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Gold – Higher into the Weekend

Gold – Higher into the Weekend  

Commentary for Friday, June 19, 2020 – Gold closed up $21.10 today at $1745.90.  Last Friday it closed at $1729.30 so on the week we have gained $16.60 suggesting the bulls have managed a solid finish in the face of higher stock prices and a dollar index which has trended higher since last Tuesday. Gold’s ability to holdup at these higher numbers is mildly impressive when you consider Asian and Russian demand is MIA. 

This past Monday gold showed predictable price choppiness – moving lower on the open and bouncing higher on bargain hunting finally closing down $9.00 at $1720.30. Well above lows on the day which is a plus. The 30-day pricing chart shows gold moving between $1750.00 and $1685.00. Being pushed higher by safe-haven buying or moving lower by profit taking and what might be seen as bargain hunting in US stocks. This love/hate cabal is created because folks are trying to figure out whether our economic recovery is real and getting safer or we will soon face higher virus numbers and a possible 2nd shutdown. The government claims the “second wave” theory is unfounded, but this public uncertainty creates short term price volatility in gold. 

In any event planning for the longer term makes sense because the outcome of these massive stimulus packages is unknown. This explains why recent weakness has been met with bargain hunting. Professionals see a hard ceiling at $1750.00 for now but like the idea that the public is “buying the dip” as this equates to “positive pricing structure”. It is not likely this back and forth action will last long, it will soon resolve itself establishing a longer-term trend.    

Tuesday featured similar gold pricing chop between $1715.00 and $1730.00 finally closing up $9.30 at $1729.60 in spite of a stronger dollar. This is a bit of “quiet time” as Fed Chair Powell talks to the Senate Banking Committee. His comments were upbeat but cautious. Powell has little concern over inflation and the FOMC is now buying corporate bonds (a plus for Wall Street). At the same time May US retail sales numbers are big which does not encourage gold bulls. New interest in the Asian gold market is what this market needs but with the fencing of Beijing to protect against rising virus numbers and new travel bans this seems unlikely.

If you are looking for a “big bang” in gold consider today’s comments (CNBC) by Stephen Roach (Yale University) – MarketWatch – “the rise of China and decoupling of the US from its trading partners is setting the stage for a dramatic weakening of the US currency which is likely to end supremacy of the monetary unit as the world’s reserve currency.” Roach is looking for a 35% decline against dollar rivals soon. This headline that will make the gold bulls smile. Such dollar pessimism is unwarranted but if this were to happen now is the perfect storm.   

Wednesday’s pricing action for gold was like yesterday – narrow ranges, mild sell off and recovery – Powell addressed the House with the same cautionary tone. Overnight pricing in Hong Kong and London was weaker but the domestic market pushed higher as psychology moved between somewhat bearish through somewhat bullish. Depending on how much you believe in the “recovery” or fear the longer-term virus damage. Gold finished the day almost unchanged down $0.40 at $1729.20 and the dollar pushed higher.

Early Thursday the price of gold spiked higher, most likely because safe-haven demand came back into focus as renewed virus outbreaks made the news. But the pricing corrected just as quickly and the domestic trade lost ground – gold finally closing off $4.40 at $1724.80.

So, you can see that we are without a consensus as to short term price direction. Commentary agrees that in the longer term the metals will likely move higher, perhaps much higher but gold’s inability to dominate above $1750.00 took away Thursday’s buzz. And the dollar is hampering gold prices short term as the index moved from 96.5 through 97.5.

A vaccine before year’s end could send gold lower by $100.00 but such a drop would likely be met with a great deal of bargain hunting. A significant breakdown in the DOW would likely be bad for gold short term but good for prices medium to longer term. But I think stocks will remain stable. First, because there is just too much money sloshing around. And second, first-rate companies would offer higher interest rates as investors avoid near zero interest rate banking.

Of course, all of this is speculation – everyone knows that if this monetary train goes off the tracks gold and silver will go through the roof as folks scramble to protect what they have left.

Which leads me to this from Reuters – World’s ultra-wealthy go for gold amid stimulus bonanza – “Nine private banks spoken to by Reuters, which collectively oversee around $6 trillion in assets for the world’s ultra-rich, said they had advised clients to increase their allocation to gold. Of them, four provided forecasts and all saw prices ending the year higher than they are now.

UBS the world’s biggest wealth manager, said gold could hit $1,800 by year-end driven by ultra-low interest rates and investors seeking gold to hedge their portfolios, or even touch a record high of $2,000 in the event of a second wave of novel coronavirus infections.

“With the recent equity rally, people have become more nervous. People are actively seeking out portfolio hedges that might perform well in a range of scenarios,” said Kiran Ganesh from UBS’s chief investment officer.”

Friday’s action was surprising in that I expected a flat to lower opening and typical sell-off and recovery with no fresh news. But in fact, gold was higher from the open and did not run into any overhead resistance until $1740.00. This is important in that if gold breaks above $1750.00 everyone will be rethinking the notion that higher stocks equals lower safe-haven demand. Goldman Sachs raised their year end estimate for gold to $2000.00 and reasserted that “fear” was still the driving force in today’s market. And believes higher gold numbers are in the calculus if inflation moves above the Fed’s target rate of 2%.

Silver closed up $0.34 at $17.83 today.

This is interesting from Maria Smirnova (Sprott) – Consumer Trends Bode Well for Silver

“Silver has been on the move since April, although it is still playing catch up to gold in this year’s precious metals rally. We identify four long-term consumer-driven trends that are positively driving demand for silver, including solar energy, battery-electric vehicles (BEVs), 5G cellular connectivity and antimicrobial applications.”

I would add that prices are beat down relative to old recent highs, so silver remains a bargain. Production is behind the demand curve, pricing discounts of 50% are in place relative to recent highs. Silver is thinly traded meaning that rising demand could quickly result in higher prices.

Platinum closed up $15.10 at $828.90 and palladium closed down $0.20 at $1888.20.   

As always, we appreciate your friendship and business. And if you have unusual circumstances talk with Harry, we may be able to help. Let us be careful out there – stay safe and trust that God’s blessings will protect us all. Richard Schwary

This from Zaner (Chicago) – “Global equity markets overnight were higher with some market gaining more than 1% while the Japanese market closed fractionally lower. While there would appear to be an increase in US/Chinese trade headlines, between the lines it would appear as if the 2 sides worked to achieve something in a secretive summit held in Hawaii. In fact China overnight indicated they would step up purchases of various US items as their economy recovers. Overnight economic news of importance came from the UK where public sector borrowing for May came in larger than expected and retail sales for May jumped by 12%. Not surprisingly UK retail sales for May on a year-over-year basis declined by 13.1% which clarifies the long road of recovery to normal ahead. Producer prices in Japan and Germany were anemic as expected and the euro zone current account narrowed significantly. The North American session will only have one economic number of note, but today is “quadruple witching”, and there is an April reading on Canadian retail sales that is expected to have a sizable decline from March’s -10.0% reading. Boston Fed President Rosengren will speak during morning US trading hours while Fed Chair Powell, Fed Vice Chair Quarles and Cleveland Fed President Mester will speak during the afternoon. Earnings announcements will include CarMax and Jabil before the Wall Street opening.

While the gold market could have seen some pressure this morning from Goldman Sachs suggestions that a decline in “fear-based demand for gold” in the face of recovery might hold back gold prices they also raised their 3, 6 and 12 month forecasts to $1800, $1900 and $2000 respectively. That major trading house also suggested that gold prices materially above $2000 might require inflation readings to rise above the Fed’s 2% targeting. While some might suggest the rapid expansion of infection rates in a number of Southwest US states provides uncertainty and lift to gold, our gut suggest to us that is a limiting force as the fear of a return to lock down in portions of the US would stall growth and delay any chance of reversing the deflationary condition. In a slightly limiting development gold ETF’s sold yesterday 57,588 ounces snapping a recent 6 day pattern of inflows. Countervailing the liquidation of ETF holdings the CME group reduced its gold futures margin by nearly $1000 which could encourage larger positions by some traders. The gold bulls enter the last trading session of the week somewhat disappointed as US jobs-related data yesterday failed to continue the substantial improvements seen in the monthly payrolls earlier in the month and that did not lift gold. In fact it should be noted that more than 30 million are still receiving unemployment benefits in the US, and that should leave a solid foundation of safe haven support for gold and silver. However, from a longer-term perspective, gold looks to end the trading week with a reiteration of tailwinds from the US Federal Reserve generally consistent inflows into gold ETF’s and a potential major storyline indicating that wealthy individuals worldwide are beginning to push money into gold. In a potential confirmation of that increased ultra-rich interest in gold, Switzerland in May exported 126.6 tonnes of gold exported which was the biggest monthly shipment ever. In the near term, the trade will be presented with price measures sales from the UK and price measures throughout Europe which could apply some very modest and temporary selling.

While the palladium market generally remain within its recent sideways coiling pattern, prices have drifted lower and made lower lows throughout the week in a fashion that leaves the edge with the bear camp. In fact, the palladium market failed to draft support from an industry report indicating both PGM markets would eventually post a supply and demand deficit this year. Unfortunately, reports of exploding US used car sales would seem to suggest new car sales might see less demand in the recovery, and that in turn could keep demand for PGM feedstocks low. Downtrend channel resistance in September palladium to end the trading week is seen at $2,001.70 with an early trade below $1,876.50 targeting a lower level of $1,832.20. While the platinum market did not damage its charts as definitively as the palladium market yesterday, the pattern of lower highs remains entrenched and the technical bias is pointing down. As in palladium, a slight moderating of economic optimism and reports of massive interest in US used cars leaves the fundamentals bearish at the same time that mining companies are moving to restart operations with testing of all workers. Close in resistance in July platinum today is seen at $845.60, and it could take a trade above a downtrend channel resistance line at $856.50 to alter the downward track.” 

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