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Gold Continues Weaker

Gold Continues Weaker

Commentary for Monday, July 2, 2018 ( – Gold closed down $11.50 at $1239.80 – so the bears are now running freely through the woods. And there is no arguing with success as they say – dollar success that is as the Dollar Index moves once again above 95.00 and continues to look at yearly highs.

This latest renewed interest in the greenback is the result of two factors – an obviously hawkish FOMC claiming more interest rate hikes between now and Christmas and a trade war which continues to smolder especially with China.

There are some who actually believe the end of benevolent world trade is approaching – a big overreach in my opinion, Trump will pull back from the precipice at the last minute and each side will claim some sort of victory.

But in the meantime traders are building their positions in the dollar as a hedge against what might turn into a real trade war with international consequences. So this is gold’s latest boogie man haunting the halls of real money advocates.

You would think this latest ghost would push the price of gold higher but there is “no joy in Mudville” as the mighty Casey has struck out according to the famous poet Ernest Thayer.

But the picture is not nearly as bad as the bears would have you believe. The reason gold has not benefited centers around two factors. The first is that it has been technically weak since the big break down from $1340.00 in March. This relatively large drop with virtually no relief rally has as usual turned technical boys bearish in the extreme.

The second important factor is that this weakness did not create the usual Asian demand historically seen around $1280.00.

But Asian demand is never off the radar – this from Allen Sykora (Kitco) – Mitsubishi: Asian Buying Likely To ‘Cushion Further Price Drops In Gold’ Asian buying of gold has picked up lately as the price has fallen, and this may slow any further price declines in the precious metal, says Mitsubishi. “With gold prices down at six-month lows, Chinese buyers have been very assertive of late,” the firm says. Turnover on the Shanghai Gold Exchange’s gold contract has been 11.5% higher in the last 10 days, compared to the same period in 2017, the firm says. “The average local price of gold has been 21% lower in this period than a year ago, leading to a good deal of opportunistic buying from the local jewelry and bar fabrication business, despite the retail market in general being quite quiet,” Mitsubishi continues. “Chinese and wider Asian buying demand ought to continue to cushion further price drops in gold.”

Today – as gold closed below $1250.00 we are facing levels not seen since November of last year before gold saw the big and enthusiastic push above $1340.00.

What makes this weakness perplexing is that it is happening at a time when common sense would dictate that because gold is still the most secure international currency it should be the safe haven of first resort – not sitting on the back shelf entertaining itself.

All of this in the midst of a financial world with real debt problems, growing tariffs, an EU facing immigration trouble and President Trump’s formula for punishing Iran pushing the price of crude oil over $74.00.

Under “normal” circumstances the huge jump in crude prices since last August would have been enough to support the price of gold and excite the base – but for now we have to be content with testing support first at $1240.00 and then at $1220.00.

While these numbers are cheap they are not the “blow out” prices needed to bring in large amounts of fresh money. So you will see some bargain hunting for long term veteran buyers, perhaps an overdue relief rally and consolidation on either side of $1200.00.

This will provide some breathing room for gold and time to see what the FOMC actually puts on the table between now and the end of the year. Keep in mind that any reversal in dollar strength will stop this route but in the meantime cheaper prices mean wider participation.

This from Zaner (Chicago) – “While one might expect a thinned/quiet holiday week ahead, the looming deadline for the implementation of the July 6th tariff wave looms large and should keep two-sided swings in the marketplace. However, the Trump Administration has apparently delayed or granted exemptions to some trading partners and that could be a sign of further compromise, but it doesn’t speak to the most important negotiation for commodities concerning China. While the US dollar came under noted pressure at the end of last week and that should provide some cushion for gold and silver prices going forward, the risk of big picture/economic spillover selling remains a dominating force. In fact, the failure to hold the December 2017 low clearly suggests the June slide still has momentum and broad-based interest. While the Commitments of Traders Futures and Options report as of June 26th for Gold showed Non-Commercial and Non-reportable combined traders held a net long position of only 86,430 contracts and that represented a decrease of 16,580 contracts in the net long position over one week, that positioning is probably overstated given the post report slide of roughly $79.00. The gold and silver markets might also be undermined in the event that reports regarding North Korean efforts to stay nuclearized result in a breakdown of that progress as that would contribute to renewed global slowing threats. Unfortunately for the bull camp in silver, the Commitments of Traders Futures and Options report as of June 26th showed Non-Commercial and Non-reportable combined traders held still a lofty net long position of 49,708 contracts and that positioning is only slightly overstated because the market into the close Friday was only $0.13 cents below the level where the COT report was measured. While the silver charts are definitively less bearish than the charts in gold, the silver market might be more susceptible to risk off global slowing fears in the event of tariff escalation at the end of this week.

Like the gold market, the platinum contract suffered a fresh downside breakout and continues to face a patently bearish technical chart set up. On the other, hand the palladium market finished last week on a positive track and is building an argument for a low with the consolidation efforts last week. However, the PGM complex will remain under a liquidation watch in the event that trade talks fail to result in compromise or a delay in tariff implementation for the Ag markets. In a minimally negative development, the US Mint at the end of last week reportedly sold no American Eagle Platinum coins last month! Consolidation low support in September Palladium is seen at $932.50 and again at $935, while a failure would be seen with the inability to hold above $927.40. In the event of trade conflict compromise and/or sharply higher equities, the October platinum contract might be poised for an eventual short covering bounce back up to $875. While the charts in the platinum market are more negative than in palladium, the market is significantly oversold with the June high to low slide of $72 and the commercial net short position last week hit a new record level at 5,533 contracts. The Commitments of Traders Futures and Options report as of June 26th for Platinum showed Non-Commercial and Non-reportable combined traders held a net long position of only 1,275 contracts and that positioning is the lowest long since the sub-prime crisis. The Commitments of Traders Futures and Options report as of June 26th for Palladium showed Non-Commercial and Non-reportable combined traders held a net long position of 8,684 contracts.”

Silver closed down $0.36 at $15.74. Saw some expected bargain hunting across the counter today but actually expected more considering the discount from recent highs. Silver might be suffering from gold’s negativity.

Platinum closed down $43.40 at $809.00 and palladium closed down $16.50 at $941.80.

US Platinum Eagles are in short supply and one should expect higher premiums in the weeks to come as the US Mint’s production for this year is distributed.

The Unscientific Activity Scale is a “3” for Monday. The CNI Activity Scale takes into consideration volume and the hedge book: (Monday – 2) (Tuesday – 3) (Wednesday 3) (Thursday – 3) (Friday – 4). 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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