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Gold – Choppy and Surprisingly Firm

 

Gold – Choppy and Surprisingly Firm 

Commentary for Friday, June 26, 2020 – Gold closed up $10.40 today at $1772.50 in choppy trading. It closed last Friday at $1745.90 so on the week we are up $26.60 in what I would call a worrisome week. Troubling because we are about 3 months into this virus mess, with business shut-down and business reopening more than uncertain.  

Gold pricing Monday of this week was lower to choppy, but the bulls pushed the envelope in early domestic trading – testing overheard resistance in what I could call “careful” trading. Still, the technical picture remains positive as prices moved above May highs of $1750.00, supported by safe-haven interest and fears that central banks worldwide will continue to inflate the money supply hoping to fend off more damaging effects of the coronavirus.

I think however there is plenty of confusion as to what might be expected as the world tries to re-start businesses and get people back to work. We are still test pilots out there with no vaccine. So, the possible inflation consequences over huge monetary expansion and possible relapse in the virus are giant wild-cards. Most expect price volatility with a longer term upward bias.

Recent gold pricing has held a narrow trading range from $1700.00 through $1750.00 since early April. The variables in this market are uncertain and it will take time to resolve these complex issues. A bullish scenario looking forward might suggest a repeating narrow price pattern which uses higher numbers ($1750.00 – $1900.00) leading into longer term consolidation.

Gold is up more than $350.00 this past year which could also introduce wild price swings depending on unforeseen surprises. Citibank countered Goldman’s earlier bullish announcement with a different view. Expect gold to trade $60.00 lower than current levels for the remaining of this year – which is surprising. Monday of this week gold closed up $13.40 at $1759.30 and the Dollar Index moved lower by ¾ of a point supporting this move to higher ground.

Tuesday saw further gains in gold. New home sales were up nearly 17% (the cheap money consequence) and the worry of a second virus wave stoked safe haven demand as the dollar drifted lower. The Dollar Index has now lost more than a point since last Friday.

The possibility of a second virus wave has been downplayed by the White House, but I would consider the possibility. The numbers are increasing. Should this lead to another “shut-down of some sort” stocks would pay the price and safe haven gold demand would increase. The uncertainty of the China/US trade deal is also a dollar problem and may support higher gold prices. On Tuesday gold closed up $12.80 at $1772.10 – technically strong but business across our counter was quiet – surprising considering gold is approaching an 8 year high.

Wednesday the “feel” of higher gold prices continued to encourage the bulls. India demand is coming back to life (somewhat) and technicians are saying gold has broken to the upside, expecting higher numbers. The market opened higher challenging $1780.00 but quickly sold off finishing the day down $6.30 at $1765.80. A typical trading day – paper players are pushing the envelope and selling the rally creating profit taking churn.

I am encouraged but suspicious – no reason really – the numbers and government spending points to higher gold prices but when most are talking about higher prices, I get worried. Personally, I prefer a bullish outlook with some pessimism – it just seems more honest.

Be careful of recent claims that the Fed balance sheet will soon collapse, and gold will move to $10,000.00. This kind of hyperbole should be avoided because it leads to all kinds of nonsense stories used by telemarketers taking advantage of first-time buyers.

Do not be in a hurry and avoid the jokers who pressure you for a quick decision – always a bad sign. Gold is likely headed higher, but it will take months, perhaps years to see this market play out and the road will be a bumpy. You need the proper mindset or be in danger of getting whipsawed as the crowd players move “all in” or “all out” on the “latest crystal ball reading”.

Thursday brought no surprises – gold was choppy to lower, the market moving between $1756.00 and $1766.00 finishing the day down $10.00 at $1762.10. Most likely because the Dollar Index has returned to weekly highs. The 30-day pricing chart is the one to watch – it has moved between $1680.00 and $1766.00 with support at $1740.00 as traders contemplate gold’s next big hurdle – $1800.00. The problematic question still being – did America open too soon? The answer to this question and dollar weakness will define higher numbers.

Friday gold whip-sawed – a higher open turned into another round of profit taking and then many bought the dip – bruised traders finished the day up $10.40 at $1772.50. This market is definitely froggy – a new technical term I learned from my youngest grandson. Gold is up almost $60.00 on the month and $350.00 on the year so I think this kind of action will become commonplace as longer-term trends play out.

Finally, do not overlook the disconnect between US stock prices and corporate earnings based on the reality of the virus damage. Stocks are trading higher because of cheap money and the assessment that business recovery is already in the bag. This “new reality” may not be born out when actual earning numbers are seen on upcoming corporate balance sheets. And this may lead to another large correction in stock prices further supporting the gold bulls.

Silver closed up $0.14 at $18.02. If product sales have anything to do with longer term price trends you should be buying silver bullion – we can’t seem to keep this stuff in stock.

Platinum closed up $7.20 at $811.10 and palladium closed up $49.30 at $1874.20. 

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 equity markets overnight were higher with gains ranging from 0.3% to as high as 1.4%. Overnight economic news included a softer than expected Tokyo consumer price index reading for June, weaker than expected Spanish retail sales for May in a better-than-expected consumer confidence reading from France for the month of June. Also money supply in the euro zone grew by nearly 9% in May over year ago levels with business confidence in Italy failing to meet expectations but improving dramatically over the prior month. Furthermore Italian consumer confidence for the month of June bested expectations and came in significantly above the prior month. The North American session will start out with a May reading for personal income that is expected to have a sizable decline from April’s 10.5 reading. May personal spending is forecast to have a sizable increase from April’s -13.6% reading. A private survey on June consumer sentiment is expected to have a minimal uptick from the previous 78.9 reading.

With the US infection count reaching another record and escalating fears of regional lockdowns surfacing it, is possible that gold will see a critical trend decision today. As we have indicated several times this week, the fundamental and technical set up in the gold market continues to favor the bull camp. In fact, given the return to 8 year highs, rising open interest and a slight pickup in trading volume this week, the bull camp appears to be healthy and capable of regaining control. However, seeing the US push back timing for the next stimulus package clearly prompted some longs to bank profits and exit this week, with gains in the dollar this week also prompting some longs to vacate positions. While it is difficult to determine, we think intraday action this week suggests the rise in US infection counts is generally being seen as a negative to gold prices. In other words, the trade fears a greater loss of physical demand from a derailed/delayed recovery than it expects increased safe haven buying off the anxiety generated by the virus spread in the US. While gold ETF holdings declined minimally yesterday, Bank of America indicates this week will likely result in the 6th largest weekly inflow ever to gold funds. Fortunately for the bull camp, the net spec and fund long in the gold market remains near some of the lowest levels since June of last year and a retracement back into the April through June trading range (the middle might be seen at roughly $1725) should be seen as an attractive buy point. Despite seeing silver divergence positively against gold in yesterday’s trade, we remain skeptical of silver’s capacity sustain divergence with gold over time. On the other hand, in the event there is a miraculous shift away from economic concern from the US virus spread, silver might rally to the top of the consolidation zone up at $18.42 while gold might slide back to the middle of its April through June trading range. However, we see the risk to silver longs from current levels as unattractive, with the inability to hold above $17.79 this morning possibly setting up a very poor finish to the trading week.

While the palladium market did not forge a fresh lower low for the move this morning the trend in the palladium market remains down with the charts freshly damaged yesterday and prices seemingly on a direct path down to $1,750. Certainly risk off psychology from US infections has been moderate so far but even in the best of economic conditions in the last 2 months, palladium has not garnered significant speculative buying from “RISK-ON”. On the other hand, in the event that September palladium manages to hold above $1,832.20 into the early US trade, it is possible the market could temporarily respect that consolidation low price. While not as severe as in palladium, the platinum market did damage its charts yesterday with a lower low and a retest of a past critical support point down at $800. Unfortunately for the bull camp, the large washout on Wednesday saw a sharp jump in trading volume which in our mind gives credence to a bearish prevailing view in the marketplace.”

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