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Gold Fails to Push Higher

Gold Fails to Push Higher

Commentary for Monday, March 5, 2017 – Gold closed down $3.00 at $1318.10. This should tell you that gold traders remain confused – gold moved higher by $18.20 on Friday as President Trump threatened tariffs. Typically tariffs are inflationary in that they keep cheap products (subsidized by governments) away from buyers.

So the big question is whether the President is serious or is he just talking because we want concessions from the Chinese and NAFTA talks begin today. I don’t know what to make of this latest salvo from the White House – he sounded serious Monday morning but gold could not develop further momentum – which is technically disappointing.

This market has to develop some buzz at the higher end of this most recent trading range or once again been doomed to consolidate – or worse. The good news is that we have only lost a couple of dollars from Friday’s close – the bad news is that even with Friday’s pop and tariff talk bullish traders see momentum slipping away.

This now choppy trading pattern should look familiar – it’s actually typical as traders wait on what the FOMC will do with interest rates in late March. This can be seen in the 60 day chart pricing as traders tested $1350.00 – looking to break higher. And failing – tested $1320.00 trying to develop a bearish scenario. This “feeling around” happened on two occasions and may continue until what is really happening becomes clear.

For now it would appear gold is back to its old holding pattern – waiting on what appears to be an increasingly hawkish Federal Open Market Committee and ignoring the implications of further tariffs.

The only way this makes sense is that traders may believe Trump will back down from this protectionist policy. This makes the most sense but I would not want to play poker with this President – he might just be serious and there is precedence.

With today’s pricing you would think that the dollar is trending higher but actually this is not the short-term case. The Dollar Index move from 90.85 through 90.00 late Friday reflecting the tariff talk and Wall Street sold off.

But the index has settled around 90.00 through Monday perhaps suggesting that better economic numbers will win the day and the Federal Reserve will raise interest rates a quarter point in a few weeks.

This higher interest rate scenario is a threat to the bulls – if gold breaks down at $1320.00 the next supporting region would be between $1280.00 and $1300.00. Still higher interest rates might introduce a test of $1280.00 and then perhaps even $1240.00. These lower numbers however might bring in serious bargain hunting and the Fed itself has held for some time now that their plan for higher rates is long term.

Yet the fear of the FOMC higher interest rate program has been on the table forever – everyone has talked this into ground and yet gold still moved from $1240.00 this past December through $1360.00 by late January.

Granted the market has fallen back some $40.00 since then and turned choppy – but is this simply consolidation waiting for the next bull push towards a break above $1360.00 or are we looking at an increasingly tired gold trade which has run out of gas and is in need of fresh news.

This from Zaner (Chicago) – “Overnight the gold market found some mild support from political uncertainty in Italy and from ongoing concerns over a trade war spurred on by the announcement last week that the US would impose tariffs on steel and aluminum imports, but the market was still not able to decisively punch through the 50-day moving average that has held it in check for the past three sessions. Silver failed to punch through similar resistance as well. Trade concerns are less supportive to silver because its industrial usage plays a bigger role in determining its price. China’s gold production fell 6.03% in 2017, which is supportive longer term, but India’s gold sales dropped 30% in the past week, which could mean lower demand near term. Dealers in India are citing higher prices and the halt to the wedding season for the drop in sales. The wedding season is due to resume at the end of March. The Commitments of Traders Futures and Options report as of February 27th for gold showed non-commercial traders were net long 183,522 contracts, a decrease of 23,704 contracts for the week. Non-Commercial and nonreportable traders combined held a net long position of 204,866 contracts, a decrease of 26,099. For silver, non-commercial traders were net sellers of 6,092 contracts on the week, bringing them from a net long position to a net short of 2,568. Non-commercial and nonreportable combined were net long 14,364 contracts, a decrease of 4,621. We would describe the spec position in gold asGold Fails to Push Higher “balanced,” in that there could be plenty of room for aggressive buying once the funds get interested. Silver specs are close to fully liquidated.

Platinum and palladium hovered near the lower end of last Thursday’s range overnight, as the markets were still dealing with the shock of last week’s tariff announcements. The tariffs on steel and aluminum would raise automobile costs, and this could hurt demand for auto catalysts. Last week was brutal for these markets, with palladium falling more than $90 from Monday’s high and platinum down more than $50. Negative risk sentiment, sluggish February vehicle sales totals and caustic trade rhetoric have been all sources of pressure on the PGM’s. However, there are some tensions in the South African and Zimbabwean mining sectors that could help platinum regain the upper hand on palladium early this week. The Commitments of Traders Futures and Options report as of February 27th for platinum showed non-commercial traders were net long 42,909 contracts, a decrease of 622 on the week. Non-commercial and nonreportable traders combined held a net long position of 48,621 contracts, a decrease of 427 contracts. For palladium, non-commercial traders were net long 16,947 contracts, an increase of 19, and non-commercial and nonreportable combined were net long position 17,764, a decrease of 44.”

Silver closed down $0.05 at $16.34. The Gold/Silver Ratio is now above 80 – since 1972 the average ratio has been around 52. That implies silver is cheap relative to gold. Silver also stands to benefit from a growing global economy because it is used in so many consumer products. Solar alone will account for about 100 million ounces of demand.

Platinum closed down $3.00 at $960.60 and palladium closed down $8.10 at $987.35.

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