higher or lower premiums. 

Platinum closed down $5.50 at $820.60 and palladium closed up $28.40 at $1918.30.  

As always, we appreciate your friendship and business. And if you have unusual circumstances talk with Harry, we may be able to help. Let us be careful out there – stay safe and trust that God’s blessings will protect us all. Richard Schwary            

This from Zaner (Chicago) – “Global equities overnight were mixed with the biggest loser the Russian stock market and the strongest market the CSI 300 carving out a very anemic 0.1% gain. Economic data of importance overnight saw Japanese April industrial production decline by 15% over year ago levels, UK industrial production declined by 20.3% in April over the prior month with CPI readings in France and Spain coming in relatively benign. The North American session will start out with first quarter Canadian capacity utilization which is expected to have a moderate decline from the previous 81.2% reading. The May import price index is forecast to have a moderate decline from April’s -6.8% year-over-year rate. The May Export Price Index is expected to have a modest uptick from April’s 7.0% year-over-year rate. A private survey of June consumer sentiment is forecast to have a moderate uptick from the previous 72.3 reading.

While bullish fundamental forces continued to stack up with the flurry of bullish Fed statements/actions from earlier in the week and that provides a solid foundation for August gold prices economic uncertainty doesn’t appear to be definitive enough this morning to propel gold sharply higher. In fact sentiment is knocked back by the fact that gold ETF’s yesterday it sold 880,252 ounces of gold for the biggest single day liquidation in 12 months. On the other hand, silver ETF’s saw the purchase of 440,140 ounces bringing this year’s net silver purchases back close to 140 million ounces. Going forward, increased anxiety/uncertainty from resurgent infection counts in areas like Texas, Oklahoma and Arizona, is providing safe haven buying of gold but the market doesn’t seem to be an overly concerned with that situation this morning. While not a new story, the gold market has seen several forecasts again this week calling for $1,800 and $2,000 upside targeting for gold and that combined with the residual impact from the Fed leaves the bull camp with a slight edge. Therefore, we would remain bullish toward gold as long as it can maintain above $1,720. In July silver, the market might only be capable of noted gains if there is “significant” strength in gold, but the inability to hold near the Wednesday high and post notable gains following the Fed/infection flare headlines suggests to us that silver is being held back by its physical commodity standing. In short silver might need big $20 and $30 daily rallies in gold just to see notable safe haven buying dominate over slackening physical demand selling. We see support in silver down at $17.50, and would suggest long plays in precious metals market remain focused on gold.

With the PGM markets coming under pressure following a series of safe haven developments this week, it is clear that investors are not seeing the platinum and palladium markets as flight to quality tools. In fact, both palladium and platinum appear to be under pressure because of resurgent demand fears and that pressure is given added credence by fresh damage on the charts yesterday. While volume of trade in palladium has not been significant in several weeks and the increase in trading volume on this week’s slide has been moderate, it would appear as if the limited trade prefers selling over buying. While the September palladium contract did seem to respect support at $1,893.50 a continuation of conditions from yesterday in the broad market today could set the stage for a slide toward $1,832.20. In the platinum market, the chart damage yesterday was even more severe than palladium with the market seemingly more sensitive than palladium to the very negative shift in economic sentiment. We see thin but unreliable support at $818.70 but we can’t rule out a slide to $800 if the trade presents washouts in outside markets.

There is clearly a difference between the gold and silver markets in the precious metals space, with the gold market seemingly in slight vogue today and silver showing pressure from fears of softening physical demand perhaps in the event the US is forced to roll back some restart activities. However, the gold bulls will have to see a straightaway escalation of economic anxiety to send August gold prices quickly back up to the May high up at $1,787.50. For now, the bias in gold is slightly up and we would remain bullish toward the market as long as prices hold above $1,720. As for silver, we are highly skeptical of its ability to join the bullish parade underway in the gold market.”

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