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Gold Continues to Hold Out

Gold Continues to Hold Out 

Commentary for Tuesday, Sept 11, 2018 ( – Gold closed up $2.40 today at $1195.40. This market continues to look moderately choppy following the dollar – which is a bit surprising in that world politics and currencies would suggest a bit more interest in gold bullion. But this has been the trend of late – gold looks disinterested at best. I think its technical picture has also turned into a mixed bag – is the glass half empty because gold failed in its latest drive from $1175.00 through $1210.00 or half full in that we are still holding about $1190.00 with the next FOMC meeting right around the corner?

The Fed will meet on September 25th and 26th and most expect another interest rate hike. The last FOMC meeting this year will be December 18th and 19th and the chances are that we will see another small increase. These are the headwinds that continue to hold gold captive. In theory these higher interest rates will make the dollar stronger and continue to pressure gold prices.

In the bigger picture however this “cause and effect” will run out of gas because higher interest rates threaten economic growth so they are looking for a “balance” – not too high and not too low will work for Wall Street.

The current pricing model for gold however is still surprising if you ponder why gold’s safe haven appeal is still missing in action amid exploding debt worldwide.

The traditional case is that the world is protecting itself with the dollar. But I can’t figure out why. Look at all the problems other countries are facing – now throw in currency weakness and trade tariffs. I also think that Europe is a bigger mess than most believe – they still offer a virtually free money policy and serve up a radically different approach to social problems.

You tell me how the EU is going to hold up under such conditions?

For now the precious metals community faces a typically difficult decision – to buy or not to buy. It probably makes sense to test these waters on the way down but trying to call a bottom is the worst of all answers even for professionals. This in most cases simply freezes up investors intent and in the process misses an opportunity.

But at this point a bit of judgment makes sense. To me gold looks dicey but still worth following lower and keep in mind if you are still bearish there are larger orders beginning to appear across our counter – no whales as yet but deals of 100 grand or larger are happening.

Silver bullion is just cheap – hard to see how anyone could go wrong at these levels given that most of today’s investors can remember when silver was 4 or 5 times higher. Platinum bullion falls into the same category but I would be careful with palladium. The notion that platinum is trading at $400.00 less than gold might present one of the most powerful investment ideas available today yet relatively few have this on their radar.

As the summer draws to a close I suspect this kind of lull will melt away – politics will once again become a price driver and safe haven demand will come back into focus. Gold will still be subject to a stronger dollar on the shorter term but this trend will reverse itself. In the meantime remember that lower prices always create higher interest.

This from Zaner (Chicago) – “The threat of further escalation in the trade wars between the US and China has gold bulls nervous despite the oversold condition of the market. Citi is forecasting that the US/China trade war could lower growth by 0.4%, and with White House expected to announce tariffs on additional $200 billion on imports from China this week and to propose tariffs on another set of imports, this only raises anxiety. But the general viewpoint that the US has less to lose in the standoff has supported the dollar and pressured the metals. The recent Commitments of Traders reports showed speculators holding a significant net short position in gold and a record net short in silver, which leaves both of these markets vulnerable to short covering if resistance levels are taken out, but the market likely needs a catalyst, like progress in trade negotiations, to see that happen. The euro got a boost yesterday from reports of forward progress in Brexit negotiations, and that pressured the dollar somewhat, but it did not translate to support for gold or silver. There is some hope that a breakthrough in NAFTA negotiations with Canada will be announced this week, and if that happens, it could spark short covering in the metals. If it doesn’t, it could drive them to new lows. A Bloomberg report on the solar industry’s silver consumption says that producers are lowering costs by reducing the silver usage in solar panels, but the industry is expected to consume anywhere from 115 to 129 million ounces in 2020 versus 94 million in 2017.

The PGM sector was lower overnight as trader concerns about China’s economy erased some of the optimistic demand ideas that had developed in the wake of some positive economic data from China yesterday. China’s economy is believed to have more to lose than the US from a trade war, and the US administration appears to be moving ahead with an escalation of tariffs. Neither of these factors bode well for consumption of metals used in auto catalysts, which includes palladium and to a lesser degree platinum. Specs have reached record net short positions in platinum, which leaves that market open to short covering, but palladium specs are actually net long. Palladium is also showing some divergence with momentum indicators, and stochastics recently crossed negative. The rally off the August lows has been met with declining volume and open interest, which does not so bode well for continuation. Support for December palladium comes in at $942.10, with resistance at $995.00. Resistance for October platinum comes in at $801.10 with support at $765.40.”

Silver closed down $0.03 at $14.05.

Platinum closed down $0.70 at $788.10 and palladium closed down $2.70 at $980.90.

The Unscientific Activity Scale is a “4” for Tuesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Wednesday – 4) (last Thursday – 5) (last Friday – 4) (Monday – 5). 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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