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Gold Ignores Crude Oil

Gold Ignores Crude Oil

Commentary for Friday, June 22, 2018 ( – Gold closed up $0.20 at $1267.40 today – the Monday close was $1276.20 so on the week gold has moved down $8.20 – not exactly a fireworks show.  The OPEC decision to raise output production by a million barrels is probably welcomed by President Trump but that number is not likely to happen because many of the producing nations are either blacklisted or approaching maximum capacity.

CNBC thinks the number will be more like 600,000 barrels – not enough to materially change growing demand from places like China and other manufacturing giants. So crude oil moved higher and so did gold initially before settling back to unchanged – New York Spot moved between $1267.00 and $1270.00 so a sleepy and somewhat choppy market into the weekend.

The technical picture for gold remains defensive and the 30 day pricing chart is not bullish. A month ago gold broke down from the relatively stable $1300.00 range and quickly moved toward $1260.00 – this week’s low close being seen yesterday at $1267.20.

The lack of strong Asian physical demand should tell you they are waiting for still cheaper prices. I think the bigger question however is whether the technical guys will suggest that $1280.00 price support going back to last summer has been breached. If so the next stop for our shinny friend will be a test of the $1220.00 / $1240.00 support. For now the jury is still out but this question might find an answer as early as next week.

I think this market is however now oversold – it just feels heavy because we are slugging our way through typical summer conditions over the counter.

Yes the FOMC will raise rates perhaps twice before Christmas – look for a hike September 26th and December 19th unless stocks or real estate goes off the rails. But this is not likely.

So gold may continue uneventful – defensive – perhaps weaker but I would not be surprised to see a relief rally at these cheaper prices.

Our active geopolitical scene should have supported gold prices – there are problems in China, Russia, Iran and our President is challenging trade agreements, yet all of this actually growing tension has been ignored by gold this past month.

From our business viewpoint here is what is happening – the smaller buyer is less interested which is always the result of cheaper prices. But the larger buyer – say something above $100 grand is back to kicking the tires. Can’t say when they will jump back but they are thinking about it and a few have already tested these lower prices.

What gold needs now is an attention grabbing catalyst. Also keep in mind that once prices begin to move higher the changes can be dramatic. Gold pushed much higher on two occasions since the beginning of 2016. Both times saw a bullish $200.00 move to higher ground over a 6 month time frame so the good news is that the pool of potential buyers is alive and well.

This from Anna Golubova (Kitco) is worth noting: Gold Can Climb As Fed Hikes – RBC Capital Markets – “Federal Reserve’s rate hikes are not “be-all and end-all” for gold prices, said RBC Capital Markets, projecting to see gold significantly climb next year as investors start to take market uncertainties seriously.

Conventional assumption that rising rates are negative for gold does hold, but Fed’s rate increases are just an obstacle, not the main driver for the yellow metal, said RBC’s commodity strategist Christopher Louney.

“This comes back to the idea that rates are a headwind and not the be-all and end-all. So even if we do get these rate increases this year and throughout next year, gold prices can still climb on the back of it given a number of other factors at play,” Louney said in a video posted on RBC Insights page this week.

The relationship between higher rates and gold is not a symmetrical one, which means that not all increases or decreases in rates will translate into equal increases or decreases in gold price. RBC is expecting to see another three rate hikes this year and four rate hikes next year. The last rate hike in 2018 is not entirely priced in yet, which could lead to lower gold prices in the end of the year, Louney noted but added that 2019 will be a much better year for the precious metal.

“In our view gold will average $1,307 in 2018 and $1,351 in 2019. We term this a cautiously constructive view,” he said. “There are a number of macro headwinds at play, there are buoyant equity levels, dollar off its lows and rising rates. However, these are just headwinds.”

Investors must remember that gold prices have “some underlying current” behind them, which will boost the yellow metal’s level to $1,351, according to RBC’s analysis. “We do think the risk is skewed to the upside given the proliferation of uncertainty in the market and a number of uncertainties that are just out there,” Louney said.

On top of that, the markets will begin to view global uncertainty as a serious threat next year. This will be a significant shift in market sentiment, as most of this year’s risks had little impact on gold because traders were not shaken by any geopolitical tribulations.

“While the market has become skeptical of uncertainties, we do think there is scope for skepticism to subside and for people to really appreciate the uncertainty in the market and for that to really filter through to gold prices overall,” Louney pointed out.”

This from Zaner (Chicago) – “About the most positive thing one can say about the gold and silver markets this morning is they have seen a temporary reprieve from dollar pressure, they are extensively oversold from five days of declines and there would appear to be a temporary shift away from deflationary risk-off psychology. However it is also possible that an avalanche of additional tariff threats against the US from around the world and the fear of state Internet taxes will leave the US dollar under pressure especially since the dollar early this morning did make a fresh six day low. While August gold failed to close higher on Thursday, it did manage to bounce almost $10 off of its lows, and that does set the market up for a possible spike bottom. Some would also argue that with the most recent Fed, ECB and BOE meetings out of the way, the trade will not have not much in the way of forward central bank fears and that in itself could be enough to support gold. Also going into today’s session, holdings in the world’s largest gold ETF had fallen 5% (26.645 million ounces) since late April, which could be indicating an oversold investment status. Furthermore the most recent COT report showed the large and small net long was down to only 137,000 contracts as of June 12th, down from 280,000 earlier this year. And given that the market has lost another $32 since that date, the spec position could nearly level by now.

Like the gold and silver markets the PGM complex is showing signs of bouncing off overnight lows but the charts were damaged by the initial fresh lows and there would not appear to be classic technical analysis to suggest the end of the slide is in place yet. On the other hand the platinum market recently registered a net spec and fund long positioning of only 10,802 contracts and the market since that report mark off into the overnight low, showed an additional loss of $44 an ounce and that should leave the market the least long since the subprime crisis and therefore less vulnerable to stop loss selling. Similarly the palladium market since the last COT report has registered an additional decline of $73 and that should also reduce the threat of stop loss selling in palladium. Furthermore a minimal shift this morning in sentiment from higher equities, a weaker dollar and some positive traction in other metals markets should provide a temporary cushion for prices. Unfortunately quasi-industrial metals markets like the PGM’s will remain under fundamental liquidation watch because of the flurry of additional tariff threats populating the global headlines overnight as that leaves demand prospects questionable.”

Silver closed up $0.13 at $16.44.

Platinum closed up $10.10 at $871.30 and palladium closed up $0.80 at $956.30.

Our Patented Employee Survey – Gold’s Direction Next Week?

Of course, it’s not really patented but we do have some fun along the way. This is what the employees think: 7 believe gold will be higher next week 2 think gold will be lower and 1 thinks it will be unchanged.

Our Patented Customer Survey – Gold’s Direction Next Week?

Like the employees, our customers were given three choices – up – down – unchanged. We limited the survey to a random sampling of 100 transactions – unscientific but worth considering because these people took action: 59 people thought the price of gold would increase next week 30 believe the price of gold will decrease next week and 11 think prices will remain the same.

Precious Metal Closes & Dollar Strength – June 18 – June 22

The Unscientific Activity Scale is a “3” for Friday. The CNI Activity Scale takes into consideration volume and the hedge book: (Monday – 3) (Tuesday – 3) (Wednesday -4) (Thursday – 2). 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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