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Gold Drifts  

Gold Drifts          

Commentary for Monday, May 14, 2018 ( – Gold closed down $2.50 at $1316.50 in sleepy trading. It held steady last night in overseas and early domestic trading but sold off reaching session lows before the closing bell in the late domestic market. Quiet would be the word for today – the problem being that gold has seen too many “quiet” days this past month after it sold off from early April highs ($1350.00).

And it’s not like there is nothing going on – oil prices have been higher lately pushed by Iranian/Israeli tensions. And there is the re-implementation of sanctions by the US on Iran this also keeps crude off the world stage and most look for push-back of some kind. Inflation is on the rise but the fear of inflation remains absent. And trade talks will resume this week between the US and China – still crickets.

Are we going up or going down is a sensible question and at this point the jury is out although it’s obvious gold has lost momentum and the broader audience it enjoyed since late December.

There is plenty of negative gold press – higher interest rates – solid stock market – little flaring trouble on the international front – improving US economy and low employment. I think everyone has that memorized but what is at the back of everyone’s head is straightforward: If everything is so good why is gold still trading above $1300.00?

The $1300.00 number is an enigma – it’s high enough to attract attention but not low enough to spark significant physical trade.

Today’s small sell off was the result of a strong dollar. The Dollar Index was actually weaker most of the day trading 92.52 through 92.25 and then up jumped the devil – we moved from session lows at 92.25 to session highs of 92.60.

So what’s driving the dollar? Actually that too is somewhat of a puzzle although some would say that an aggressive FOMC is behind the curtain.

This from MarketWatch – “While the dollar bounced back in the second half of Monday’s U.S. trading session, some analysts are still calling a top for the dollar. The currency had outperformed its rivals in April and early May before its winning streak briefly ended, with the ICE dollar index gaining a whopping 1.9% in April, the biggest monthly rise since November 2016 when Donald Trump won the U.S. presidential election. Still, many a strategist had attributed the dollar rally as an unwinding of short-dollar positions rather than a fundamental reversal.”

So add this to trader’s consternation – some believe the dollar is oversold and this makes a better case for higher gold prices. This lingering reasoning may be responsible in part for the reason gold’s close today ($1316.50) it higher than its 200 Day Moving Average ($1306.00).

From a physical standpoint – across our counter the buying action in gold eagles is no big deal and certainly not representative of a world financial system in trouble. By the same token the selling action is also muted – a few hundred gold coins would now represent a “large” deal on any given day. So the whales are not selling but the general public might just be tired of this back and forth market. This feels like an early summer slowdown.

This from Zaner (Chicago) – “The bull camp ought to feel fortunate in that a slight decline of incendiary Middle East developments has been substituted by noted weakness in the dollar. Yet, more weakness in the dollar overnight did not seem to lend too much support to the precious metals. For now, gold and silver traders probably have to become currency analysts, as the dollar could be the primary driving force for prices. Recent data and ed commentary have left the dollar in a corrective track. It may take a decline below 92.00 in the June dollar index to get gold to extend above $1326, the pivot point of the 2018 consolidation. The weaker dollar could also help July silver hold in the upper third of the trading range it has been in since February. It should be noted that at the end of last week total gold derivative holdings reached their highest level since June 2013. In fact, ETFs increased their gold holdings by 109,348 ounces and silver holdings by 229,885 last week. The most recent total gold tally was 58.07 million ounces. The bull camp might also be cheered by the fact that the spec and fund net long net in gold was only moderately extended at 133,214 contracts as of May 8th. The net long in silver has shown some expansion recently but it remains very balanced at 16,970 contracts net long.

Both platinum and palladium were firmer overnight, but they had not managed to move above Friday’s highs by late in the session. By the end of last week, palladium was showing signs of being overdone at the psychological level of $1,000. However, Friday’s COT report showed that as of May 8th, the spec and fund net long position was 10,752 contracts, well below the record of 30,209 contracts from 2013. Unfortunately for the bulls, the market gained another $40 after since the COT data was collected. We see a near term trading range in June Palladium bound by $934.40 and $1,003.70, unless wage negotiations with the National Union of Mines in South Africa bring in a counteroffer from the mining companies that prompts strike threats. Other headlines that could prevent a normal correction from the May rally could be Russian aggression in the Middle East that results in US sanction threats or fresh Chinese demand headlines. While the platinum market is also overbought with the recent, it remains in the lower half of the April-May range. Furthermore, the spec and fund net long in platinum of 15,854 contracts is very low compared to the record of 61,208. Still, one could suggest that platinum fundamentals are not very compelling and that supply/demand elements lag behind palladium. As if to underscore this, a private metals consultancy is expecting palladium to see a physical supply deficit in 2018 for the seventh year in a row, while platinum is expected to see a modest surplus for the fourth straight year. A normal corrective setback in July platinum would allow for a retrenchment down to $916.30, while a similar corrective setback in June palladium off the May rally could allow for a dip to $977.20.”

Silver closed down $0.11 at $16.57.

Platinum closed down $10.90 at $911.50 and palladium closed up $10.50 at $997.90.

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