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Gold Makes a Statement

Gold Makes a Statement

Commentary for Monday, June 18, 2018 ( – Gold closed up $1.60 today at $1276.20. Gold opened firmer after last Friday’s rout but thought better of the idea trending lower but managing to finish in the green – so a small short-covering rally was the idea.

It’s difficult to call this after the fact and quiet action “a rally” in that Friday’s $29.40 loss has changed the trading dynamic. We have moved from boring into something else which might draw some needed attention to the physical market and dispel recent apathy.

As usual there are two camps with an opinion.

The “rumor” camp who believe that gold’s breakdown on Friday was staged – the result of a massive “naked” short designed to reignite the stalled bearish push to lower ground. If true they were successful in that this latest weakness underlined by the fact that the FOMC will raise interest rates two more times this year has been refreshed because gold broke down at the $1280.00 shelf (in place since late last year).

If you belong to this group it’s “look out below” in that the next support line – given this weakness sorts itself out technically – would be something like $1240.00.

But then there is that pesky “other camp” which holds that while gold is defensive – this latest attempt at “pushing” prices lower will turn out to be a washout in that follow through selling will not be seen for long and the short paper will turn and run by Friday.

This more bullish camp holds that the price of gold has finally reached a kind of “homeostasis” or “balance” in price created by a world who knows they are pushing the fiat paper envelope with massive debt and wants some protection in case this story ends badly. This argument is supported by the notion that gold pricing has turned relatively stable since the summer of 2013 on either side of $1200.00. Yes pricing did move as high as $1400.00 during this time when the geopolitical argument heated up and yes gold did go off the reservation once approaching $1000.00 for a short time but in general for the last 5 years it has held pretty steady.

What underpins both arguments is Asian physical demand – on the wane above $1300.00 but promising as prices get cheaper (moving towards $1250.00).

From a personal standpoint I’m more sanguine. Pricing, especially 30% below all-time highs becomes a secondary point. I’m more interested in accumulation as pricing is moving lower because of two psychological points.

Both are obvious but sometimes difficult to act upon.

Keep in mind that the first big sell-off in gold happened between 2011 and 2013 – we moved from above $1800.00 through $1200.00 – small and large players exited the theater when they thought the banking system was not going to collapse. But after 2013 large selling slowed down considerably – even with the continued threat of higher interest rates.

In the process the physical gold market has turned into a contrarian play and while that may sound discouraging it is a plus which will work to gold’s advantage. Other investments – which moved higher this past decade are subject to questions and profit taking.

The second has to do with public malaise which should translate into financial fear but for some reason the man on the street has not yet connected the dots.

These are increasingly worrisome times with common themes you have heard many times: unchecked huge financial leverage, nuclear proliferation, trade wars which will create more inflation and do little to challenge the root problem of China’s disregard for international copyright, increasing political hyperbole and the rise of financial super giants which do little to help the middle class.

To understand how these fundamental corporate and political changes have chipped away at personal choices watch Norm Chomsky – “Requiem for the American Dream” (NetFlix).

Under these circumstances using physical precious metals in your personal possession as a kind of insurance policy make more sense than ever before. And this approach has the added bonus of being completely private and a great way to build up your savings in the bargain.

This from Zaner (Chicago) – “The precious metals recovered a little bit of what they lost on Friday, but the market is still digesting the trade war fears that developed in the wake of President Trump’s announcement of an additional $50 billion of tariffs on Chinese imports. The Chinese government threatened to counter that with an equal amount of tariffs on US goods. This “one-upmanship” spooked investors, particularly in China, who were reportedly bailing out of gold on concerns that the trade war would hurt demand for gold jewelry, among other things. This was happening after markets had closed in Asia, which may have pushed hedge selling into US markets and may have exaggerated the decline. The dollar has been holding its gains from a breakout rally on Thursday, which is another negative to gold. Reports that South Korea and the US will suspend large scale military drills this week could be a calming influence after the volatility late last week. It’s possible that gold might start to draw some safe have interest if equity markets sell off dramatically, but so far they have held up in the face of the escalating trade concerns. It seems like gold needs a perfect storm of a weaker dollar, weaker equities and trader anxiety to manage a turnaround. Friday’s Commitments of Traders reports showed that as of June 12th non-commercial traders were net long 115,460 contracts of gold, an increase of 8,215 contracts from the previous week. Non-commercial and nonreportable traders combined held a net long position of 137,282 contracts, an increase of 5,586. This was neither overbought nor oversold, but these traders may have given up all of those gains with the selloff on Friday. July silver also fell sharply on Friday, trading to its lowest level since June 5th and closing at its lowest level since June 4th. And like gold, it recovered a modest portion of those losses overnight. Friday’s decline came a day after silver had posted a new high for the move. The COT report for silver showed non-commercial traders net long 48,851 contracts, an increase of 31,089 contracts on the week, and non-commercial and nonreportable traders combined net long 67,506 contracts, an increase of 30,603. Similar to gold, the heavy selling on Friday could have pulled these traders back to a “flat” position. Silver may be in a better position for a rally than gold as long as the economic outlook remains resilient to trade-war worries.

Both platinum and palladium pushed lower overnight in follow-through selling from Friday. Not only did the selloff in gold spark heavy selling in the PGM’s, trade friction threatens global auto catalyst demand, particularly from China. July platinum has broken below a three week consolidation and has traded to its lowest level since May 21st, leaving the next downside target the contract low from that day at $877.80. The COT report showed that as of June 12th, non-commercial traders were net long 4,138 contracts in platinum, an increase of 1,628 contracts on the week. Non-commercial and nonreportable traders combined held a net long position of 10,802 contracts, an increase of 1,725. For palladium, non-commercial traders were net long 13,446 contracts, an increase of 1,844 on the week, and non-commercial and nonreportable traders combined held a net long of 13,984 contracts, an increase of 2,012. After the selloff on Friday, we suspect that these traders gave up most if not all of those gains. Look for support in September palladium at $977.90.”

Silver closed down $0.04 at $16.41.

Platinum closed down $3.90 at $881.90 and palladium closed up $1.10 at $994.90.

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