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Gold Blinks – Steller Job’s Number

Gold Blinks – Steller Job’s Number

Commentary for Friday, June 5, 2020 – Gold closed down a surprising $42.70 today at $1676.20. Considering last Friday’s close ($1736.90) we are off $60.70 on the week experiencing very volatile trading. The bombshell today was the spectacular May US jobs number. Instead of continuing to lose jobs (the expectation) we gained 2.5 million which suggests that American business will recover faster than expected. This was the thinking when the pandemic and business shutdown first began – the so-called “V” recovery.

This early notion fell out of favor because academics believed the damage to world business would be substantial and long lasting, becoming perhaps generational. And this kept Wall Street left footed encouraging safe haven demand as investors hunkered down fearing the worst.                

So, while the week began with subdued trading this past Monday it finished with a large display of volatility. Last Monday trading was lackluster which was not good considering the Dollar Index has moved from 100.00 through 98.00 these past 5 trading day. Gold sold off in early domestic trade moving from $1745.00 through $1730.00 before closing on the day at $1737.80 so the initial drop did produce a bit of bargain hunting.

Still gold did not react much to civil unrest and traded in a narrow range even though Trump sanctioned Hong Kong (because of China’s heavy hand in recent protests). And China retaliated by not buying some of our agricultural products as promised. So, the relationship between China and the US continues to head south hurting both countries. 

Some traders see a strong divergence between silver and gold – favoring silver. I ignored the thought and continue to think that long term accumulation of both makes sense. Even though the US stocks continue to show strength as states reopened and the ISM numbers were up – refocusing safe-haven demand and introducing more volatility.

LA was quieter Tuesday with curfews in place. Things were more upbeat so we might be getting back to business. Gold was choppy in the face of higher stock prices and the dollar continues weak – the Dollar Index now has moved from 99.00 through 97.50 these past 5 trading days which is a significant drop, yet gold yawned – perhaps the first precursor.

There is commentary suggesting that gold’s inability to push above the stubborn $1750.00 overhead resistance is troubling. By mid-day Tuesday gold had moved lower in a round of profit taking closing down $12.60 on the day at $1725.20. The 30 day picture still shows an indecisive market moving between $1690.00 and $1750.00 with short-term support at $1710.00.

Wednesday’s financial and pandemic news was upbeat – perhaps the second precursor. The jobless data while still depressing did not come near expectations – a big plus for Americans. At the same time there was more optimism on Wall Street. This was enough to further encourage yesterday’s round of profit taking as the domestic market sold off on the open finishing the day off $27.40 at $1697.80. Still the bulls remained in charge and the test of this generally optimistic outlook for higher gold prices is simple – will traders buy the dip?

Even at this point it was too soon to turn pessimistic both from a technical and fundamental standpoint. Especially if you are considering a possible “second” and even “third” bullish wave. But if you are just cautious consider the 60-day pricing chart. Significant support at $1680.00 has been in place since early April. In fact, this number has been tested 4 times and held up.

The Thursday morning domestic market in gold reacted to the news that the European Union would double down on stimulus increasing its emergency spending program. They will add 600 billion euros to the 1350 billion already in place to combat the sharp business contraction created by the pandemic. Gold touched $1720.00 overnight in Hong Kong before selling off and turning choppy. On the day it closed higher by $21.10 at $1718.90 leaving the important $1680.00 floor intact. So, we saw some bargain hunting and yet an understated reaction to the EU largess. Year to date gold ETF holdings are up 24% which is an all-time high.

So, what to make of this most recent weakness? I’m still waiting to see if this Friday surprise was big enough to pour cold water on the generally bullish expectation which has been in place for months. Will investors simply take advantage of cheaper prices?  

Caution is warranted but at least consider the loose ends. What kind of inflation can be expected from massive quantitative easing programs continuing worldwide? I used to laugh at the often quoted and never seen hyper-inflation threat. I’m not near as smug today. Was this most current US jobs report a flash in pan? And if it were not it would be foolish to compare our economy to others worldwide. Where is the rift between the US and China going?   

This from Zaner (Chicago) – “The bull camp has to be extremely discouraged in gold’s action this week as the absolute level of job losses and ongoing unemployment claims not only failed to spark safe haven buying but prices fell and remain closer to the lows than the highs of the week into the ultra-critical US nonfarm payroll report today. Clearly the markets are not sensitive to economic uncertainty as German April factory orders released overnight declined by 25.8%, Italian retail sales fell by 10.5% and Japanese household spending declined by 11.1% versus year ago levels and gold remains moderately lower. In fact gold and silver have also failed to sustain yesterday’s recovery move despite the fact that the ECB yesterday stepped forward with a 1.3 trillion euro stimulus package. In a slight psychological negative gold ETF holdings broke a 29 day string of inflows with a net liquidation yesterday of 68,383 ounces. However according to the World Gold Council gold ETF holdings are at a record of 3510 metric tons and the inflows in the just first 5 months of this year have already posted a record annual inflow tally. Fortunately for the silver bulls silver ETF holdings increased 211,197 ounces yesterday and are approaching 140 million ounces in net additions for the year. For today’s action unless the nonfarm payroll report “shakes out” (historically big numbers mean big swings in sentiment) as concerning, gold prices are likely to trade back below $1700 and in the process drag July silver prices back down toward $17.59. The big test for the bull camps in gold and silver will be the reaction by ETF investors over the coming week in the event that prices fall back sharply, with the trade looking for signs of resolve with increased purchases on declines. Expectations for the US payroll report call for a decline of 800,000 and with ongoing claims registering an all-time high in the 3rd week of the month, it could be difficult to see a much better than expected payroll result.

While the palladium market has held onto the significant recovery bounce off yesterday’s spike low washout, the charts remain negative and it would not appear as if palladium has been tracking like a classic physical commodity market this week. In other words, despite ongoing gains in equities, word of aggressive auto production restarts and optimism from broad-based restarts throughout the overall economy palladium has drifted down from the late May high. However Citigroup did raise their price forecast for palladium for the coming 3 months by $200 to $2200! In today’s action we see the market vulnerable into and through the nonfarm payroll report, with any failure to hold above $1905.80 early potentially sending prices down to a 3 week low. On the other hand in the event that palladium can attach itself to a big stock market rally, prices could reclaim $2000. While the platinum charts are not nearly as damaged as the palladium charts, prices sit relatively close to very key support (yesterday’s low) at $845.10. Like palladium, platinum has not seen a benefit from widening reopening of activity in the economy perhaps because daily economic statistics have been very concerning. Nonetheless pushed into the market we favor the bear camp unless platinum surprises with a tightened correlation with equities and equities come away from the payroll report “soaring”.

We see both gold and silver vulnerable today with early declines likely to be extended following the nonfarm payroll release. Certainly given recent historic unemployment data the prospect of safe haven buying of gold and silver off economic anxiety remains in the marketplace but as of this hour the trade expects to traverse the report this morning without a return of high anxiety. As indicated already we see the market vulnerable to a slide back below $1700 with a possible retest of $1690.30. However in the event the payroll report shows job losses of less than 800,000 gold could washout down to $1683.30. In July silver we expect the market to fail at close in support of $17.67, with a possible test of $17.22 if there is an optimistic glimmer from the payroll report.”

Silver closed down $0.58 at $17.44.

Platinum closed down $32.70 at $830.10 and palladium closed up $27.40 at $1929.90. 

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            

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