Gold – Firm on Rising Momentum
Commentary for Thursday, April 1, 2021 (www.golddealer.com) – Gold closed up $12.70 today at $1726.50. A reminder we will be closed tomorrow April 2nd for Good Friday. Gold opened firm but choppy and quickly moved higher as strength in the dollar and bond yields tapered. There are other reasons gold prices remain firm. What looks like a solid double bottom in gold will encourage the still dreary technical outlook and follow through from yesterday’s momentum suggests bargain hunting and perhaps renewed worry over the inflationary consequences of the President’s multi-trillion-dollar infrastructure plan. The politicians are calling this plan an “investment” which always gives me pause. But my Christian better self will assume good intentions if they at least try to explain what happened to all our tax money collected for this specific purpose which was mysteriously highjacked for other purposes. This past Friday gold closed at $1732.20 so on the week gold was off $5.70.
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Gold opened choppy Monday but quickly fell out of bed as the bears roared and prices touched $1705.00 before catching a bid. So once again the technical guys were right in expecting lower prices as gold struggles against a strong dollar, rising Treasury Yields and continued pressure from ETF selling. With today’s immense government spending the consensus agreed that the dollar should be moving lower and gold trending higher. But since January gold prices have been trending lower and the Dollar Index has pushed higher by an amazing 3 points. This from MarketWatch – So why is the dollar rising instead? At the top of the list, analysts said, was Europe’s struggles with rolling out COVID-19 vaccines. A rise in infections and new and extended business lockdowns in several European countries are weighing on economic growth expectations for the eurozone, translating into weakness for the formerly robust euro. “The dramatic divergence of European and U.S. growth expectations is a legacy of poor management on this side of the Atlantic and will leave scars in market pricing,” said Kit Juckes, a London-based macro strategist with Société Générale, in a note. “Consensus forecasts look for 2021 eurozone GDP growth to be 1.5% slower than in the U.S., a relative deterioration of 3% since last September and 2.2% since the end of 2020. That gap needs to stop widening, at the very least, before it’s safe to sell the dollar again.”
Of course, this does not tell the entire story. Gold ETF numbers continue lower but actual physical gold demand across our counter remains firm and in fact surprisingly strong considering all the bad news our shiny friend has been subjected to this past year. The fact is that Americans and countries with weak currencies like these lower prices. And are willing to do some bargain hunting based on the notion that immense government social programs both here and in Europe will eventually lead to inflation and higher gold prices. Still, this latest drop has been severe enough to suggest a new test of recent lows ($1680.00) but any fade in the US dollar and we will bounce just as dramatically higher. The good news is that today’s weakness will either confirm or negate that recent low. For now, the gold bulls continue to fade, and bears have taken over the woods. On the day gold closed down $20.10 at $1712.10 and silver was off $0.34 at $24.75.
Gold continued lower on Tuesday as bond yields surge and the dollar moves higher. The Dollar Index this morning (93.4) is approaching a 6-month high and consumer optimism soars on continued hopes of a quick recovery. The breakdown of gold pricing at $1700.00 is unfortunate but not unexpected in a technical sense. We have seen a series of lower highs and lower lows since early January. The question today is whether our shiny friend will hold up at the important $1680.00 level as safe-haven demand diminishes in a post-pandemic world.
The obvious “other demand shoe” being inflation. Which is still not in place although perhaps foreshadowed by our rising gas prices and higher inflation numbers in Germany. Also consider the notion that the Fed will have to eventually “do something” to halt rising interest rates. This is a paper tiger, but a concern for traders because rising interest rates create a stronger dollar and present a dilemma for Wall Street. So, there are cross winds even in a technically bearish market.
One of the interesting anomalies in this market is that while falling paper prices have encouraged continued ETF selling, we have seen little in the way of physical selling to us across our counter or from established IRA accounts. I also believe that gold prices below $1700.00 are embraced by the Asian trade which is a big plus. This is a short trading week because of Good Friday so don’t be surprised if trading quiets down through the Easter weekend. Gold did catch a weak bid today at $1680.00 which helps but it is too early to consider an oversold market. I have a feeling that the bottom of this market however is closer than most might expect. It sometimes works that way when most of the commentary is negative. That is the psychological part, the fundamental part is that the case of higher inflation remains in place. On the day gold closed down $28.20 at $1683.90 and silver closed down $0.63 at $24.12.
Gold opened surprisingly strong on Wednesday pushing to higher ground as the Dollar Index turned choppy to lower losing about half a point. The bounce was large enough to suggest some bargain hunting at these lower levels and perhaps a tenuous short covering rally. The paper trade is so highly leveraged that any sentiment shift in the trading wind creates this kind of turbulence. So, is gold going “up” or “down”? Technically the pricing picture remains bearish as gold has given up the big gains which piled on during the pandemic crisis. And it continues to ignore a rapidly expanding money supply, so your reasonable doubt is common and suggests good stewardship. Still, it makes sense to watch these prices carefully. We are already trading at a big discount to highs in both gold and silver. And if I have learned one thing in this business it is that nothing goes “down” or “up” forever. Titanic financial forces are at work today, perhaps stealthier than in the pandemic days but none the less dangerous. Gold and silver bullion will always play an important part under these circumstances. On the day gold closed up $29.90 at $1713.80 and silver closed up $0.40 at $24.52.
Gold on Thursday drafted on yesterday’s momentum moving higher on what appears to be tapering dollar strength and bond yields. And while this provides needed breathing room for a still technically bearish gold scenario it also suggests continued short covering most likely reacting to gold’s recent double bottom. Today’s push above $1720.00 is an important first step in helping the bullish scenario. But the bears remain in charge until gold moves above $1750.00. Today’s rally lost steam at $1730.00 as the market continues to sell into strength. Continued higher numbers in gold will require fresh news break this pattern. Perhaps a weaker dollar and sliding bond yields (my best bet) or further interest by sideliners buying cheaper gold or fresh safe haven demand as Covid lockdowns continue in Europe. On the day gold closed up $12.70 at $1726.50 and silver closed up $0.42 at $24.94.
This from Anna Golubova (Kitco) – “Gold’s ‘strongest price rally’ is coming: Wells Fargo’s 2021 target is $2,200 – Investors could still see some of the strongest price action in gold this year, according to Wells Fargo, which sees signs of a developing rally. The driver behind this new spark in prices is diminishing supply growth. And it could get gold up to $2,200 an ounce this year, said Wells Fargo’s head of real asset strategy John LaForge. “Gold supplies have flipped from excessive to deficient,” LaForge said in the latest update. “Such times in the past have sparked some of gold’s strongest price rallies.” Due to “excessive supplies,” gold prices have had a difficult time prior to 2018, LaForge pointed out. “Supply had become excessive in 2011 because gold prices had surged from $250 to $1900 per ounce, during the decade from 2001 to 2011. Many investors were looking for gold during this decade, and they all seemed to find it,” he wrote. However, this picture has shifted in the past three years, with gold supplies moving from “excessive to deficient.” This is why Wells Fargo has turned positive on gold. “Such times in the past have sparked some of gold’s strongest price rallies. We believe gold could be on the eve of a new commodity bull super-cycle, which would be only the seventh since the year 1800,” LaForge said. “Gold prices have climbed over 40% since 2018, and we believe that more gains lie ahead.” Aside from the supply argument, gold will also be driven by its more well-known trends, including low real interest rates, money printing, and a weaker U.S. dollar, according to Wells Fargo. “These trends remain largely intact, and we remain gold bulls with a 2021 target range of $2,100 to $2,200.”
Silver closed up $0.42 at $24.94. We continue to sell everything on the silver shelfs.
Platinum closed up $17.70 at $1206.20 and palladium closed up $35.90 at $2653.40. We set new records in selling platinum bullion this week, not sure why but there is plenty of action.
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This from John Miles (Zaner / Chicago) – “Global equity markets overnight were all higher with gains reaching as high as 1.2%. The North American session will start out with the March Challenger job cut survey followed by February Canadian building permits which are forecast to have a sizable downtick from January’s 8.2% reading. A weekly reading on initial jobless claims is expected to have a modest downtick from the previous 684,000 reading. Ongoing jobless claims are forecast to have a moderate weekly decline from the previous 3.870 million reading. March readings for the Markit US manufacturing PMI and Markit Canadian manufacturing PMI are both expected to have modest upticks from their previous readings. February construction spending is forecast to have a moderate downtick from January’s 1.7% reading. The March ISM manufacturing index is expected to have a modest uptick from February’s 60.8 reading. Philadelphia Fed President Harker and Dallas Fed President Kaplan will speak during afternoon US trading hours.
We see the price action on Wednesday as some form of bottom action in gold and silver. Clearly, the rally in gold and silver (and many other physical commodities) were the result of the Biden stimulus/infrastructure program announcement, which came in above $2 trillion. Therefore, it is not surprising to see a glimmer of reflation action in gold and silver again, but in the early going today the bullish buzz has been tamped down slightly. Therefore, the bull camp probably needs to see positive US jobs related data to facilitate the inflation theme and igniting inflation requires underlying growth in the economy with excess stimulus applied. In fact, with the June gold contract forging a double low at $1,678.30 yesterday and open interest falling 10,000 contracts in the prior 4 trading sessions, it is possible that the weak-handed longs have been removed and bargain-hunting buying has returned. Even the supply-side of the equation might have turned positive with the South African National Union of Mineworkers indicating it plans to seek a pay hike of at least 15% in a three-year wage deal. The gold miners are probably set to be aggressive with the mining companies as high gold prices last year improved the profitability of the mining companies. On the other hand, gold ETF holdings yesterday declined for an 8th straight session, and the ongoing outflow of investment dollars might not reverse until the gold market posts a series of noted gains. While Wednesday’s action suggests gold is tracking in-sync with good economic numbers and higher equities that premise needs to be confirmed over the next 2 trading sessions. In other words, if gold and silver are set to benefit as physical commodities facing demand improvement conditions, prices need to show additional strength through important jobs related data today and on Friday when many US markets will be closed for holiday! It should be noted that gold prices managed to rise despite some downgrades in gold price projections for 2021. In what could be considered a positive longerterm development, the world’s #3 gold producer AngloGold has apparently shunned consolidation overtures from Barrick and Sibanye and we see that as a sign that it sees current gold assets as undervalued. In the event of a continuation of risk on and strength in gold after the data, the first upside resistance is pegged at $1,747.10. The silver contract extended a pattern of lower highs and lower lows yesterday with the charts offering little in the way of support until $23.79. Like gold, the silver bull camp needs help from improved physical demand expectations, and the quickest way to that view is for a continuation of favorable US jobs related data this week and more strength in equities. It should be noted that the 200-day moving average in May silver sits just above the market at $24.96.
The June palladium contract recovered and extended the bounce from the midweek low and would appear to have little in the way of resistance until $2,649. Unfortunately for the bull camp, this week’s recovery rally has been forged on declining volume and open interest, in a possible sign that the trade is not rushing to the market in large numbers. However, as we noted in coverage earlier this week, a large South African fund has reportedly plowed $7.4 billion into PGM assets and that should spark some bullish buzz. However, Tuesday platinum ETFs saw an inflow of 6,317 ounces bringing the year-to-date gain up to 2.1%, but ETFs yesterday dropped a very minimal 67 ounces. Furthermore, it should also be noted that palladium ETFs saw inflows of 2,755 ounces on Tuesday and an outflow of 544 ounces yesterday putting the year-to-date gain at +1.6%. From the supply-side of the equation, it should be noted that the South African National Union of Mineworkers is seeking a 15% wage hike from gold miners and the South African electric utility. Given the dire financial condition of the South African power utility, it is unlikely that a wage increase many multiples of current inflation of 2.9% will be possible. On the bull camp side of the ledger overnight Bloomberg indicated that a major Russian PGM player thinks the global palladium deficit will extend deeper into 2021 with the deficit rising to 812,000 ounces versus last year 660,000 ounces! The Russian mining concern also indicated the platinum deficit is likely to remain in place this year even though the deficit could narrow from 390,000 ounces to 245,000 ounces. In short tight supply looks to remain in place and that could be compounded in the event that physical/industrial/jewelry demand picks up.
We think gold and silver markets forged temporary lows yesterday with the markets possibly correlating tightly with global equities in the coming trading sessions. As indicated already, we see support in June gold at yesterday’s double low of $1,678.30 with similar key support in May silver seen at $23.98. However, we think gold will diverge with silver ahead, with gold stronger than silver on rallies, and silver leading on the downside given that it failed to show strength in the face of the release of the Biden spending plan.”
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