Gold Choppy – Holding $1300.00

Commentary for Thursday, Feb 8, 2017 – Gold closed up $5.30 at $1316.90 so pricing is firm but the trading pattern looks choppy – uncertain. So gold continues to find solid footing but will remain under pressure if the dollar continues to move higher. The Dollar Index this past week has moved from 88.65 through 90.57 and while we are currently off that high (90.24) the hawkish talk continues from the FOMC governors.

It’s amazing that few – Republicans included – seem interested in the trillion dollar deficit. CNBC this morning noted that a trillion dollar deficit is larger than the total of all our deficits over the last 200 years added together. This is unprecedented – handing out money like there is no tomorrow – rebates – increased infrastructure – more military – foreign aid – no problem.

Now you might say “what me worry” (like everyone else) but this is a mistake and contrary to the Keynesian playbook. This type of spending is supposed to happen when the economy slows down. Business is not slowing and we are not close to recession.

At any rate these are not revelations – what counts is that the Federal Reserve continues to spend and print at the same time. The inflationary needle is beginning to move but not enough to get any real press. While this “no inflation” trend has become the norm this past decade anticipating a turnaround in 2018 might not be a bad idea – gold will act accordingly.

Gold pricing today saw the usual chop – higher – lower and recovering – prices falling in the $1310.00 through $1320.00 range – so nothing dramatic. But recent highs of $1360.00 are in the history books for now. This market is still trying to figure out how serious it should be.

We have recently pushed through that important $1340.00 overhead resistance but failed to hold momentum let alone challenge $1400.00. So gold remains left-footed looking at the dollar and wondering if this world monetary expansion is still good to go or recent giant swings in the DOW is trying to tell us something.

The dollar for now is holding its ground but trillion dollar deficits are a wet blanket to sustainable economic growth. Sooner or later it will break down – the Dollar Index will see something more sustainable – around 80.00 which could easily push gold back above $1400.00.

The wider world has not turned into gold bulls yet but Goldman Sachs sees gold prices at $1450.00 by next year. This might be conservative – inflation is beginning to stir and physical demand is consistent – this will support current pricing on either side of $1300.00.

You most likely will not see big upward swings but by the same token gold will not likely fall out of bed – there are still too many financial unknowns.

The current pricing model is based on a drive in gold prices which began in December around $1240.00 and moved steadily higher through January. The market flattened out around $1340.00 and weakened so traders will watch carefully this latest consolidation around $1300.00.

The FOMC will meet again on March 20th and 21st and this meeting will include our first close look at the new boss – Jerome Powell. I don’t expect anything dramatic here – he will follow Janet Yellen’s conservative lead and I think the board is evenly split between conservative and liberal governors.

So gold will most likely continue to consolidate moving opposite the dollar. But I think the bullish leg in gold prices which began in 2016 remains in place. This Kitco headline is classic “Gold will be an overnight success, 30 years in the making.”

Throughout this frustrating “back and forth” pricing model keep this in the back of your mind – no country (not even the US) can sustain $1 trillion dollar deficits. Take steps to protect your core financial holdings with gold bullion while the pricing model is still in doubt – current numbers might seem cheap just a few years down the road.

This from Zaner (Chicago) – “With a fresh downside extension and the lowest price since the first trading session of the year the gold market is clearly entrenched in a washout mode. Not surprisingly the slide in gold prices early today has been accompanied by a fresh upside breakout in the US dollar to its highest price level since January 22nd. The gold market is seemingly wholly uninterested in news that South African gold output for November declined by 10.4% on a year-over-year basis and that news was joined by a 12.4% December year-over-year decline in output. However the gold and silver markets are not in a position to trade classic physical commodity market fundamentals and they are also not in a position to even benefit from rising safe haven anxiety from ongoing equity market volatility. In other words the action in the dollar is dominating as would be expected and weakness in other industrial commodities like crude oil leave a patently bearish environment in place. Certainly the net spec and fund long position is coming down with the January high to present low slide of $60 an ounce but a full retreat to the even number psychological $1300 zone appears likely. In fact with the gold market earlier this week discounting somewhat dovish Fed dialogue and the markets facing hawkish comments from the Fed’s Kaplan (speaking early in Germany) the bear camp should feel very confident in their position. Relatively speaking, silver has had a much smaller spec long position than gold and with this week’s selloff March silver has already given back 70% of its gains off the December lows but the market might not be able to halt its slide in the face of gold losses ahead. The world’s largest gold ETF saw their holdings fall by 2.36 tonnes on Wednesday to reach their lowest level since August 31st of 2017.”

Silver closed up $0.10 at $16.31. Public silver bullion action is picking up90% silver bags at $0.20 over spot delivered are a great deal – premiums have been as high as $3.00 or $4.00. Gold Choppy – Holding $1300.00

Platinum closed down $3.30 at $975.40 and palladium closed down $22.35 at $966.15.

US Mint production of 2018 1 oz Platinum Eagle will soon be available. These will be new designs with low production runs which will attract collectors. Platinum is trading at a huge discount to gold ($345.00) – consider adding a few to your core holdings while prices are cheap.

This is our Thursday Chicago Mercantile Exchange report covering the last 5 trading days – so we are looking at the trading volume numbers for the “February” Gold contract: Thursday 2/1 (395835) – Friday 2/2 (394477) – Monday 2/5 (392342) – Tuesday 2/6 (379256) – Wednesday 2/7 (369047). Trading volume for the “February” Silver contract: Thursday 2/1 (126232) – Friday 2/2 (127259) – Monday 2/5 (121017) – Tuesday 2/6 (118056) – Wednesday 2/7(108897).

The Unscientific Activity Scale is a “3” for Thursday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Friday – 4) (Monday – 3) (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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