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Gold Closes Virtually Unchanged

Gold Closes Virtually Unchanged

Commentary for Tuesday, July 9, 2019 – Gold closed up $0.50 today in quiet trading at $1397.50. It traded choppy overnight in Hong Kong and London and moved on both sides of unchanged in the domestic trade. Not too exciting as this market continues to sort out cross currents from the bulls and bears. Everyone is keen to read into the comments being made by Fed boss Jerome Powell but most expect a dovish statement from the FOMC.

Trump has already accused him of doing a “bad job” which means simply that the FOMC is not dovish enough. The President wants to see an interest rate cut – the sooner the better.

The next significant FOMC meeting will be held on September 17th and 18th and no one would be surprised at this point if the Fed cut rates a quarter point – to test the waters.

This from the World Gold Council – Gold-backed ETF AUM grew 15% in June, its largest monthly increase in seven years – “Holdings in global gold-backed ETFs and similar products rose sharply in June by 127 tonnes (t) to 2,548t – equivalent to US$5.5bn in inflows – as geopolitical uncertainty increased and central banks signalled a shift to a more accommodative policy over the coming months. This drove rates and the US dollar lower and shifted the momentum in gold as its price moved to a six-year high.”

While this information is encouraging keep in mind you are looking over your shoulder – meaning that these numbers are for June. Gold momentum remains a moving target and in some cases is simply the result of “hot” money looking for short term profits – in other words gold might be very interesting in June and yesterday’s newspaper in July.

Today that momentum has obviously stalled but there are enough moving parts to this price dynamic that you could see higher gold prices – depending on dollar strength and what the FOMC might have in mind this September.

Some are claiming gold may challenge $1500.00 but this assumes interest rates will soon move lower. The FOMC could just as easily leave rates unchanged this time around and wait until their last significant meeting – held December 10th and 11th before making up their mind.     

This from Zaner (Chicago) – “Global equity markets overnight remained under pressure with declines usually less than 0.5%. Overnight Swiss unemployment for June ticked down to 2.3% from 2.4%. From Japan machinery tool orders for June came in at -38% versus another massive decline in the prior month of 27%. Italian retail sales for May were also released and declined by 0.7% off estimates for a gain of 0.7%. The North American session will start out with a weekly private survey of same-store sales and a monthly private survey of small business optimism. The May job openings and labor turnover (JOLTS) survey is expected to have a minimal increase from April’s 7.449 million reading. Fed Chair Powell and St. Louis Fed President Bullard will speak during morning US trading hours while Atlanta Fed President Bostic and Fed Vice-Chair Quarles will speak during the afternoon. Earnings announcements will include Pepsico before the Wall Street opening while Levi Strauss report after the close.

We see August gold to be vulnerable to a downside breakout below critical support at $1384.70 with the dollar breaking out up early and the market seemingly expecting this week’s Fed testimony to present less dovish prospects for the month end meeting. However the market should garner some support from news that hedge fund managers increased their net holdings of gold derivative to the highest levels in 21 months. On the other hand the net spec and fund long positioning in gold futures and options has also reached the highest level since September 2016 and that could leave the market vulnerable to moderately aggressive stop loss selling if chart support levels are violated this morning. Gold positioning in the Commitments of Traders for the week ending July 2nd showed Managed Money traders were net long 241,163 contracts after increasing their already long position by 11,499 contracts. Non-Commercial & Non-Reportable traders are net long 324,758 contracts after net buying 21,849 contracts. Certainly a pattern of central bank buying is a longer-term underpin for gold but in the short term the ebb and flow of US rate cut expectations are likely to dominate. Therefore today’s sweep of scheduled data (most specifically the job openings report for May) will take on added importance with the report expected to show a slight notch higher. We see a $1350 August trade before we see a $1425 August gold trade. Silver ETF holdings increased by 2.03 million ounces yesterday, bringing this year’s total purchases to 19.7 million ounces. Fortunately for the bull camp in silver the net spec and fund long is in the lower half of the last two years positioning range and therefore a silver liquidation brought on by gold might be less severe. Silver positioning in the Commitments of Traders for the week ending July 2nd showed Managed Money traders reduced their net long position by 1,710 contracts to a net long 21,762 contracts. Non-Commercial & Non-Reportable traders are net long 50,992 contracts after net selling 2,153 contracts.

Overnight press coverage on palladium conflicts with the early soft price action. In other words glowing projections for significantly higher palladium prices ahead have failed to cushion prices against what appears to be a liquidation bias. In fact one might have expected palladium to have extended its June rally significantly in the face of this week’s South African wage talk kickoff especially given news that fund managers expect palladium to continue to be the “hottest precious metal”. In fact overnight press coverage predicts more record highs in palladium prices in the event that a strike results from this week’s talks. According to Bloomberg palladium mined in South Africa represents about 40% of all auto catalyst supply. The main union in South Africa the AMCU kicks off talks with Anglo American platinum LTD today followed by talks with Impala platinum Holdings LTD on Wednesday and then with Sibanye Gold Ltd on Thursday. While the palladium market has shown significant resiliency over the past 40 trading sessions chart action this morning favors the bear camp and the potential for spillover selling from gold should not be discounted. Soft global demand is likely to continue to plague platinum especially following news from Impala that their production over the past 12 months rose by 4% from the previous year. The Commitments of Traders report for the week ending July 2nd showed Palladium Managed Money traders added 1,198 contracts to their already long position and are now net long 12,594. Non-Commercial & Non-Reportable traders are net long 11,924 contracts after net buying 1,344 contracts. Platinum positioning in the Commitments of Traders for the week ending July 2nd showed Managed Money traders are net short 15,418 contracts after net buying 8,061 contracts. Non-Commercial & Non-Reportable traders added 6,470 contracts to their already long position and are now net long 17,386.

While gold and silver were able to put some brakes on their recent pullbacks, they remain vulnerable to further downside price action during today’s trading. With the latest upside breakout in the dollar and vulnerable charts this morning we think the path of least resistance is pointing down and the inability to hold above $1384.70 in August gold could set the stage for a decline below $1375. However gold could be saved in the event that this morning’s US scheduled data comes in softer than expected as that could shift the pendulum back toward a rate cut at the end of the month. Unfortunately today’s US scheduled data is mostly third tier data and might not have an impact unless the results are surprisingly weak. We would also note the net spec and fund long in gold of 324,758 contracts increases the potential of aggressive stop loss selling if it gets underway. Near-term resistance for August gold is at $1,405 with support down at $1,394. Near-term resistance for September silver is at $15.15. Aggressive traders may consider selling August gold on a rally back to $1,395.10 with an objective of a sub-$1,375 trade. Conservative traders may consider purchasing August gold bear put spreads like the $1,400/$1,375 combination.”

Silver closed up $0.10 at $15.07.

Platinum closed down $5.20 at $809.10 and palladium closed down $17.90 at $1534.60. 

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