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Gold – Consolidating or Resting?

Gold – Consolidating or Resting?

Commentary for Friday, July 10, 2020 – Gold closed down $1.00 at $1798.20 today in quiet but focused trading. It tried moving higher on the open but ran into early profit taking in a technically strong market – conviction still lives but traders may not want to push the envelope going into an uncertain weekend. This looks like a market with plenty of upside that is waiting to see if any late breaking news might move the needle. I’m surprised that US military exercises in the South China Sea have not created more turmoil and price action in gold but this has not been the case, so unless the dollar gets considerably weaker (not likely short-term) our shiny friend may need some time to “rest” and perhaps “consolidate”.

This past Monday – gold moved higher on the domestic open most likely because the dollar remains soft – the Dollar Index losing about a point this past week. Still there is talk that higher gold prices will prompt more selling in the Asian trade so it would appear that region is not yet onboard for the expected higher pricing in the longer term. Stocks continue to look optimistic both here and abroad this Monday morning after the 4th of July holiday. Which is puzzling as the world faces higher virus infections and the possibility of a Democratic president. UBS this morning remains optimistic about higher gold citing cheap money but suggests that profit taking rounds will be part of the bigger picture. Gold closed up $4.50 at $1788.50. Technically gold remains bullish with short term support around $1760.00 and longer-term support at $1740.00.

Tuesday, July 7th saw a typical pricing action – gold sold off on the open, traders bought the dip and it quickly moved toward $1800.00. Surprising in that the dollar was a bit stronger and the Nasdaq has moved to an all-time high. Gold is now up more than $100.00 this past month and about $400.00 this past year so the big question is – will folks chase this market above $1800.00? We have bought a ton of product this past week (so there are sellers) but it barely moves through the sanitation process before finding a new home. Interesting that the World Gold Council today cited the highest ETF levels on record but does not expect this strong demand to hold up through year end. Gold closed up $15.70 Tuesday at $1804.20. The silver bullion market remains hot supported by a 4-month price uptrend and continued production backlog.

On Wednesday of this week gold continued firm – higher in overnight and domestic markets. On the day it finished up $11.30 at $1815.50 encouraged by a weaker dollar, continued momentum play created by positive technicals and safe-haven demand over conflicting virus concerns. This is the perfect receipt for increased volatility but should not keep you up at night, just buy the dips if you are so inclined. What should keep you up is a reasonable plan to protect your financial worth against the inflation wave which could develop over the next few years. Not worried about inflation? Ask yourself why global central banks have been buying gold for the past decade. Finally, China’s intentions are not benign – Hong Kong is an opening rally and they will challenge US financial hegemony, consider the progress they have made this past decade.

Just when you thought it was safe to come out from under the bed consider this from our friends at the Better Business Bureau – Mask exemption cards are fake. The United States Department of Justice (DOJ) is issuing a warning regarding those who may see a card or flyer stating that the owner is exempt from wearing face masks. The information was not issued or endorsed by the DOJ. A card circulating online by group calling themselves the Freedom to Breathe Agency, claiming the holder is lawfully exempt from wearing a mask endorsed by the Americans with Disabilities Act, is simply not valid.

Gold pricing Thursday was choppy between $1795.00 and $1815.00 and the trading mood was cautious as gold reaches a nine-year peak supported by ETF performance. Stocks were weaker and the dollar reversed itself moving higher and hurting gold after the New York Supreme Court ruled that Trump’s financials are fair game – another political football. Expect profit taking, we have moved from $1700.00 through $1820.00 these past 30 days and fresh information is lacking. Gold closed down $16.30 on the day at $1799.20 as the bulls ponder $1900.00.

This from Reuters (Diptendu Lahiri) Thursday – “a drop in jobless claims in the United States took some shine off the precious metal, while fears of growing inflation and spike in cases of coronavirus infections limited loss.”

The price action for gold on Friday was subdued with typical chop – the range just under $1800.00 through $1810.00. Silver seems to be getting more publicity – some looking for $25.00 in the near future. I love the silver bullion dynamic – unchanged in the 40 years I have been buying and selling bullion. People either love silver or hate it – there is not much room in the middle. The big plus this market has is that silver is always affordable and privately traded.

Look for continued volatility in the metals but do not expect much of a sell-off because of the growing uncertainty. As long as central banks ignore their balance sheets and continue to bail out a troubled world which is their job folks will plan for renewed inflation by protecting a portion of their paper assets with gold and silver bullion. It just makes sense in these trying times.

Silver closed up $0.10 at $18.98. Still not enough physical product to make anyone happy.

Platinum closed unchanged at $836.60 and palladium closed up $31.20 at $1972.90.

As always, we appreciate your friendship and business. And if you have unusual circumstances, need cash or are looking for a special store visit – talk to Harry. Let us be careful out there – stay safe and trust in God’s blessings. Richard Schwary

This from Zaner (Chicago) – “Overnight global equity markets were mostly lower with some minimal gains seen in Germany and the UK. The overnight economic slate was thin with Italy posting a much better-than-expected May industrial output reading. The North American session will start out with June Canadian unemployment which is expected to have a sizable downtick from May’s 13.7% along with a very large net increase in employment. The June US producer price index is forecast to have a moderate uptick from May’s -0.8% reading while the core producer price index (excluding food and energy) is expected to have a minimal uptick from May’s 0.3% reading.

While the gold market forged a very damaging reversal yesterday, prices have clearly respected psychological support at $1800 again this morning and that combined with a series of safe haven headlines should firmly underpin prices. Fortunately for the bull camp gold ETF holdings increased for the 10th straight day yesterday with an addition of 109,346 ounces to bring this year’s net purchases up to 21.4 million ounces. It should also be noted that silver ETF’s added 1.7 million ounces with year-to-date net purchases now at 201.7 million ounces. In addition to the US sanctions against Chinese “leaders” the gold market should see ongoing lift from significant infection surges in India, Australia and the US. Another potential safe haven ignition for gold and silver today is seen from overnight concern for liquidity in China after a surge in interest rate swaps overnight. Going forward we suspect that fear of even more discouraging US infection readings over the coming weekend will result in some speculative buying throughout the day today. The gold market should see some added speculative interest following Goldman Sachs suggestions that they are even more confident of their $2000 price target for gold this year. Apparently Goldman Sachs sees the strong Chinese equity market outperformance of US equities as an environment that will be very conducive to higher gold prices. Limiting the gold market on the upside are two stories overnight detailing a slight increase in gold production from two medium-sized gold mining companies in the second quarter. Furthermore an initial overnight upside flare in the dollar creates some headwinds for the bull camp in gold in the early going today and it could take a setback in the September dollar below 96.50 to shift the currency impact on gold from negative to positive. We think traders should expect to see gold and silver finish the week strong as the trade attempts to interject additional safe-haven premium back into prices ahead of what could be a very concerning weekend of US infections.

We are little impressed with the action in palladium as yesterday’s large range up move shifted charts from bearish to bullish and prices earlier today did make another attempt to regain the $2000 level. The palladium market might derive some support from a forecast from ABN AMRO which raised their average price forecast for 2020 to $2051. We do get the sense that trading interest in spreading between the 2 PGM markets is on the rise again with palladium gaining on platinum on risk off days and platinum gaining on palladium on risk on days. We would also suggest that platinum remains linked to the gold market and should continue to be-seen-as a “much cheaper alternative” longer-term trade than gold. However without a significant surge in gold and silver prices, the PGM markets are likely to track in sync with equities, especially in the afternoon trade. Near term targeting in September platinum in the event of a definitive risk off session to end the week, is seen down at $1,895, with a similar downside target/solid support level in October platinum seen at $819.10.

While we remain very bullish toward gold and silver, we get the sense that the markets have further two-sided chop ahead before another sharp range up extension is forged. However, in the event of a full-blown risk off vibe from US infection fears settles into place in the afternoon trade that could project gold and silver right back to contract highs. While we doubt the market will fall to long-term uptrend channel support down at $1,765.30 today, closer in support is $1,781. Like gold, the silver market appeared to forge a blow-off top reversal yesterday and probably settles back into the May through present consolidation with the trade back to $18.58. Despite the potential for further corrective, traders should utilize corrective breaks as a chance to reenter the long side of gold and silver for trend positions.”

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