Gold – Is the Bear Getting Tired?
Commentary for Friday, March 12, 2021 (www.golddealer.com) – Gold closed down $2.80 at $1719.50. Obviously, both gold and silver were presented with additional challenges this week as prices were all over the place and so were expectations. The shorter-term market is still taking its cues from the dollar and interest rates as safe-haven demand continues to unwind. But there is defiantly a change in the wind which is looking for confirmation and I suspect the short paper is not near as sure of itself as it was just a week ago. This past Friday gold closed at $1698.00 so on the week so on the week we are up a modest $21.50.
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Gold continued to struggle this past Monday reaching a 10-month low in the domestic market. This weakness is the result of further hedge fund selling and higher government bond yields. Rising interest rates are attractive to those looking for capital returns on investment and create further strength in the dollar. These past 4 trading days the Dollar Index has moved higher by a whopping 1 ½ points at 92.40. It is amazing that while the Biden stimulus package encouraged the stock market it did nothing to stem bearish gold sentiment. It is possible that China’s strong industrial numbers coupled with cheaper gold prices will spark renewed physical buying but that remains a work in progress. Given the strength of the dollar today further gold weakness was expected but the Fed will eventually act in its own interest – which equals a weaker dollar.
It was surprising that gold caved so easily at the longer term $1700.00 support considering the overnight Hong Kong and London trade was enthusiastically higher. But this morning’s domestic trade remained bearish. This renews the technical dialogue so considering support at $1650.00 is on the table. These lower numbers however have traditionally encouraged the Asian trade so I would expect some bounce this week. Still, my advice remains the same. Buy cheaper with the view that inflation will eventually refocus this crazy financial world. There is no need to be in a hurry but hold the option close – you are looking at real opportunity developing. The Congressional Budget Office claims that in 30 years our national debt will rise to twice the economic output of the United States, from less than 80% in 2020. And it will double again by 2050. In the longer view owning gold and silver bullion is simply good financial planning. On the day gold closed down $20.30 at $1677.70 and silver closed off $0.02 at $25.24. Silver seems to be holding up at $25.00 but this may change if gold cannot steady itself.
The bulls have something to smile about on Tuesday as gold and silver surprisingly surged higher. Higher bond yields and a stronger dollar make the bears happy by pushing gold and silver prices lower. Today the dollar weakened, and bond yields dropped pushing the metals higher. And threatening the bearish short paper which created a short covering rally. This is not a trend reversal – gold’s technical picture still needs work. But in the midst of this stormy sell off a patch of blue sky is welcomed. Gold is still dealing with ETF outflows and the feeling that safe-haven demand will diminish as the pandemic comes to an end. It is curious however that while investors consider massive stimulus inflationary, they do not seem to worry much about this in the short term. As you know gold prices are highly sensitive to interest rate changes. Reuters mentions both sides of the bond price dilemma today – “But there’s a split, as some people think the bond market has got a long way further to go downwards, (while) other people are saying that because of the distribution of positioning, some managers may be starting to look at rebalancing.” If yields continue to move lower (like today), gold buying will be encouraged and vice versa. Tuesday’s surge in gold is also the result of early bargain hunting. Continued and not transient “bargain hunting” is what the bulls need to stabilize pricing and begin a long consolidation. At that point, investors will look for the inflation genie which some believe is already out of the bottle. In the meantime, be patient and look for price opportunity suited to your needs. Gold closed up $38.90 at $1716.60 and silver was higher by $0.91 at $26.15.
Wednesday saw a choppy gold market pushed this way and that by dollar weakness and treasury yields. I did not expect big follow through after Tuesday’s bullish surprise because this market continues to sort out a technically bearish picture. But yesterday’s jump was large enough to put everyone on notice and suggest a possible shift in the physiological picture. Finally, the bulls welcomed the passage of Biden’s $1.9 trillion stimulus package which will be signed into law this week. Gold did not overreact, but the aftermarket was firm.
Still, fundamentals are not encouraging our shiny friend. Inflation is “subdued” which keeps gold investors complacent. The Dollar Index remains strong (92.00). So, the call for a weaker dollar, pulled lower by a rising stimulus does not encourage bullish buzz. In fact, Morgan Stanley’s negative outlook for the dollar has turned positive as they look for a strong recovery in the US economy. Even the Dow this morning is on pace for the biggest gain in 5 weeks.
I am always however encouraged by cheaper physical gold. Ignored in this kind of market is the obvious fact that as the price of gold bullion moves lower more buyers appear from a large, sidelined pool. Silver bullion investors also remain committed for good reason. Today’s price is half all-time highs so there is big upside. A new green US recovery will use silver in new ways. And silver offers a low unit price which means any budget can develop a powerful plan.
The jury is still out as to whether yesterday was the beginning of a march to higher ground, or a chance for sellers to get a better price. Since gold’s steady decline has been in place since late January the question is difficult to answer. Gold’s price recovery faces overhead resistance between $1725.00 and $1750.00. And requires more heavy lifting between $1800.00 and $1850.00. These numbers present a tricky technical ladder that will challenge higher gold prices. So, the likelihood is that in the short-term gold sellers will use rallies to liquidate until solid safe-haven demand returns. On that note, while the majority of American’s favor Biden’s latest $1.9 trillion stimulus many claim the package was no more than wasteful “pork barrel” spending which creates more debilitating debt and opens the doors to serious inflation.
In the meantime, physical gold and silver bullion enjoy a sound base because core investors believe both are “real money”. Not a surrogate controlled and subject to the whim of central banks. Gold and silver bullion are one of the few choices left which protect against arbitrary or intrusive government. And they provide a sound night’s sleep if you are looking for complete privacy. On the day gold closed up $4.90 at $1721.50 and silver was down $0.05 at $26.10.
Gold pricing Thursday pushed higher in overnight trading ($1740.00) but again caved in the domestic trade despite a generally weaker dollar. This is an example of the typical mindset which as I pointed out yesterday will sell rallies despite evidence that Tuesday’s surge in gold hints at a possible change in the bearish outlook. John Miles (Zaner) – “While there would appear to be a change of fortune for gold and silver, likely from a not too hot and not too cold 10 year note auction yesterday, a downside breakout in the dollar and nearly a clean sweep of higher commodity market price action this morning, provides the bull camp with more bullish fodder for what has become a stealth rally. However, the bull camp should be emboldened by yet another headline touting a decline in South African gold output in January, with that decline 14.1% versus year ago levels. Unfortunately for the bull camp, Gold ETF holdings continue to decline, with gold suffering its 18th day of outflows putting this year’s net liquidation close to 5 million ounces. While the trade continues to hotly debate the subject of inflation, it does not appear as if today’s action is indicative of inflation, as much as it is a relief rally from the passage of the 3rd US stimulus package and from the potential for another round of all-time highs throughout US equity markets. On the other hand, the markets appear to have settled into a view that the US Federal Reserve will not cave in and react to initial inflation signals and that should discourage some sellers of gold and silver.” On the day gold closed up $0.80 at $1722.30 and silver closed up $0.06 at $26.16. Our physical business continues to set records especially in silver bullion. Pricing is volatile and premiums high, yet the public is buying with both hands.
Gold pricing Friday saw typical weakness in the face of higher interest rates and a stronger dollar. The Dollar Index was up half a point in early trading but reversed itself which helped gold finish almost unchanged on the day. And gold bouncing higher off $1700.00 support is encouraging as it steadies itself and suggests we are looking at a short-term bottom. Actually, I was hoping for much better momentum finish on the week, but gold’s recovery today helps encourage the bullish scenario and may suggest the bearish scenario is getting tired.
But gold still presents some very loose ends. With President Joe’s massive stimulus, the European Union doing the same thing and crude oil climbing higher you would think inflation would be a concern. Barron’s – “Inflation Isn’t Happening and It Likely Won’t” – New York Times – “Inflation Fear Lurks, Even as Officials Say Not to Worry” – Bloomberg – “Producer Prices Jump Most Since 2018 in Hint of U.S. Inflation”. How can gold slump over what amounts to a small rise in interest rates and at the same time the world of finance ignores the release of trillions of dollars in fiat paper currency?
Reuters – “Rates had slumped over the last few days as a result of a short squeeze on the Treasury market. Now with rates immediately rising back to the psychologically important 1.6% is weighing on financial conditions broadly,” said TD Securities commodity strategist Daniel Ghali. “The dollar is also tied to the shadow of the rising rates. So, in this context that’s obviously not the environment where investment flows are likely to move towards gold,” Ghali said, adding that he expects continued pressure on gold.”
I suspect the metals next week will again present a mixed picture, but I don’t see a stronger dollar and higher interest rates being an option over the longer term. So, ignore the noise, keep your eyes on the bigger (inflationary) picture, and watch for opportunity. Once the ETF numbers stabilize and investors actually realize how much money is being pumped into the world system I believe the price of metals will enter an entirely “new world valuation”. On the day gold closed down $2.80 at $1719.50 and silver closed off $0.28 at $25.88.
Silver closed down $0.28 at $25.88.
Platinum closed down $2.00 at $1199.10 and palladium closed up $19.10 at $2356.60.
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This from John Miles (Zaner / Chicago) – “Global equity markets overnight were mostly lower with the exceptions the markets in Asia. Critical economic information released overnight included a better-than-expected New Zealand business PMI reading for February, very disappointing UK industrial production and manufacturing production readings for January while Germany and Spain posted right-on expectation readings for consumer pricing. The North American session will start out with the February producer price index which is expected to have a sizable uptick from January’s 1.7% year-over-year rate. The February core producer price index (excluding food and energy) is forecast to have a moderate uptick from January’s 2.0% year-over-year rate. February Canadian unemployment is expected to have a modest downtick from January’s 9.4% reading with a modest monthly net increase in employment. A private survey of March consumer sentiment is forecast to have a modest uptick from the previous 76.8 reading.
The bull camp in gold and silver should be very discouraged going into the last trading session of the week, as the markets failed to fully respond to what should have been a very positive day of trade on Thursday. Not surprisingly, gold and silver have reversed sharply this morning in response to a spike in US rates and the ensuing jump in the Dollar. In fact, the dollar appears to have shifted back to the upside and that could extend if US rates forge fresh 13-month highs later today. Clearly, gold and silver are not ready yet to embrace reflation and are not expecting a quick recovery in Chinese and Indian physical demand. Certainly, seeing gold ETF holdings decline for the 19th straight session highlights ongoing negative investor views toward gold. Gold prices also failed to rally in the US on Thursday in the wake of news that South African gold production declined by more than 14% over year ago levels in January. From a technical perspective, the charts have quickly shifted back in favor of the bear camp, with this week’s action posting four days of higher highs and higher lows and that could now result in a wave of stop loss selling from the buyers that provided this week’s rally. In fact, upside momentum in April gold has been lacking and trading volume did not increase on the rally, suggesting a lack of broad interest in the bull case. Silver ETF holdings also declined yesterday by a very significant 1.3 million ounces and according to Bank of America investors last week pulled significant money from both precious metals and bonds and pushed that money into equities in another sign that markets like silver are out of favor. The technical case in silver was bullish with this week’s pattern posting higher high and higher low action but that has already ready been reversed this morning. In conclusion, the bias shifts down in silver today with this week’s gains and possibly more due to be extracted from silver prices directly ahead.
While the platinum and palladium markets showed divergence in the magnitude of the dual gains posted yesterday, they have realigned this morning with noted downside action. However, platinum should see some support from an ETF inflow of 4,259 ounces yesterday which pushed the year-to-date net purchases up to 1%. In the end, positive chart action from the first 4 days of this week leaves the platinum market vulnerable to noted downside targeting of $1155.20 and perhaps $1118.60 especially in the event initial dollar gains extend, US rates spike even higher and equity markets experience a wholesale liquidation. On the other hand, it is possible that palladium saw a significant bid off the dramatic improvement in global sentiment this week which in turn has ramped up hope for improving palladium demand from growing auto sales. While inflows to palladium ETFs continue to be insignificant, it should be noted that the year-to-date gain in palladium holdings is the largest in the precious metal complex with a gain of 5.7%. In retrospect, it would appear as if the $2,300 level in June Palladium has become solid support, but it is possible that support level will be tested today.
On one hand, the gold and silver charts this week were very positive, and the reflation theme seemed to emerge again, but that action is at least partially reversed this morning and could be fully reversed by the close. In fact, given four days of gains in gold and silver, the markets are also vulnerable to short term technical stop loss/profit stop selling. Critical support in April gold today is seen at $1,683.00 and the failure to hold that level likely results in the lowest gold trade in 11 months. In silver, initial support is $25.00 but it will take a recovery in equities and or a bounce in Bonds to avoid a slide to that level.”
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