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Gold Firms – Whimsy or Reason?

Gold Firms – Whimsy or Reason? 

Commentary for Monday Jan 9, 2017 ( – Gold closed up $11.50 today at $1184.90 as the dollar trends somewhat lower. The Dollar Index was looking at 102.60 when it got distracted and moved sharply lower in late trading (102.01). This was probably the result of continued confusion as to “when” or “if” the Fed will raise interest rates. There is no doubt in my mind they will raise rates in 2017 but the proposed “two or three” more times being floated will not happen.

We are still getting some traction in the price of gold because new trading in 2017 is “open” to the idea that gold may not be a bad idea after all. This is typical in the trading platform – it moves from very negative to very positive depending sometimes on which way the wind is blowing. Not always of course – this New Year has been dominated by news about interest rate hikes which would hurt the price of gold. This notion initiated another round of selling in the Exchange Traded Funds – even though the future of interest rates remained cloudy.

At any rate, somewhere along the way the trading psychology turned away from “very negative”. MarketWatch posted an article which made good case – the so-called petro dollar would eventually be history if the Chinese have their way – a deal is underway that will allow China and Saudi Arabia to trade oil using the yuan. If this concoction really worked the dollar would lose value – not only lose value but drop like a rock. The price of gold in dollar terms would skyrocket – especially if the US was back to “normal” economic rules. “Normal” being defined as printing too much paper money equals inflation. And at the same time today’s ETF’s seem to be once again moving higher as spec money moves over to the bullish side.

So will all this last or are we just looking at another iteration in the life of the gold bullion buyer? My vote is for the benign iteration – no one has a sound footing because the government is still adrift in its fiscal policy. It is the uncertainty about this whole mess which creates the uptick in gold pricing – no one (even Uncle Sam) really knows. Sure they have reasonable ideas based on the past but this latest experiment has been in place since 2008 and I promise they still have their fingers crossed. This conclusion should be obvious because there are so many different opinions within the Federal Reserve about when to raise interest rates.

The notion that $100 crude oil is a fait accompli because the Trump administration is “pro-petrol” is another of these themes posited from the same MarketWatch source. Now this is really interesting – it would virtually guarantee the return of inflation and bring the gold bulls back to a true state of health. But this too is pretty far-fetched given the state of world affairs and the continued development of new oil drilling technology.

To me this is the flip side of the “peak oil” theory that was popular a few years back. It sounded good (even to me) but nothing every came of it – apparently there is more oil under the earth than the scientists thought.

Not that I’m discounting any of these super-nova’s in the gold price realm. Any would do nicely especially because we are on the cheap side of the price curve. But I’m not holding my breath.

For something a bit more tangible note that England will soon begin taking steps to remove itself from the EU. This will lead to tensions and support physical buying of gold in Europe.           

This from Elizabeth Piper (Reuters) – Hard Brexit is not inevitable, says May – A clean break with the EU’s single market is not inevitable, British Prime Minister Theresa May said on Monday, seeking to clarify comments that pushed down the pound on the possibility of a hard Brexit from the European Union.

She criticized British media for misinterpreting what she described as long-term position on EU talks but the pound failed to recover from a 10-week low and was down more than 1 percent to the dollar and 1.2 percent against the euro on the day.

May, under pressure to offer more detail on her strategy before launching divorce talks with the European Union, said on Sunday in her first televised interview of the year that Britain would not be able to keep “bits” of its membership.

Some commentators saw that as a sign she was heading for a hard Brexit, which business says would damage the economy by breaking links with the single market of 500 million consumers. May shot back that the media was using terms she did not accept.

“I’m tempted to say that the people who are getting it wrong are those who print things saying I’m talking about a hard Brexit, (that) it is absolutely inevitable there’s a hard Brexit,” she told the Charity Commission, a government department that regulates charities in England and Wales.

“I don’t accept the terms hard and soft Brexit. What we’re doing is (that we are) going to get an ambitious, good, best possible deal for the United Kingdom in terms of … trading with and operating within the single European market.”

May’s frustration was clear. The former interior minister, who was appointed as prime minister shortly after Britain voted to leave the EU at a June referendum, is increasingly concerned that Brexit will define her time in power, sources say. In her speech on Monday, she said she wanted her government to help to heal the divisions in Britain that were deepened by the EU vote, and ensure that “everyone has the chance to share in the wealth and opportunity on offer in Britain today”.

She announced measures to boost support to those suffering from mental health problems and said she would do more on housing, education and schooling, but despite applause from the audience, two out of four questioners asked about Brexit.

May has repeatedly said she will not reveal her strategy before triggering Article 50 of the EU’s Lisbon Treaty to start some of the most complicated negotiations since World War Two, but her reticence has spurred scrutiny of her every comment.

She has largely stuck to the script that she wants Britain to regain control over immigration, restore its sovereignty and also to get the best possible trading relations with the EU, but any comment that seems to stray is pored over for signs of how May sees Britain’s future relationship with the EU. Asked whether May had ruled out getting preferential access to the single market in her interview on Sunday, her spokeswoman said she had ruled nothing out or in.

On Monday, May again said she was ambitious before the talks with the EU, which are due to be launched before the end of March.

“But we mustn’t think of this as sort of leaving the EU and trying to keep bits of membership, what bits of membership will we keep,” she said. “It’s a new relationship, we’ll be outside the EU, we will have a new relationship but I believe that can be a relationship which has a good trading deal at its heart.”

Silver closed up $0.16 at $16.68. I have noted this before but it is worth repeating. There does not seem to be much fuss being made over these lower silver prices. Perhaps it is the result of the holiday hangover spending spree or simply price exhaustion on the consumer’s side, but in any case the public is still kicking the tires of the silver bus even at these depressed levels.

Platinum closed up $12.00 at $982.60 and palladium closed down $1.20 at $757.15.

So what’s up with the platinum group metals? Palladium was up 21.6% last year and this year we have already seen a 10.8% rise in prices. Strong car sales have helped push these prices higher and similar demand is expected in 2017. The 2016 palladium shortfall was about 600,000 ounces. Platinum is up about 8% so far this year but 2016 only saw a gain of 1.5%. Platinum can also be used for auto catalysts and as the price of palladium approached the price of platinum you might expect more platinum usage. Also keep in mind that these physical markets are thin in the best of times and with Russian trouble brewing these days look for a possible upside in the usual price dynamic between platinum and palladium.

This from Kira Brecht (Kitco) – Will The Gold “V” Bottom Hold? Watch Momentum – Gold ticked higher in overnight action in London despite modest gains in the U.S. dollar index. Investors are turning back to gold as a safe-haven as uncertainty ramps up ahead of the Inauguration of Donald Trump on January 20.

Gold exchange traded funds reported fresh inflows last week in the wake of the hefty price slide seen since the November 8 presidential election. Investors, policymakers and central bankers remain unsure on how the political, fiscal, and economic landscape will actually shift once he takes office.

In the short-term:  a “V” bottom has formed on the daily Comex February gold futures chart, marking out a minor low at $1,124.30 per ounce. The near-term picture for gold has improved slightly as the metal trades above its 20-day moving average and just scaled its 40-day moving average.

Can Momentum Break Out To The Upside? – Gold has paused and is correcting following the swift post-election sell-off. The jury is still out on whether this is a short-term correction phase or the start of a larger and stronger bottom.

Traders looking for clues on whether the gold rally can continue can monitor the 14-day relative strength index (RSI) seen at the bottom of Figure 1. A useful way to gauge fresh insight into momentum is to utilize trendlines on the RSI, just as on a price chart.

A declining trendline is drawn on the 14-day RSI from the momentum peak, which coincided with gold’s summer high at $1,387.10 per ounce. A strong and sustained push above the declining momentum trendline on the RSI – currently about 58% would be a bullish signal if that were to occur.

Bigger picture:  the Feb gold contract took out its 61.8% Fibonacci retracement of the December 2015-July 2016 rally at $1,182.00 which is a negative signal and ultimately leaves gold vulnerable to a 100% retracement of that rally. That means a potential retest of the $1,055.20 low hit in December 2015.

Scenario A: If momentum breaks out above its trendline and gold sustains gains above the $1,200 per ounce zone – look for a run toward the $1,236 level at a minimum.

Scenario B: If gold retreats below $1,124 –there is risk for a retest of the $1,055 per ounce low.

Scenario C: In the short-term, consolidation emerges between resistance at $1,200 and support at $1,124 per ounce. Markets are shifting into a “wait-and-see” mode with the U.S. presidential inauguration only days away.

Please note we will be closed this coming Monday (Jan 16th) for the Martin Luther King holiday.  

The walk in cash trade was quiet today – the LA rain is responsible – the phones also took a vacation.  

The Unscientific Activity Scale is a “4” for Monday.

The CNI Activity Scale takes into consideration volume and the hedge book: (last Tuesday – 4) (last Wednesday – 4) (last Thursday – 5) (last Friday – 6).       

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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