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Gold – Higher and Higher?

 Gold – Higher and Higher?

Commentary for Friday, May 7, 2021 ( – Gold closed up $15.60 at $1831.10 and silver closed unchanged at $27.46 and silver closed unchanged at $27.46. Gold extended its late week rally today and is having its best week since November of last year after an unexpected drop in US jobs growth in April hastened a retreat in the dollar and US Treasury yields according to Reuters. I am not concerned that silver did not follow suit considering Thursday’s large jump in pricing. Physical availability of both metals is still lacking.

US jobs growth slowed in April amid labor shortages – which will get the attention of those looking for further confirmation of rising inflation. The idea here is that labor shortages suggest that employers will raise the wage ante in an effort to build their workforce in anticipation of the post pandemic recovery. Last Friday gold closed at $1767.30 and silver closed at $25.85. On the week we are up $63.80 in gold and $1.61 in silver. 

Unfortunately, the delay for some bullion products is getting longer. Especially 2021 US Gold and Silver Eagles and .9999 fine silver rounds. Best guess – 4 to 8 weeks coming from the manufacturer. Should you decide to use our Delayed Delivery Program please talk with your service rep and understand how this program works. It is handy if you want to lock in the price “now” but is not for everyone. Just like us – you must pay upfront to “lock in” prices and you can’t “change” your mind. So, unless God has blessed you with patience, please ask your rep for other options and thank you for your understanding.

Gold Monday was surprisingly active in the overnight Hong Kong market. And this enthusiasm carried over into the domestic trade as gold jumped towards $1800.00. Considering last week’s action was quiet this sudden interest should get everyone’s attention and further enhance gold’s positive technical picture.

It is curious that the reasoning behind today’s 1% jump in the price of gold is not readily apparent this morning. The Dollar Index and treasury yields are somewhat lower but not enough to explain a $30.00 jump in price especially after a quiet weekend.

It is possible that persistent inflation talk has moved from something vague and out of focus to something more tangible as world central banks continue pouring fiat currency into a closed system. But this scenario has been around for more than a year and has failed to sound the alarms to date because the Fed continues to use the word “transient” when it comes to inflation.

Neils Christensen (Kitco) suggests gold might be caught in the middle of opposing views. Treasury Secretary Yellen is downplaying inflation fears as President Biden proposes nearly $6 trillion to support American families and rebuild the nation’s infrastructure. While Berkshire Hathaway’s Warren Buffet is seeing very substantial inflation.

The magnitude of India’s Covid catastrophe is overwhelming. And has depressed physical demand in that country as premiums move lower. Perhaps this tragedy has once again underlined the fear factor that drove gold to all-time highs when the pandemic was in its early stages. Yet, the World Bank is not excited about gold prospects this year but likes both silver and platinum.

Michael Matousek (US Global Investors) suggests in a Reuters comment that strong economic data can push gold higher as it means inflation will go higher. “We need to see gold get above the $1,800 level and sustain it for a little bit, and then it could be off to the races for $2,000.” His admonition about overhead resistance is important – we saw this pattern fail 2 weeks ago.

This jump in price could be a knee jerk reaction in an oversold market. Gold did settle on the close which has been typical. Or a fine example of “pile-on” paper trading in a fidgety momentum market. I agree with Matousek – look for sustaining price confirmation before making the case that this may be the beginning of an inflationary ride. On the day gold closed up $24.10 at $1791.40 and silver closed up $1.09 at $26.94. 

Gold drifted lower on the opening Tuesday – reversed direction at $1780.00 and moving towards $1800.00 despite a gently rising dollar. But once again failed to break through, and finally gave up half of yesterday’s gain. This technical struggle is the main worry on the short term.

Yesterday’s notion that gold moved higher over an inflation scare is still in place but faulty in my mind. Get used to plenty of mixed signals and plenty of scenarios. Treasury Secretary Yellen’s comments about rising interest rates now seem to defy Powell’s position but were all that was necessary to rain on today’s improving technical picture. It may be more helpful to simply watch gold’s chart pattern and realize that on the short-term – uncertainty rules.

Today’s failure to move above $1800.00 does detract from the inflation scenario. Even though physical demand continues to impress as Perth Mint posted their strongest gold sales since March of 2012 and smaller operations have been backlogged for months.

Gold remains threatened by dollar strength. With US infection numbers lower the pandemic recovery looks good, consumer confidence solid, and America is eager to move on from this nightmare. All of this bodes well for dollar strength, which challenges higher gold prices.

If you are a traditionalist today’s monetary policy is a train wreck although not many would argue that such draconian measures were necessary under the pandemic. But the question remains – can the US and other central banks make this Rube Goldberg work?

My glib observation notwithstanding – the cartoonist Reuben Garrett Lucius Goldberg was also an engineer and Pulitzer prize winner. Famous for drawings which illustrate machines performing simple tasks in indirect and convoluted ways. My point – maybe Powell and his friends do not have a problem with Goldberg thinking and are proud of their convoluted but workable plan. A plan that would unwind this monster, avoid inflation, and present a happy ending. I sure hope so but would insist on a small gold insurance policy just in case. On the day gold closed down $15.60 at $1775.80 and silver closed down $0.40 at $26.54.       

Gold drifted lower in early trading Wednesday but once again pushed into the green as the dollar stabilized – approaching a two-week peak. Today Yellen was busy unwinding her hawkish comments of yesterday – there is still talk among the FOMC rank and file that it may be time to consider “tapering”. This fixation on what the Fed might do remains a drag on gold prices.

It is fair to say that gold has a positive short term technical picture but is vulnerable in the absence of fresh news as the $1800.00 over resistance is formidable.

Gold ETF numbers are moving higher. Bloomberg’s recent interview with Sam Zell may be seminal. Sam is 79 years old and has been part of the “anti-gold” investing public all his life – his choices made him a billionaire. He now sees inflation reminiscent of the 1970’s in his businesses and is buying physical gold for the first time.

Still this market continues to punch at shadows – one day worrying about interest rates, the next day about rising inflation. Add to this volatile mix falling demand in India because of their pandemic disaster. Or China’s explosion of raw material prices as this manufacturing giant comes back to life and it is easy to see why gold prices remain unpredictable. Gold on the day closed up $8.30 at $1784.10 and silver closed down $0.04 at $26.50. 

This is interesting from Paul Gilkes, Coin World (Apr 27, 2021) – Bullion coins WOULD BE EXEMPTED from taxation on capital gains and losses if proposed legislation is passed by Congress – Rep. Alexander X. Mooney, D-W.Va., is seeking to legislatively amend the Internal Revenue Code of 1986 to clarify that gain or loss on the sale or exchange of certain coins or bullion is exempt from recognition. On March 29, Mooney introduced H.R. 2284, which was subsequently referred to the House Ways and Means Committee for further consideration.

The proposed Monetary Metals Tax Neutrality Act of 2021 would amend the tax code by exempting from recognition any gain or loss from the sale or exchange of “gold, silver, platinum, or palladium coins minted and issued by the [Treasury] Secretary at any time, or refined gold or silver bullion, coins, bars, rounds, or ingots which are valued primarily based on their metal content and not their form.’’ If Mooney’s proposed legislation is approved by both chambers of Congress and signed into law by President Biden, “the amendments made by this section shall apply to sales or exchanges after December 31, 2021.”

Gold Thursday opened flat but surprised – pushing above $1810.00 as the Dollar Index lost half a point. MarketWatch – “The precious metal’s rise above the key price mark is “quite something for gold,” Ross Norman, chief executive officer at Metals Daily, told MarketWatch. “Over the last three weeks, it has attempted these levels five times unsuccessfully, which further reinforces the strength of the resistance level,” he said. “The key issue – the nominal 10-year Treasury yield has been edging lower and the real yield looks like it is headed back to -1% again.”

This is the kind of fresh news gold needs to rally its base. And there is no arguing with higher prices as gold is at a 10-week high and silver at a 9-week high. But keep in mind that overhead resistance is fearsome between $1800.00 and $1850.00 and then again between $1850.00 and $1900.00. To accomplish this long climb gold will need a weaker dollar (not likely during the pandemic recovery) or a real inflation scare. Inflation talk has been more of a consideration lately but is still dancing around the edges of the gold price conversation.

Is inflation a big deal or a small deal? It is always a big deal for gold but until recently has been ignored. It is now getting more attention, which obviously fuels higher speculative prices in the metals. I suppose this issue has been buried in part because today’s “inflation” is confusing in that the Fed continues to call higher prices “transitory”.

This from Zaner (Chicago) – “Unfortunately for the bull camp gold and silver have not displayed significant interest yet in inflation, but this morning lumber prices hit new all-time highs, copper prices are at 10-year highs, corn, soybeans, and wheat are at 8-year highs, soybean oil is at 13-year highs, coffee is at a 4-year high, hogs are at 7-year highs and various stock market components are at all-time highs.”

A technical or momentum price updraft like today will need a weaker dollar or inflation scare to sustain pricing. Both are possible even likely – given time. But neither is fully developed. And without these two key changes gold will be subject to large price swings both up and down. Today’s higher pricing should not be a revelation – it is just higher pricing. On the day gold closed up $31.40 at $1815.59 and silver closed up $0.96 at $27.46.

Gold on Friday again surprised as the market opened flat ($1820.00) and then jumped $20.00 pushing above $1840.00 before settling somewhat on the close in what looks like a mild round of profit taking going into the weekend. Why? A good guess would be the Bloomberg commodity index. Which has moved back to within 7% of all-time highs posted 10 years ago.

Today was not all good news for the bulls in that both gold and silver ETF outflows continue. But it is clearly punching higher and is in the position to challenge the formidable $1850.00 overhead resistance. Gold is only up $100.00 this past year but $75.00 of that has happened the past month! So, a round of profit taking should be expected – at the same time, analysts are now talking about $1900.00. Which is so typical of the metals – either everyone is “is” or “out”. This has been my experience these past 40 years, excluding old timers and real believers. These are same people we have seen for decades who always buy the dips. Next week may turn into a volatile cowboy show. But would guess there are not many “short” players left in the speculator ranks. On the day gold closed up $15.60 at $1831.10 and silver closed unchanged at $27.46.   

Silver closed unchanged at $27.46.                               

Platinum closed down $3.20 at $1252.30 and palladium closed down $22.30 at $2929.10.                   

My Brothers and Sisters, we always thank you for your business and fellowship. If you have unusual circumstances, need cash or are looking for a special visit – talk to Harry. Many on our staff have now received the vaccine as we continue to enforce rigid safety standards between people and product. Be careful, this virus remains a danger. At the same time trust that God will soon get us back to normal. Richard Schwary

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