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Gold – Again Firm into the Weekend

Gold – Again Firm into the Weekend

Commentary for Friday, July 17, 2020 – Gold closed up $9.90 today at $1808.30. It closed last Friday at $1798.20 so on the week we have gained $10.10 – so pretty quiet this week considering the turmoil financially and politically. Gold pushed higher in the overnight markets both in Hong Kong and London and managed to hold this ground in the domestic market, but the trade was typically choppy, moving between $1806.00 and $1810.00 with a small amount of buzz. Not the magic bullet the bulls are looking for but continued solid technical positioning which points to higher prices in the short to medium term.

This last Monday gold pushed higher on the open, ran into a round of profit taking, recovered and still finished the day higher by $12.80 at $1811.00. I think everyone is generally bullish with some caution because the technical picture for gold short term is promising. The reasoning behind gold and silver ownership has been out there for some time – probable inflation due to massive central bank intervention, increased tension between the US and China, continued virus worries, upcoming elections, and general world financial disruption. But there is not much fresh news which might push gold to all-time highs. At the same time there is not much chance that a significant profit taking round will break down well established trend lines because many of these tough problems seem intractable with the virus in place.

Still there was upbeat news Monday as the FDA granted fast track status to promising vaccines developed by Pfizer and BioNTech. But even with a virus solution the roll out would likely take a year or two from the initial OK and the rest of these challenges are formidable in the extreme.

So, do the bulls hold all the cards? Surprisingly, I don’t think there is much real conviction on either side of the price question. And trying to guess whether gold is “overpriced” or “underpriced” in this emergency is a very bad idea. Finally, keep an eye on the Dollar Index, we have moved from 97.5 through 95.9 this past month – if this turns out to be an established downtrend gold will likely make all-time highs this year. In the meantime, keep your seatbelt buckled and plan for the long haul – do not let short-term ups and downs be your planning tool.

Also worth noting the United States budget deficit grew to a record $864 billion in June as the federal government continued pumping money into the economy to prop up workers and businesses affected by the coronavirus pandemic, the Treasury Department said on Monday. To understand how much loot this is consider that their deficit for June of last year was $8 billion.

Tuesday of this week saw the overnight London and Hong Kong markets sell off and the domestic trade fight its way back to unchanged. Buying the dip at these lofty levels is typically bullish these days. On the day gold closed down $0.40 at $1810.60. The Consumer Price Index surprised so inflation talk supported the US gold market, but the numbers do not suggest inflation will soon become a big deal. I think the idea here however is to get your ducks in a row ahead of this dynamic, after the fact locating product becomes difficult and pricing impossible.

Gold was choppy in overnight trading Wednesday, but the domestic market was firm most likely because the dollar continues weaker. Hallelujah – Moderna claims great success in drug trials against this bloody virus – wonderful news. The development road is still unclear, but we all should bow our heads over this saving grace. I feel like dancing around the parking lot.

Gold was subdued today up $0.80 at $1811.40 which is surprising considering the lengthy blast against China that Trump unleashed last night. China also had her say so the relationship between the President and Beijing continues to raise the international stakes. But gold yawned so the markets may have considered this simply more political posturing.

Worth noting is that while many remain massively bullish about longer term gold prices the World Gold Council claims physical gold demand may decrease between now and the end of the year because of the widespread financial damage caused by the virus. Still the technical price picture is hard to argue with, gold has made higher highs since April continuing to fuel the bulls.

Thursday gold moved lower on the open, struggled higher, turned choppy and finishing down $12.70 at $1798.70 in a trading day that did not react to fresh news and enjoyed no urgency. Both will be required for gold to make new highs before the election. ECB President Lagarde reconfirmed that continued monetary stimulus is necessary stating that the EU’s economic recovery has been significant, but the ECB will continue to buy up to 1.35 trillion euros worth of debt over the next year. No one made a big deal over this largess, but I think it’s a discounted clue that will soon rearrange the financial furniture. Both the US and EU are facing massive challenges and the smart money is worried about the “hidden” economic fallout already in place.

Gold pricing this Friday continued to offer both bulls and bears reasoning that will support their position. That is healthy as the price of gold enters into a pricing region it has not seen since the summer of 2011. We are not at an all-time high but we are within spitting distance and this positive technical picture is what defines this bull run which began at $1200.00 in the summer of 2018. The bigger picture question now is something which has not been pondered seriously but is the obvious elephant in the living room. Is gold cheap at $1800.00? The answer is more philosophical than practical (don’t laugh) – it is very cheap if you believe central banks of the world cannot unwind the current bailout package. The fussing and fretting over deficit spending have been part of the financial argument for a long time but the Fed has always managed to cobble together something that is functional for lack of a better word. I wonder if there is another rabbit in their hat or has government edict gone back to the fiat well once too often?            

Silver closed up $0.19 at $19.69. Still not enough product to go around and pundits are claiming that $25.00 is right around the corner. We see virtually no large sellers across our counter.   

Platinum closed up $13.10 at $841.90 and palladium closed up $46.60 at $2050.20.  

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This from Zaner (Chicago) – “Global equity markets overnight were mixed with gains and losses generally less than 1%. Overnight economic news included Italian industrial orders and sales for May which came in significantly improved from the prior month with both readings more than 70% higher than the readings posted in April. From the euro zone overall consumer prices for June met expectations at 0.3% while overall Euro zone construction output for May jumped to 27.9% versus a contraction of 18.3% in April. While regional US shutdown threats kept equity sentiment off balance overnight hope for an EU stimulus package provided some optimism in the European session. In another US/Chinese relations development the US is considering banning travel to the United States by all members of the Chinese Communist Party and their families which we assume would be followed quickly by a Chinese ban of similar standing for US Congress and their families. The North American session will start out with June housing start which is forecast to have a sizable uptick from May’s 974,000 annualized rate. June building permits are expected to have a moderate uptick from May’s 1.220 million annualized rate. May Canadian wholesale sales are forecast to have a sizable uptick from April’s -21.6% reading. A private survey of July consumer sentiment is expected to have a modest uptick from the previous 78.1 reading. Earnings announcements will include BlackRock, State Street and Kansas City Southern before the Wall Street opening.

While the gold market is showing positive trade early in the session, yesterday’s setback leaves the bull camp uneasy and therefore the $1794.10 level a very critical pivot point in today’s trading session. Fortunately for the gold bulls, the dollar has started out lower, ETF investments in gold continue to rise and Bank of America noted that investors put $1.8 billion into gold from cash in their weekly funds flow analysis. Yesterday gold ETF’s added 109,675 ounces bringing this year’s net purchases to 22 million ounces. Silver ETF’s added 2.52 million ounces to their holdings yesterday bringing net purchases on the year up to 216.1 million ounces. While the gold and silver markets this week have periodically seemed to benefit from the surging virus count, we also get the sense there is a bit of physical demand destruction fear countervailing the safe haven uncertainty buying from the virus story. There will be an-active US economic report slate today with the focus on the housing sector, with the data expected to show strength and that could temporarily pressure gold prices. Unfortunately for the bull camp Chinese, Shanghai and Indian gold prices finished the week softer and therefore the inability to hold above $1794.10 early and more importantly above $1791.10 after US scheduled data could prompt weekending long liquidation. The silver charts have also turned negative today with a failure at yesterday’s low producing a 3-day low and giving off the impression of further corrective motion. While there continues to be a number of emerging bullish storylines on silver (which point out surging investment demand and the potential to outperform gold) a partial risk off day where commodities come under pressure could send September silver down to key support at $19.24 or to a 5 month old uptrend channel support line down at $18.84.

Anglo American said it is ramping up metals and diamond production to hit the full-year targets that it set in the spring. Overall output though fell 18% in the 2nd quarter, including declines in platinum and palladium. Anglo said it had ramped up production to 90% of capacity by the end of June from only 60% in April. September palladium continues to be modestly impressive, breaking out of a two-day consolidation on Thursday but failing to make it back to Monday’s highs. That this happened in the face of ongoing Coronavirus fears and dollar strength was also impressive. Stronger than expected Chinese unemployment and GDP readings on Thursday offered further support to demand expectations for automobiles and therefore a key auto catalyst like palladium. In contrast, October platinum worked lowed and even tested Tuesday’s lows, as the market appeared to be tracking with silver. Resistance for September palladium comes in at $2,091.20, with several lines of support congregating around $1,945-$1,960. Support for October platinum comes in at $825.50 and $819.10 with resistance at $852.08 and $863.00.

As indicated already a slight corrective bias is seen in the early going today as global gold price action points to further erosion in US prices today. We suspect that today’s US housing data will add to that early liquidation bias but reports that Texas may announce lockdowns and given the expectations for concerning weekend virus projections will probably help gold and silver recover later-on. At least in the morning trade we see gold respecting support at $1791.10 and silver respecting support down at $19.24. We remain long term bullish toward both gold and silver but think silver needs successful vaccine news to propel it back toward historic highs.”

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