Gold Closes Firm – Again

Gold Closes Firm – Again

Commentary for Wednesday, July 3, 2019 – Gold closed up $13.10 – off its highs on the day but still solidly in the green at $1417.70. The theory being that gold spiked higher after ADP payroll numbers disappointed suggesting that the FOMC is more likely to lower interest rates in an effort to jump start our sputtering economic recovery.

I don’t get the “sputtering” part – the US economy is not in danger of recession. There are new job openings and a shortage of qualified workers while wages grow for those already employed.

President Trump is already stirring the FOMC pot with two new nominations – both dovish and accusing Jerome Powell of doing a “bad job” according to Reuters. Trump wants lower interest rates so he can better compete with China. And the Europeans are on the same page looking to replace Mario Draghi with someone even move dovish if that is possible. This new dovish “trend” in central bank thinking will be one of the primary drivers of higher gold for now and remember that the European’s have no problem using negative interest rates!

Still if you look at the 5 year gold chart – this market looks overbought to me. But gold’s recent price action is encouraging as weakness is overcome by bargain hunting.

I don’t see the US market on board yet but the “big three” central banks buying gold are China, Russia and India which is not surprising.

So does gold have to hold above $1400.00 to support this most recent rally?

Surprisingly – the answer may be no. Typical price chop in this “no-man’s land” above $1400.00 demonstrates that at these higher levels there is support. And this support could easily grow – as interest rates trend lower.

Tariff threats by President Trump and problems with Iran will help this “higher gold” scenario but I think these are transitory. It remains to be seen whether gold is “breaking out” or just “waking up”. But do not discount the notion that a new bullish dynamic is now in place.

Gold seems to be working to break above that “back and forth” base which has been in place since 2013 – this because uncertainty continues to grow. But like I have said before there is a lot of “blue sky” between $1400.00 and $1600.00. Meaning that finding a new footing in this region will be difficult and at times both the bulls and bears will claim the high ground. 

Gold will have to prove itself at these higher numbers before everyone joins the party. For now, I’m encouraged that we are looking at a gold bullion market which has wider appeal than was considered possible just a few months ago.        

We will be closed this Thursday and Friday for Independence Day. The domestic market will be closed Thursday but open Friday, normal hours – Globex will close early. And while the 4th is obviously an American holiday I think not much will be happening through this coming weekend – Europe will also go home early so look for some “peace and quiet”.        

This from Zaner (Chicago) – “Global equity markets overnight were mixed with Asian stocks lower and the rest of the world trading in positive territory. In what could be yet another trade battle front, the US announced it would impose duties on steel imports from Vietnam. Overnight the Chinese released a services PMI report for June that came in below expectations and below the prior month. Europe also saw a flurry of services PMI readings with Spain, Italy Germany and the overall Euro zone showing better than expected results. However French services PMI came in softer than expected, but above the prior months’ results. The UK also posted services PMI readings for June which came in softer than expected and softer than the prior month. The North American session will start out with a weekly private survey of mortgage applications, followed by the June Challenger job cuts survey. The June ADP employment survey is expected to have a sizable increase from May’s 27,000 reading. A weekly reading on initial jobless claims is forecast to have a modest downtick from the previous 227,000 reading. Ongoing jobless claims are expected to have a modest downtick from the previous 1.688 million reading. The May international trade balance is forecast to have a moderate increase from April’s $50.8 billion monthly deficit. May Canadian international merchandise trade is expected to have a modest increase from April’s monthly deficit. The June Markit US services PMI and June Markit US composite PMI are forecast to have modest downticks from their May readings. May factory orders are expected to have a modest uptick from April’s -0.8% reading. The June ISM non-manufacturing index is forecast to have a moderate decline from May’s 56.9 reading.

The gold market jumped sharply higher overnight extending yesterday’s surprise range up move and seemingly setting the stage for a retest of contract highs up at $1442.90. While press coverage overnight indicated the reason behind the rally was expanded hopes of easier money ahead, it is also possible that signs of yet another trade dispute (this time the US versus Vietnam because of steel infractions) increases the uncertainty in the world economy which in turn enhances gold holdings. Apparently the US commerce Department imposed duties of more than 400% on steel imports from Vietnam which means the US has ratcheted up trade tensions with both Europe and Vietnam this week. Gold is also probably feeding higher off news that President Trump has selected two Fed nominees who are generally seen as doves. Another lift for gold came from news that Indian June gold imports rose by 12.6% versus year ago levels and that news is accentuated further by Indian efforts to foster gold holdings in forms beyond physical. In fact the Times of India has touted holding gold on paper through gold bonds and or mutual funds that trade gold. Limiting the gold market this morning are efforts in Russia to increase gold exports, a decline in SPDR gold holdings yesterday and the dollar action which remains near nine day highs.

The upward grind in the palladium market continues today with gains this week very uniform and open interest continuing to climb along with prices. While other markets rekindled some doubt on progress in US/Chinese trade talks, the palladium market seems to be unconcerned with the ebb and flow of trade issues. In fact palladium has rallied overnight in the face of US duties on Vietnam steel and promises of counter tariffs on US goods destined for Europe. In fact, the palladium market also wasn’t concerned about further softening of US vehicle sales. Uptrend channel support in September palladium increases to $1,538.75 today and an upside target remains the March 21st high up at $1,563.70. The outlook for the platinum market is probably set to improve given the start of wage talks next week between unions and the 3 largest mining companies. Initial wage requests from the unions called for a 48% increase in wages which the companies say will result in job losses and shaft closures. However, with the platinum market failing to hold above the 200 day moving average for the third trading session in a row and trading below that average early this morning we see that level ($842.80) as initial resistance. The platinum market was probably undermined as a result of poor US vehicle sales yesterday and softer Chinese Services PMI readings overnight. Furthermore with the palladium market into the high on Monday $56 above the June lows the market was technically overbought. It should also be noted that platinum managed the recent rally with significant declines in both open interest and trading volume. Therefore, the path of least resistance in platinum is down and a trade back into the late June consolidation pattern is likely directly ahead.

The gold market seems to be fully embracing the prospect of a series of global interest rate cuts. In addition to an extending global pattern of soft manufacturing data the trade also sees the potential for a more dovish composition of the US Federal Reserve through presidential appointments. It is also likely that traders expect economic uncertainty to rise given the negative track of US/European and US/Vietnam trade developments and therefore gold has come into vogue from several angles. However a noted jump in Indian gold demand the last month adds a classic fundamental demand element to the bull’s case. We see support from a series of closes in the late June consolidation pattern around $1415.40 with an upside objective from the last 10 days trading range counting up to $1492.”

Silver closed up $0.10 at $15.25.

Platinum closed up $10.00 at $837.20 and palladium closed up $12.60 at $1559.80. 

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