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Gold – More of the same? Or not?

Gold – More of the same? Or not?

Commentary for Monday, July 9, 2018 – Gold closed up $3.80 at $1258.10 – off highs on the day but a “feel better” price in rough seas. Price action for gold seemed lighter today – if there is such a term. Gold opened higher as the Dollar Index moved lower and gold gave up some ground as the index reversed and moved above 94.00. The Dollar Index has been lower this past week moving from 95.00 through 93.74 and the price of gold has seen modest support in the midst of generally bearish sentiment.

This ongoing trade dispute with China while not moving the needle through last Friday might finally be getting some deserved attention. When the hint of “trade wars” came into the conversation a few months back gold reacted “quickly higher” as traders talked about inflation fall out and a weaker dollar.

When the financial community decided it was just a Trump bluff they came out from under the bed and the price of gold moved back to virtually unaffected.

This morning that picture may be once again changing in gold’s favor as the world now considers how serious both China and the US are relative to tariffs against each other.

This entire mess is a miserable work in progress and could as we see today push the price of gold higher but this is also a mixed bag because real tariff damage could hurt Chinese gold demand.

So for now let’s be patient and thankful the price of gold is seeing some updraft.

It would appear that $1250.00 is the current sweet spot as the combination of bargain hunting – a bounce in prices as investors take advantage of that recent drop from $1300.00 and safe haven demand because no one is certain just how deep the water will get over a threatened “trade war”.

At the same time the rising price of crude oil should be worrisome but is not getting much press and is not creating any buzz. I just don’t get this as prices have been quietly rising this past year – moving from $45.00 through $74.00. This should be inflationary if the improving economic numbers are believed and yet the peanut galley remains silent.

At the same time these three factors could disappear overnight. Gold would then be left with that elephant in the parlor – higher FOMC interest rates between now and end of the year.

I think it’s still too early to opine about $1250.00 being a “short term” bottom – that all depends on the dollar strength but there are a few “extras” you can throw into the pot.

The coming NATO meeting in which Trump is expected to push other countries to “shoulder their fair share” of expenses and serious political leadership problems in both Great Britain (Brexit) and Germany (Merkel leadership is under threat).

I’m neutral about gold but my finger is on the trigger and buying weakness makes sense. It makes sense to be more worried about the extreme leverage common in the financial world than to ponder whether gold might get cheaper – but that is just the nature of this trade.

And I have convinced myself that being bullish on the dollar just because the FOMC is hawkish might be misplaced. The sensible and common wisdom that higher interest rates will pressure gold prices even lower is now commonplace.

It might be time to think outside the box to use an overused phrase.  History has shown that the “crowd” may not always be on the right side of the trade. So I would not be surprised to see gold and silver bullion come back into the “financial defense” equation this year.

The big question on everyone’s mind this week will be simple – could a real trade war overcome anticipated dollar strength? The nice part of this equation for real gold and silver bullion buyers is that it presents a positive conundrum. Waiting for the purposed fall out in a generally lower market just makes good sense and carries no premium.

This from Zaner (Chicago) – “While the action in the gold and silver markets at the end of last week seemed to confirm the focus on the trade remained on physical commodity demand prospects, and not on the action in the dollar that action would seem to be reversed this morning. Certainly ongoing gains in global equity markets has tamped down the slack demand/deflationary pressure fears that dominated into the recent low and that in turn has probably created some short covering and bargain-hunting buying. However with the dollar slide extending sharply it now appears to be significant enough to return currency action as a driving force for precious metals. While the COT report was delayed due to the holiday last week, the net spec and fund long in gold has probably come down consistently and might be expected to fall again in the numbers later today given the downside extension early last week. From a technical perspective, the bull camp should be cheered by the fact that the recovery and extension off last week’s lows posted three of the highest trading volume days of the last 11 trading days which could be a sign of bargain-hunting buying on dips below $1,250. It is also possible that the rejection of sub-$1,250 pricing and the upside extension this morning has sparked a wave of short covering from those pressing the deflationary angle off trade war fears. Similarly the silver market rejected the sub $16.00 level on its charts, but that action was forged on dismal volume (which could be attributable to the holiday) and therefore the short covering action in silver might be less impressive than in gold.

With the palladium market last week holding up impressively in the face of weakness in gold, soaring fears of global slowing off spiraling tariffs and in the face of a failure in platinum, it was clear that traders saw strong value around the $950 level. With the overnight upside breakout on the charts taking place in the wake of more gains in equities/risk-on combined with spillover lift from gold and weakness in the Dollar a move above recent consolidation high resistance of $958.50 is possible ahead. With platinum seeing a June washout of $118, we suspect that the platinum market was technically leveled and perhaps net spec and fund short following the massive washout action on July 2nd and July 3rd. In fact, from the last COT positioning report into the low last week, the October platinum contract saw an additional decline of $74.00. Similarly the palladium market saw a June washout of $101 and that combined with a protracted consolidation that adds significant credence to the late June and early July bottoming action.”

Silver closed up $0.07 at $16.05.

Platinum closed up $4.80 at $849.00 and palladium closed up $7.10 at $962.10.

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