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Gold and Uncle Kim

Gold and Uncle Kim           

Commentary for Thursday, May 24, 2018 ( – Gold closed up $14.40 at $1303.70. So Trump cancels the Singapore summit with Uncle Kim and gold wakes up. Makes sense but I think there is more to this political train wreck than meets the eye. In fact it gives the thinking American public a chance to see major league politics in action. Did the US derail the meeting through Pence on purpose or did they bring up Muammar Gaddafi because they knew there was no chance of such a meeting being successful?

Is the political door still open (probably) and was this a language thing that just got out of hand? It’s a shame on the face of it because ending the conflict between North and South Korea might have turned out to a template to be used elsewhere in limiting nuclear weapon development.

Still gold reacted and I use the word “reacted” to underscore that these kind of knee jerk reactions make the soup interesting but rarely turn into long term game changers. North Korea will soon be yesterday’s news and the press will be off looking for something else of “sensational” interest.

The good part of this latest blip on the radar is that gold is once again above the $1300.00 level but the bigger question is whether gold will continue to hold that recent channel between $1290.00 and $1295.00.

This has not got much attention and it should because it would indicate that the sell-off which began at $1330.00 is over (the short paper covered) and gold is now back to a tighter trading range and a new consolidation.

Yes the FOMC will soon meet and this alone will limit upside potential but the interest rate question has still not been resolved. It could takes years before the Fed “normalizes” and in the process the “discovery” of this mountain of debt should weigh heavily on the conversation. More specifically the reality of “paying back” all this borrowed money will be a wakeup call.

What does the trade expect? I think most dealers still think gold is back-footed over higher interest rates but realize there is huge interest under the right circumstances.

It’s a safe bet to say that big bargain hunting has not shown up yet but there is some. Look for repeat real physical interest to gain momentum if gold approaches $1250.00 a longer term support going back to late 2015. Sometimes called the “love trade” demand from India and China should always be kept in mind. Both these countries love gold ownership and each has a new middle class supported by growing industrial growth.

Pricing even now looks fair relative to upside. But if inflation numbers become important or the geopolitical scene really heats up today’s gold pricing will be seen as cheap.

This from Zaner (Chicago) – “After waffling around both sides of unchanged early in the trade yesterday, the June gold market seemed to find some value at the $1,288 level. In retrospect, the gold market ultimately found some positive news from the Fed statement, but the initial high to low rally off the Fed result was a mere $4.00 and the Dollar initially showed no vulnerability to the Fed result. However it does now appear as if both gold and the dollar have finally established their interpretations of the Fed event yesterday and that has given gold a positive start today. On the other hand for the currency impact to become a definitive positive for gold and push prices above $1300 today probably requires a slide in the June dollar index back below 93.10. Unfortunately for gold bulls the dollar might see some temporary support from the initial and ongoing claims data early today before the focus of the marketplace returns to its dovish Fed mentality. However the bull camp might be put off by ongoing declines in gold derivative holdings as that news might discourage some would be futures buyers. On the other hand if June gold manages to claw its way above the psychological $1300 level that could prompt shorts from the last three weeks to exit and that could lift June gold back into the bottom of the early May consolidation up around $1305.20. While the silver market is also showing positive early action it remains within the prior sessions range and could have initial resistance to start at $16.60.

With initial weakness in the PGM complex yesterday mirroring the weakness in silver and copper, it would appear as if bearish classic physical commodity market fundamentals were controlling PGM prices. In other words, with the downshift in US/Chinese trade relations, periodic $ strength, weakness in energy prices and slack US data we are not surprised to see longs periodically moving to the exits. Another issue that might leave some residual pressure on the PGM complex is fresh new lows in platinum and palladium derivative holdings this week. While we see the PGM complex to be technically vulnerable the fundamental condition has improved in the wake of the dovish Fed result and the markets should also draft some lift from strength in gold and from weakness in the Dollar to start today. Downtrend channel resistance is seen up at $918.90 with resistance in June Palladium seen rather close in at $982.70. Pushed into the market today we see a slightly positive physical commodity market environment and the potential for moderate gains in PGM prices.”

Silver closed up $0.28 at $16.62.

Platinum closed up $11.80 at $909.50 and palladium closed down $3.60 at $969.70.  

This is our Thursday Chicago Mercantile Exchange report covering the last 5 trading days – trading volume numbers for the “May” Gold contract: Thursday 5/17 (227593) – Friday 5/18 (218047) – Monday 5/21 (190288) – Tuesday 5/22 (174206) – Wednesday 5/23 (148204) and the trading volume numbers for the “May” Silver contract: Thursday 5/17 (137090) – Friday 5/18 (137913) – Monday 5/21 (136824) – Tuesday 5/22 (135834) – Wednesday 5/23 (136153).

The Unscientific Activity Scale is a “2” for Thursday. The CNI Activity Scale takes into consideration volume and the hedge book: (Monday – 2) (Tuesday – 4) (Wednesday – 3). The scale (1 through 10) is a reliable way to understand our volume numbers. The Activity Scale is weighted and is not necessarily real time – meaning we could be busy and see a low number – or be slow and see a high number. This is true because of the way our computer runs what we call the “book”. Our “activity” is better understood from a wider point of view. If the numbers are increasing – it would indicate things are busier – decreasing numbers over a longer period would indicate volume is moving lower.

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