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Gold Develops Buzz

Gold Develops Buzz

Commentary for Wednesday, June 5, 2019 – Gold closed up $4.90 today at $1328.30. It actually moved aggressively higher on the open but quickly reversed itself settling for a modest “middle” range close after yesterday’s big $16.90 move. So today looks like a simple momentum play but make no mistake the bulls are in control for the present. This market is developing a nice buzz which we have not seen in sometime.

Like I said yesterday I’m not going to get too excited until gold moves convincingly above $1350.00 – a big challenge number which has been in place for years.

Still the landscape for gold bullion continues to improve as President Trump continues to rattle the financial markets. It’s also worth noting we are seeing follow through strength in gold even though the DOW powered up yesterday.

There is safe-haven going on even at these elevated prices – Commerzbank claims that India imports were strong in May. But the big undercurrent here can be found in Brainard’s comments yesterday that the Fed is “prepared to adjust policy to sustain the expansion”.

Wow! This notion that the Fed might actually lower interest rates has been talked about since early January but has not been taken seriously until now. There is credible commentary which claims that at least one rate cut is a certainty before year end, perhaps even more!

Neils Christensen (Kitco) also makes an interesting case this morning. A Loss of Faith in the USD Is Propelling Gold to $1400.00 – ABN AMRO “While many investors are turning to gold because of its safe-haven allure, one international bank says that a weak U.S. dollar is what will continue to drive gold prices higher. Georgette Boele, coordinator of F.X. and precious metals strategy at ABN AMRO, wrote in a report Wednesday that she remained positive on gold and reiterated her bank’s forecast for prices to push to $1,400 an ounce by the end of the year.

She added that she is paying more attention to gold’s negative correlation with the U.S. dollar than its safe-haven appeal. “Gold has moved up in an environment of higher equity market volatility and more uncertainty on financial markets, giving the appearance of a classic safe haven reaction,” she said. “However, we strongly believe that the surge in gold prices has happened because of broad dollar weakness rather than safe-haven demand for gold.”

Boele’s comments come after gold prices surged to a more than 3-month high. Although off its session highs, gold prices are still holding substantial gains; August gold futures last traded at $1,334.80 an ounce, up 0.45% on the day. Looking at the U.S. dollar, Boele said that the currency is suffering because of growing geopolitical uncertainty and President Donald Trump’s “erratic” trade policies. Last week Trump spooked markets by threatening a 5% tariffs on all Mexican imports in an attempt to curve illegal immigration south of the border. If the immigration issues aren’t resolved, tariffs could rise to 25% by October.

“The U.S. dollar is likely also being punished because the U.S.’s longer-term credibility is weakening. This may not be visible in EUR/USD, because the euro has its own challenges, but it is visible versus the Japanese yen, the Swiss franc and gold prices,” Boele said.

The U.S. dollar Index last traded at 97.05 points, relatively unchanged on the day, bouncing off a 2.5-month low. However, gold’s strength is more than just U.S. dollar weakness, Boele said that the metal showed resilient technical strength even before its latest rally as prices held support above the 200-day moving average. The Dutch bank is also bullish on gold as it expects both the Federal Reserve and the European Central Bank to loosen monetary policy.

“We have adjusted our base case scenario, and now expect the Fed to start cutting the Fed funds rate by 75bp by Q1 2020 (this is currently priced into financial markets). Moreover, we expect the ECB to restart Q.E., and other central banks to become less hawkish – postponing the start of the tightening cycle, or even cutting rates,” said Boele. “An environment of easier monetary policy is in general supportive for gold prices because the interest rate difference – between the currency and gold – declines, making gold as a non-interest paying asset more attractive.”

Boele’s comments reflect aggressive expectations growing in financial markets. The CME FedWatch Tool shows that markets are pricing in a more than 75% chance of a rate cut as early as July. For the year, markets see the possibility of three rate hikes.”

A rate cut (cuts?) is the new elephant in the gold living room. If the Fed does get aggressively loose with money before year end gold will soar ($1400.00).

This will present a completely new conversation as to whether our shinny friend can reestablish a base between $1400.00 and $1600.00. Just the conversation will reignite a US market which has been complacent for years.    

This from Zaner (Chicago) – “Global equity markets overnight were mixed with Chinese markets trading minimally lower and most other markets trading less than 1% higher. Overnight economic data included French PMI composite readings for May which came in stronger than the prior month but softer than expectations. However German and Euro zone PMI readings (composite and services) were all better than expected. Even UK services PMI readings for May came in better than expectations and modestly above the prior month. Finally European retail sales for April declined on a month over month basis and the year-over-year growth readings matched expectations but were softer than in the prior month. Producer prices from the euro zone came in much softer than expected in a fashion that hints at deflation. From the North American report slate the trade will be presented with weekly mortgage applications, ADP employment figures (which are expected to decline from last month’s reading) and Canadian labor productivity for the first quarter. Also due out from the US are composite and services PMI for May with both readings expected to come in unchanged. Other developments of note include a morning speech from the vice chair of the Fed, ISM nonmanufacturing PMI from the US and the Fed Beige book in the early afternoon action. Earnings reports before the opening today include American Eagle, Campbell Soup and SecureWorks while ABM Industries, Five Below, United Natural Foods and Mitcham industries reporting after the close.

The gold market has flared sharply higher to start this morning and it has managed that rally without the typical forces of anxiety from equities and the economy and also without significant weakness in the dollar! However the dollar has forged a fresh lower low and appears poised to test the lowest levels in the last 40 days and therefore currency related buying interest for gold is present in some fashion. Certainly the bull camp is basking in the interpretation that the US Fed stands ready to come to the aid of the US economy if needed but in retrospect the Fed was not definitively dovish yesterday. It is possible that gold is drafting some support from news that Venezuela is poised to default on a gold swap with the Deutsche bank as that could signal the beginning of a financial end game for the beleaguered nation. Some traders think gold is benefiting from news that an Iranian oil tanker might have docked in Hong Kong, as that would be a clear violation of sanctions which in turn would in a sense escalate US/Chinese tensions. In the end seeing gold manage a slight gain in the face of a sharp rally in US equities, suggests that the gold market can rally without safe haven conditions. While some market pundits have suggested the economic anxiety event has passed for now, we see no such evidence from the geopolitical front to suggest anything but more trade conflict ahead. In fact, it would appear as if both sides of the trade equation are into marketing efforts by dredging up anecdotal statistics showing the importance of their trade with the other party and therefore there is little sign that negotiation or compromise is taking place.

While the platinum market lagged behind the palladium market yesterday the market has taken over leadership today with a definitive range up extension. In our opinion, the PGM markets fail to present definitively bullish fundamentals and therefore any benefit from a dovish Fed yesterday might be short-lived. A private forecast for palladium projected prices to climb only modestly from current levels and with consolidation resistance from the last month fairly close in at $1,349, the September palladium contract would not appear to have much upside capacity without something surprising from the headlines. The platinum market on the other hand is showing signs of forging a noted upside move early today, but the justification for the rally doesn’t appear to be fundamentally apparent in the early going today. Nonetheless platinum might not have significant resistance until $833 and then again at $836.

While safe haven conditions seem to have moderated over the last 36 hours, the base foundation of uncertainty remains in place and a worsening of US/Chinese trade relations is still an ongoing trend. Furthermore with the Fed generally leaning toward defending the US economy, the dollar also looks to remain under pressure and that should leave control with the bull camp in gold. Critical pivot point support in August gold is seen at $1,336.70 and resistance and targeting moves up to $1,350.70. However, we continue to be conflicted on our silver price opinion as the metal continues to waffle between a spillover safe haven benefactor from gold and a physical commodity market fearful of slowing demand. Critical pivot point support in September silver is raised to $14.77 and the next resistance/targeting is seen up at $14.935.”

Silver closed up $0.02 at $14.75.

Platinum closed down $16.30 at $801.10 and palladium closed down $14.60 at $1322.50. 

This is our usual ETF information – Gold Exchange Traded Funds: Total as of (5/29/2019) was 67,561,256. That number this week (6/5/2019) was 68,536,947 ounces so we gained 975,691 ounces of gold.

The all-time record high for all gold ETF’s was 85,108,867 ounces in 2013. The record high for Gold ETF’s in 2019 was 70,515,544 and the record low for 2019 was 67,430,173

Silver Exchange Traded Funds: Total as of (5/29/2019) was 610,922,441. That number this week (6/5/2019) was 611,170,344 ounces so we gained 247,903 ounces of silver.

Platinum Exchange Traded Funds: Total as of (5/29/2019) was 2,782,373. That number this week (6/5/2019) was 2,789,080 ounces so we gained 6,707 ounces of platinum.

Palladium Exchange Traded Funds: Total as of (5/29/2019) was 690,462. That number this week (6/5/2019) was 683,751 ounces so we dropped 6,711 ounces of palladium.

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