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Gold Cools Down

Gold Cools Down     

Commentary for Thursday, April 5, 2018 – Gold closed down $11.50 today at $1324.30. So we have now given up $17.80 of the plus $19.30 we saw this past Monday as traders initially reacted to China/US tariff troubles. This should tell you something about placing too much emphasis on breaking news coming out of the White House.

As the rhetoric about trade wars is toned down and China files a complaint with the WTO over US tariffs the complexity of world trade is highlighted once again. The dollar is moving higher not lower – the Dollar Index pushed above 90.50 even though weekly jobless claims rose by 24,000. This is indicative of how counterintuitive this political battle between Trump and China has become. Think about it – Trump (rightly or wrongly) opens up the can of worms and gold comes to life at the higher end of its trading range – a Trump cabinet member calms the water saying basically nothing is written in stone and it’s the Chinese who sue us in the world court.

This is enough to make you quit your job and join the circus. The overnight gold market in Hong Kong and London held the $1325.00 baseline and the domestic market was choppy between $1322.00 and $1329.00. The 30 day gold pricing chart is in no-man’s land. We saw lows of $1310.00 and highs of $1350.00 which qualifies for the definition of “choppy” but the technical picture looks at least tired to me and in need of fresh news.

The place to look in this fine kettle of fish is the FOMC meeting schedule.

The FOMC suggested there would be 3 rate hikes in 2018 – one happened in March so there are two remaining. There are three upcoming meetings described as “Summary of Economic Projections and a press conference by the Chair” – June 12th and 13th – September 25th and 26th and December 18th and 19th. Conclusion – they will most likely do nothing for at least one of these three special meetings – a plus for the gold bulls.

But the improving US economy holds sway – those promised interest rate hikes are not going away anytime soon. The big question remains – how will gold react?

If history is any guide we might expect higher gold prices although this sounds counterintuitive.

The reason being is that traders still see the FOMC action as moderate considering our economic gains. And two additional small interest hikes still places us in the cheap money seats.

For now the loose end remains how this dance between China and President Trump will play out between now and the summer. You have to give him credit – he is fearless even in face of Republican criticism. How he will deliver to his base over tariff questions will be fascinating.

I expect gold prices will now turn uneventful but at the higher end of the current range – traders now willing to wait and see how these loose ends fit into the bigger picture. Can’t imagine however a big bearish play here – this whole trade game could go flying off into outer space if it appears our leaders are willing to jump off a cliff just to make a point.

This from Zaner (Chicago) – “Extreme volatility has extended in the gold and silver markets with the markets overnight seemingly embracing the idea that talks can still take place between the US and China and that in turn has lowered safe haven interest to wane early today. However, we suspect that uncertainty will continue and perhaps expand dramatically when the Trump Administration offers up more tariffs and other punishing trade measures. In fact given the Trump Administration pattern of knee-jerk reactions to events we doubt they can hold back on their next salvo for much longer. Logically, stocks and gold have maintained and will continue to maintain a tight inverse relationship through the end of the week. Certainly suggestions that the tariffs announced so far might not be implemented (Kudlow comments) moderates the safe haven/anxiety condition, but we continue to think that the Trump administration will raise the ante before the end of the week with more tariffs and or other trade related charges involving intellectual property right violations. Technically, traders could point to the Wednesday action as a quasi-blow off top of sorts as a new high for the move and a $25 reversal smacks of a shift down in the trend. However we doubt that any “trend” can be consistently maintained given the treacherous headline environment from both China and the US. Pushed into the market today, we favor buying weakness in anticipation of the next “move” in the trade battle.

Make no mistake about it: the PGM complex remains vulnerable and on the run in the wake of the ongoing threat of trade barbs between China and the US which in turn stokes fears of moderating industrial/physical use. While the last COT positioning reports showed a net spec long of 32,464 contracts in platinum and 12,827 contracts spec long in palladium, both of those readings have been brought down significantly by the slide over the last three trading sessions. However, we doubt that the platinum market is “mostly sold-out” yet and a near term dive below $900 is likely in the event that equities turn lower over the remainder of the week. Similarly, the palladium market has seen its net spec and fund long positioning come down but it might also see a downside extension and a filling of a gap down at $902.70 and $898.30. Until there is a definitive sign of a repairing of trade relations, the risk of picking a bottom is simply unattractive.”

Silver closed up $0.11 at $16.32Gold Cools Down

Platinum closed down $2.30 at $909.80 and palladium closed down $17.80 at $901.10. Action in platinum is heating up most likely based on the notion that gold is range bound but at the same time industry is growing worldwide which is a bullish platinum scenario.

Platinum moved to $2100.00 in 2008 but the financial crisis pushed prices much lower ($846.00) by November of that year. We then saw another rally in platinum prices in 2011 ($1830.00) but the diesel scandal pushed prices back to a January 2016 low ($856.00). The low last year was $882.00 and we now trading at $910.00 which is a low for this year.

Automobile catalytic sales are up 3.3% the first 2 months of 2018 and there are prospects of a switch to the platinum/rhodium combination because the palladium market is getting expensive.

This is our usual Thursday Chicago Mercantile Exchange report covering the last 5 trading days – so we are looking at the trading volume numbers for the “April” Gold contract: Thursday 3/29 (374605) – Friday 3/30 (Good Friday) – Monday 4/2 (378233) – Tuesday 4/3 (370219) – Wednesday 4/4 (376877) and the trading volume numbers for the “April” Silver contract: Thursday 3/29 (153476) – Friday 3/30 (Good Friday) – Monday 4/2 (149752) – Tuesday 4/3 (149180) – Wednesday 4/4 (152557).

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