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Gold Defensive Plus

Gold Defensive Plus

Commentary for Tuesday, July 17, 2018 – Gold closed down $12.40 today at $1225.70 – still feeling around (mostly in the dark) trying to find short-term support. So those who were hoping that the bearish short money was getting tired may have to rethink that position. In general the price of gold remains off balance and trying to find its way in this upside down world of a highly leveraged Wall Street.

Weaker pricing today was most likely the combination of a number of factors – the stronger dollar heading the list. The dollar pushed the price of gold still lower as traders listened to an upbeat FOMC Chair Powell and once again adopted his optimism about a growing US economy and higher interest rates. The Dollar Index today moved from 94.31 through 95.00 but in the longer weekly view this index looks choppy at the higher end of its current range – this perhaps will support the gold price later in the week.

Still gold’s investment plate is full of junk food. The price of crude oil has sold off and looks more comfortable around $65.00 than $75.00 a barrel not a plus for our shinny friend. And everyone is waiting for that “safe haven” demand to produce fireworks in Asia. Pricing is certainly cheap enough but this particular market has the patience of Job.

And let’s hope that a theoretical problem does not mature into something more serious – the economic numbers from China may be turning soft – helped only in part by the real and rhetorical tariff problems still swirling around Beijing and the US.

Whether China’s potential growth problem goes anywhere remains to be seen. World mischief at the same time is creating some “safe haven” demand but surprisingly not for gold – the dollar is benefiting and remains strong at the higher end of its current trading range.

As can be seen the gold technical picture remains weak – it blew through $1250.00 support going back to early 2018 and today’s close ($1225.70) looks like it wants to test $1200.00.

Normally you would have seen an oversold position developing as gold moved down from $1350.00 through $1250.00. I’m surprised this initial move did not produce more physical action. It did not and the paper short play will be emboldened with today’s price action.

It’s amazing that gold yawned over the recent Trump/Putin meeting – under any other circumstance such an interchange would have provided solid gold support. The no-problem result underscores the fact that the world is not worried about political or economic fallout. So gold languishes looking for fresh, meaningful news to rally its base.

To newcomers keep in mind that gold and silver bullion are the only real reserve money the world truly believes in, everything else is a surrogate – coming in and out of favor. If the bottom were really following out both would be making new highs and price would make no difference as everyone rushed to convert paper money into real gold or silver.

The problem today is that because the “fear” factor is virtually non-existent the precious metals are acting like commodities and not reserve financial assets. This situation will turn in time if history has taught us anything.

Today’s lower pricing has produced some bargain hunting – we were pretty busy downstairs through the early afternoon. But the plain fact remains that gold is struggling with this psychological dimension – will it get cheaper? This is natural reaction in a declining market and a trend that disappears quickly as the public realizes sale prices will not last and having some “insurance” against unbacked paper money makes sense.

In the meantime the momentum remains with the bears. So look for cheaper entry points – a down market provides opportunity if you believe that Uncle Sam cannot just continue to print paper money with no consequence. And like I said in the last letter it pays to use the precious metals as a kind of secret piggy bank in times like these – you will look like a genius when this tide turns and inflation works its way back into this paper equation.

This from Zaner (Chicago) – “While gold and silver are showing some early positive action the charts remain negative and the fear of global slowing off trade headwinds and geopolitical anxiety leaves a general pressure on many physical commodities. However gold and silver are somewhat helped to start today given another lower low in the dollar and signs of a near term downtrend in that currency index. It is possible that gold and silver might be seeing short covering/light speculative buying off the idea that the Fed testimony later today will offer up some dovish policy indications as the Fed acknowledges the potential drag from US trade policies. However if the Fed chairman stays the course and leaves the gradual monetary tightening stance in place that could be seen as a fresh negative to precious metals prices. The most recent market dialogue on the Fed’s probable course of action for the rest of the year projected only one more rate hike and while that is perhaps an outlier forecast, seeing that number notched higher in testimony could strengthen in the dollar and undermine gold and silver. With the gold market not embracing or displaying a positive reaction to news yesterday of a strike at a Rand Gold facility, it is clear that sentiment in the marketplace is favoring the bear track. The gold market could see news of lower central bank holdings by Turkey and Kazakhstan from yesterday as another minor negative.

Relatively speaking, the PGM complex and in particular palladium saw aggressive selling when compared to gold on Monday and that seems to confirm the market’s excessive interest in the prospects for the Chinese economy. In other words, the somewhat disappointing Chinese economic data seemed to translate into a sharp downward reduction in demand hope, or it simply prompted another layer of long traders to run for the exits. With the sharp washout and the lowest price since early April, the residual spec and fund long positioning in platinum is probably being brought down but probably not significantly short yet. It is also possible that news of a merger/buyout within the platinum mining sector is seen as a development that could insure, expand or add consistency to production in the future. Wheaton Precious Metals Corp. also expected production to increase in the second half of the year which clearly adds to a concerning demand environment. In the end, the combination of bearish supply and demand factors would seem to justify a return to the 2018 lows in both palladium and platinum. However, we now see the platinum market to be less vulnerable to further liquidation than the palladium market.”

Silver closed down $0.19 at $15.55. We are now entering that “sweet spot” pricing as traders close in on $15.00. The only reason physical buying has not picked up to a bigger degree is because the bearish gold trade is pushing the silver side of the ledger.

Platinum closed down $6.50 at $815.80 and palladium closed down $4.30 at $916.60.

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