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Gold Falls Asleep 

Gold Falls Asleep 

Commentary for Tuesday, July 24, 2018 – Gold closed down $0.10 at $1223.90 today. Actually traders were talking about a mild short-covering rally early in the trading day but that “rally” looks a bit overstated on this quiet summer close. The obvious problem gold has at the moment is that it continues to struggle with the large drop in pricing which began in mid-June around $1300.00 and continued lower challenging $1220.00 currently.

So that’s the bad news – the good news is that we are looking at least at some interest these first few days of the trading week as the price line flattens out. And there is some bargain hunting beginning to show here in the physical world – lower pricing always moves the downstairs cash and walk in trade.

And we are looking at a traditionally slow summer – hot and uninteresting with the FOMC threat of another interest rate hike getting closer. Their next meeting will be at the end of this month but this is a “minor” get together – the next rate hike will likely come at the end of September a “major” powwow associated with a Summary of Economic Projections and press conference.

They have talked a great deal about “more” interest rate hikes this year and claimed that President Trump’s comments about a higher dollar not being good for business will not dissuade. With this fanfare they better “raise” because if they don’t, for any reason gold will “pop” higher.

For now traders might consider gold “tired” in the “wilderness” – not committed in a meaningful way and trying to get on its feet from the last bear lashing.

But keep in mind that the short paper trade will cut and run at the drop of a hat so most expect a kind of “bouncing around” at the lower end of this minor support. I would not call today’s price firmness a short covering rally – it’s more like a lack luster “bounce” that ran out of gas.

The question at this point is whether the “missing in action” Asian physical business will get back into the act. Hard to say – they and technical traders may be waiting to see if gold continues to break down as it approaches the $1200.00 support line which goes back to 2014.

Another reason no one is waving flags is that the rising bottoms pattern in place since early 2017 has broken down.

So like I said – we are in no-man’s land, most likely for a while waiting for a new dynamic. I’m not so worried about the steep decline ($50.00) this month – that always creates action in the physical world. What bothers me is that this market may turn into a long run of boring days in which prices move up or down in a narrow range.

If you are looking for some speculation consider that equities took the stage today with positive earnings up a whopping 20 percent. And this Friday we will see Q2 GDP. Reports say that number could be above 4%. That would be construed as a negative for metals because of implications for interest rates. However if gold or silver prices don’t come down significantly look for a short covering rally which seems to have lost its way.

The fact that gold is cheap relative to old highs is not enough to create fireworks in the physical trade. Old timers pick up bullion on a regular basis when prices trend lower but the public loses interest quickly because it’s human nature to think the market will continue to trend lower.

I believe gold is already oversold, but at the same time the lack of leveraged financial fear has to make you wonder if Wall Street learned anything from the 2008 meltdown. Taking advantage of cheaper prices always makes sense but don’t let today’s boring “white noise” distract you.  There are more endemic factors which make the precious metals an important stopgap measure against financial calamity than at any time in my career.

Over the last 5 years the price of gold has been choppy – moving on either side of $1250.00. When things heat up it moves to $1400.00 and when things get quiet we drift towards $1100.00. That is not much of a spread considering how important physical gold should be to a financial world still experimenting with large amounts of unbacked paper currency.

Finally even considering this bearish assault on pricing gold is considerably higher than it was a decade ago ($800.00). So longer term planning makes more sense now than ever before.

This from Zaner (Chicago) – “While the gold market forged a four day high early in the trade yesterday it recoiled from that high and drifting back toward a recent pivot point of $1,225 and therefore the bull case remains unimpressive. Unfortunately the gold market overnight spent almost the entire trade under the $1,225 pivot point in a fashion that would seem to give the bear camp the initial edge. The silver market also managed a two day high and fell back from the highs with a slide below a key pivot point of $15.50 in a fashion that also leaves the bear camp with a technical edge. With press reports this week still suggesting a lack of bargain-hunting gold buying interest by Asian customers (despite flat price declines) it is clear that currency adjusted purchasing power of Indian and Chinese consumers has declined so much that the windfall from the last two months flat price slide has been largely mitigated. While the gold market has not paid much attention to classic supply side fundamentals lately, Russian POLYUS released a second quarter gold production jump of 19% to 602,000 ounces from the prior quarter but that news was offset by news of a minimal central bank gold purchase by Mongolia. In short, gold and silver look to be fixated on the action in the dollar and without another slide back below 94.00 in the September Dollar Index, the bull camp might have difficulty lifting prices. Furthermore, gold and silver showed little if any positive traction from a sharp exchange of threats between Iran and the US and the markets also haven’t benefited from talk of Chinese stimulus and that confirms a lack of interest in bullish themes.

With the PGM complex trading higher in the face of noted weakness in gold and silver prices yesterday and the markets extending the positive action again this morning, the bull case is starting to gain respect. In fact, the PGM markets completely discounted a bearish Reuters’ poll suggesting that prices in 2018 will continue to be extremely low and that prices might only recover minimally next year. The Reuters’ poll also suggested that extremely poor demand would continue and given the trade war threat hanging over the global economy, it is tough to argue against that view. However with the Chinese promising fiscal stimulus support for their economy this week, Asian equity markets leading global markets higher and optimism flowing from strong earnings from Google, the environment for the PGM complex today is supportive of the three day bounce off the lows. Furthermore with positioning reports confirming the platinum trade to have built in an excessively bearish condition and the Swiss recently noting a sharp jump in PGM exports to Hong Kong, perhaps the sagging demand threat has been overplayed. On the other hand, on the recent bounce in platinum open interest has declined which might suggest some shorts are banking profits and heading to the sidelines instead of fresh buyers entering the fray. While we don’t find it difficult to believe that a major bottom has occurred, we are a little doubtful that prices are set for anything more than a standard technical bounce. If there is a strong range up extension today that might go a long way in highlighting the importance of the Chinese fiscal stimulus news to the PGM complex.”

Silver closed up $0.09 at $15.46. Physical silver bullion remains well bid in this range and cheap $1000 face 90% bags are attracting attention.   Gold Falls Asleep

Platinum closed up $3.80 at $829.60 and palladium closed up $6.00 at $916.00.

The Unscientific Activity Scale is a “2” for Tuesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Wednesday – 4) (last Thursday – 5) (last Friday – 4) (Monday – 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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