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Gold Closes Firm

Gold Closes Firm

Commentary for Friday, Feb 8, 2019 – Gold closed up $4.30 at $1313.70 today. We closed at $1314.30 last Monday so on the week gold was down $0.60 – so remaining pretty quiet but still shouting above $1300.00. I think today’s push to higher ground was just the result of a dive in the dollar – the index pushed from 96.70 through 96.45 but decided to recover somewhat making the daily action look more choppy than anything else.

Still gold is holding in there despite a slowdown across our counter going into the weekend. Perhaps because China trade talks are still up in the air and the DOW looks at least a bit nervous.

I would describe this most recent market as constructive for the bulls but would add that caution is most likely the best approach until the next FOMC move is discovered. I use the word “discovered” because I’m not sure but I think they are privately arguing over consensus.

The recent weakness in the DOW will be cited for those looking for a recession but I think this unlikely – the job’s number continues to shine. But there is an underlying angst to the world market which encourages the bullion community. And for the naysayers of late look at gold’s late rally to higher ground today going into the weekend. There is something tickling this market, fading in and out but with a positive slant. Traders are highly sensitive to these shades of gray in a market which lacks enough real news to established or break a short-term trend. But long accounts into the weekend might suggest they are interested enough to anticipate higher prices next week. Time will tell but like I said there is something stirring in the bullish camp.  

A look at David Erfle (Kitco) is worth the time. A Few Bullish Undertones as Gold Corrects Recent Gains – “The continued strength in gold this year alongside the strong bounce in the stock market has been impressive. While global equities have taken investors on a roller coaster ride since late 2018, the gold price has gained 10% from its August 2018 lows with hardly a pullback along the way. With this move becoming long in the tooth in both price and time, it is only natural to expect gold to give back at least a small portion of its recent gains. The Chinese market has also been closed this week for the Chinese New Year Holiday, taking a huge demand component out of the sector.

Furthermore, after testing its rising 200-day moving average last week, the U.S. dollar has rallied and closed above its 50-day moving average on Thursday. Although gold has remained firmly atop $1300, the closing above this widely watched benchmark trend line is making many gold traders nervous, and rightly so, given gold’s sensitivity to the world’s reserve currency’s dominant trend. Most analysts feel the greenback has put in a long-term top, so if the recent downtrend does not resume soon, the gold complex could come under increased selling pressure in the coming days and weeks.

Meanwhile, the past two weeks of trade in January saw fund managers who are under-exposed to gold miners, send the GDX soaring 13% into the end of the month last Thursday. After financial advisors were being questioned by clients as to why they were under-weight the best performing asset class over the past six months, month-end fund buying was largely responsible for taking the GDX up eight consecutive trading sessions into the last day of trade in January.

Nevertheless, the global miner ETF was also due for a pullback after strongly outperforming gold since bullion began trading above $1300 a few weeks ago. After nearly reaching resistance at $23 by the end of January, lower volume profit taking this week has made for an orderly decline so far. This is healthy action, as opposed to dashing long-suffering gold stock speculators hopes yet again with a high-volume, intraday red candle reversal after the sector had become overbought. There is good support at the $21.50 level and stronger support just below $21 at its 200-day moving average. However, while the GDX has been correcting its recent gains, there have been a few bullish developments taking place in the sector this week. A few of the silver juniors which I own, and/or follow, have been rising strongly as the gold space corrects. Historically, when silver leads gold higher, it is bullish for the complex. But silver juniors outperforming the gold complex has historically been an indicator of a significant sector bottom being in place. There also has been numerous individual junior gold stocks flashing buy signals, along with a few others trading at multi-year highs.  

Moreover, according to a new report by the World Gold Council (WGC), holdings in global gold-backed ETFs rose 72 tonnes in January to reach 2,513 tonnes (80.8m troy ounces), hitting the highest levels in nearly six years. The industry body says the inflows were driven by market uncertainty and a shift in sentiment that drove the price of gold 3.5% higher in January.

Also in the report, the WGC said it believes “net longs increased yet remain below historical averages.” But that remains to be seen with both sentiment and positioning in Comex futures in New York being unclear at this time due to the U.S. government shutdown.

However, with the ending of the shutdown, at least temporarily, we might finally get a COT report today at 3:30pm EST. Expectations are that speculators have increased their long position dramatically. The question is by how much.

There is strong support at the $1280 level of the gold futures price and this number has held firm after being tested multiple times in January. The market consolidated below the physiological $1300 level for the first three weeks of 2019 and the safe-haven metal has cleared this important number in convincing fashion. The Fed’s policy shift last week was a very gold friendly event, so I do not expect this region to be broken on a weekly basis close unless the U.S. dollar continues higher.

Nonetheless, if the $1275 level is taken out, look for strong support at the $1240-$1250 level to come into play. The GDX will also need to stay well bid above its 200-day moving during this correction, or I would be concerned that something has gone amiss. In the meantime, this sector remains a stock pickers market until the GDX can finally muster a weekly close above long-term resistance at $25.”

This from Zaner (Chicago) – “Global equity markets overnight were mostly lower with some European markets showing minimal gains. The Asian session was relatively quiet again with a December reading on Japanese household spending coming in higher for the first time in 4 months. Also released from Japan overnight, the January Eco-Watchers survey which posted a slightly better than expected outlook and a disappointing current condition result. Overnight economic information from Europe produced German imports which were better-than-expected, a slight decline in the German current account, better-than-expected German exports and a larger German trade surplus than was expected. French industrial output for December was better-than-expected, while French nonfarm payrolls on a quarter over quarter basis remained positive but were weaker than the prior result. Italian industrial output declined by a whopping 5.5% which was significantly worse than expected. The North American session will start out with January Canadian unemployment which is expected to have a minimal uptick from December’s 5.6% reading. January Canadian housing starts are forecast to have a modest downtick from December’s 213,400 annualized rate. San Francisco Fed President Daly will speak during afternoon US trading hours. Earnings announcements will include Exelon, Phillips 66, CBOE Global Markets and Hasbro before the Wall Street opening.

All things considered gold and silver prices have stood up to patently bearish dollar action this week even if a pattern of lower highs and lower lows has prevailed thus far. It is possible that today’s action in the currency markets will be somewhat reserved due to a lack of critical US scheduled data. However economic uncertainty was rekindled by the revelation that a full trade deal would not be likely ahead of US tariff escalation at the beginning of next month. Cushioning the gold market this morning are bullish comments from a Goldman analyst who predicted “sustained” buying by central banks in 2019n (in other words equaling 2018 purchases of 650 tons) and the analyst also predicted ongoing ETF inflows. However the dollar this morning has forged another higher high and the trade was presented with news of active selling of ETF gold and silver holdings yesterday. In fact ETF’s yesterday sold 245,397 ounces of gold and that lowers this year’s net purchases to 1.72 million ounces. Furthermore ETF’s also reduced their silver holdings by 1.43 million ounces which brings this year’s “net sales” up to 8.8 million ounces. While the World Gold Council projected a slight increase in 2019 Indian gold demand (they pegged it at 750 to 800 tonnes), those levels are still below the peaks in Indian gold demand from the past. According to a story in Reuters, the northeastern Indian state of Assam is promising $530 worth of gold to every “bride from a poor family” and that follows similar assistance to farmers and other lower middle-class recipients. The article also indicated that $42 million was set aside for the fiscal year beginning April 1st for the gold program in the tea-growing state of Assam. While those moves are obviously pre-election efforts to garner political support that would seem to point to the end of government attempts to shift Indian savings/investment interest away from gold. However, until the dollar shows a sustainable reversal on its charts, the outlook for the US economy deteriorates significantly or there is a negative trade associated headline, it is difficult to call for an end to the February slide in gold prices. On the other hand, there have been some very positive long-term Indian gold demand developments this week and gold has in our opinion held up rather impressively in the face of major pressure from the dollar rally this week. Initial support and a possible target is $1,300, and then at an uptrend channel support line down at $1,298.40. However the ebb and flow of the gold market today will certainly be focused on the dollar, with a dollar price back above 96.37 unleashing fresh selling while a dollar trade back below 95.94 prompting a weekending short covering rally.

The palladium market has forged yet another higher high for the move and would appear to be on a track to retest the contract highs up at the psychological level of $1400. Clearly the palladium market remains a classic physical commodity market reacting to unending forward tightness expectations, but we also suspect the trade is emboldened by what appears to be a resilient US economy and the ever present hope of trade progress next week. Uptrend channel support in March Palladium today is seen at $1356.10 and the next resistance/target point is seen at $1383.40. However the PGM markets did see outflows of capital from platinum and palladium ETF’s yesterday and Lonmin confirmed fiscal year platinum sales of 640,000 to 670,000 ounces. The Platinum market should be supported by comments from Lonmin as they predicted significant growth in demand for both palladium and rhodium. With the palladium/platinum spread reaching $566 an ounce, one would have expected rumors of rotation but auto industry officials aren’t expected to retool quickly unless prices sustained the massive historic differential over a longer period of time. In the end the platinum market fell back below the $800 level and could retest the mid-January lows below $792 unless palladium and gold provide moderate spillover buying interest.”

Silver closed up $0.09 at $15.77.

Platinum closed up $6.00 at $799.30 and palladium closed up $13.10 at $1409.60.  

Our Patented Employee Survey – Gold’s Direction Next Week?

Of course, it’s not really patented but we do have some fun along the way. This is what the employees think: 7 believe gold will be higher next week 1 thinks gold will be lower and 2 think it will be unchanged.

Our Patented Customer Survey – Gold’s Direction Next Week?

Like the employees, our customers were given three choices – up – down – unchanged. We limited the survey to a random sampling of 100 transactions – unscientific but worth considering because these people took action: 54 people thought the price of gold would increase next week 28 believe the price of gold will decrease next week and 18 think prices will remain the same.

Precious Metal Closes & Dollar Strength – Feb. 4 – Feb. 8

Gold Closes Firm

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