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Gold Pops Higher – Again

Gold Pops Higher – Again

Commentary for Tuesday, March 6, 2018 ( – Gold closed up $15.50 at $1333.60 today. You have seen this movie before – gold has popped higher because the dollar weakened. Today the Dollar Index today moved from 90.00 through 89.50 because rival currencies recovered somewhat from trade talk wars.

The overseas markets reared Friday when Trump began this tariff conversation then settled somewhat yesterday as traders considered how serious he was – the possible inflation consequences and finally this question. Was gold actually oversold going into this currency game of blind man’s bluff?

Like I said I would not like to play poker with the President – he appears serious enough to place both Canada and Mexico on the US tariffs hit list unless a favorable North American Free Trade Agreement pact is negotiated according to MarketWatch.

So the dance continues – but one thing is sure – gold does not remain sleepy.

Today’s big move to the upside shows that the trading sweet-spot for this market is something between $1320.00 and $1340.00. It’s too soon to tell if this market will threaten old recent highs ($1360.00) but today’s strength cannot be ignored. This market could easily break higher or lower depending on what the dollar does short-term.

And the dollar question is now turning into an enigma. It was reasonable enough to assume gold would tend lower as the FOMC raised interest rates. Now throw the real possibility of tariffs (inflation) into the soup and who knows what the dollar will do?

Worth mentioning – don’t discount inflation. We have gotten a pass in this area for too long; consider this a gift. Infrastructure spending alone will push inflation higher in 2018. And don’t discount spending money you don’t have – 2018 will likely produce a trillion dollar deficit. Overspending should be used during times of war and recession – we are not in either so this should at least be a red flag – something is not right with this economic engine.

On the physical front there continues to be dishoarding of gold bullion according to the World Gold Consul in February. And the US market is luke warm – just look at the cheap premiums on major gold bullion coins.

But there is underlying interest – we are seeing some long term customers buying weakness in this market – no big fanfare but order size falls into the midrange – no whales as yet but remember gold has been defensive for the past few months and yet holding the higher end of this most recent trading range.

This from Zaner (Chicago) – “Gold and silver recovered overnight and the dollar was weaker, as the market continued to be driven by concerns over the tariff issue. The dollar was also pressured by reports that North Korea is open to talks with the US over “denuclearization,” and this lent additional support to the metals. The precious metals yesterday fell back from early highs and went on to post modest losses after there were statements suggesting the tariff would be a bargaining issue for NAFTA, but there has been no consistent message coming from Washington, leaving the markets to parse the various statements from the President, the Speaker of the House and elsewhere. Russia is looking to boost its gold output by 328 tonnes in 2018. Australian gold mine production hit 301 tonnes in 2017, their highest since 1999 and not too far from their record 314 tons in 1997. Silver also gained overnight, but its posture is a bit less bullish than gold’s because of its role as an industrial commodity.

South Africa’s largest platinum producer reported their profits fell 35% in 2017, citing lower metal prices and higher restructuring costs. The closure of platinum mines in South Africa, which accounts for 80% of global production, was a story reported in their press over the weekend, and this could be a another long-term supply “red flag.” Platinum and palladium recovered some of their losses overnight, as they seemed to benefit from the weakness in the dollar. Both markets tested last week’s lows early in the session yesterday and appeared to be concerned that the steel and aluminum tariffs could disrupt the supply chain for auto manufacturing and thereby have a negative effect on auto catalyst demand. Adding further pressure was a report that US auto sales declined 2% in February to 1.3 million. The mayor of Rome said the city will ban diesel cars by 2024, and while this is a ways off, it is particularly negative to platinum demand.

April gold has achieved an initial retracement target of the January-March decline, and a close above that level today ($1329.20) would leave the next targets at $1337 and $1344.90. Key resistance in May silver comes in at $16.781. A break below $955 in April platinum would put the next target down at $936.60. The next support for June palladium comes in at $959.30.”

Silver closed up $0.38 at $16.72. Some renewed buzz here – premiums remain low on $1000 face 90% silver bags and secondary market US Silver Eagles. Which brings me to a point – consider carefully paying an usually high premium on anything these days.

Premiums increase and decease on a regular basis. You will likely be selling when the metals are at all-time highs – just the time when the market gets defensive and premiums disappear.

Platinum closed up $8.50 at $969.10 and palladium closed up $0.80 at $988.15.  

The Unscientific Activity Scale is a “2” for Tuesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Wednesday – 3) (last Thursday – 3) (last Friday – 5) (Monday – 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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