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Gold Pushes to New Highs

Gold Pushes to New Highs

Commentary for Friday, July 31, 2020 – Gold closed up $20.50 today at $1962.80 in another round of bullish sentiment. Gold closed last Friday at $1897.30 so on the week we are up $65.50 in another bullish round of higher prices driven by safe-haven demand, political strain, higher ETF participation, and I believe the first signs of European inflation. The Dollar Index has also continued weak moving down more than a point (93.00) this past week. So some question how the US will be able to unwind this massive bailout package. I do not see any dollar replacement, but it could move down another 10 points and still be within historical norms. This is a massive plus for higher gold prices over the next decade which some believe might be the minimum time required for the US to dig its way out of this financial mess.

Gold opened last Monday with a bang as the Dollar Index sank (93.69) and momentum players pushed the envelope. All of this is helped by any number of factors – safe haven (becoming more important in the US) – political tensions – an upcoming election with immense consequences and more talk about the dollar becoming a second-rate currency. The talk that the US comeback will fade, and the Europeans will forge new economic ground and stronger currencies is hyperbole  designed to sell newspapers. We are all in this mess together – sink of swim. During times like these remember “it’s never as bad as some claim” – or something like that.

Some of this is true but I have said this before – the mighty buck will not be replaced. So, what about these prices? Pure steam and perhaps a lot of “huff and puff” – the price trends of both gold and silver look like a rocket ship and I can tell you trends like these burn hot and turn very cold just as easy. Gold is trading at highs not seen since the summer of 2011 during the financial crisis. The point being that gold dropped $300.00 from these old highs in a matter of hours before turning choppy between $1600.00 and $1800.00 and eventually cooling off around $1200.00. Granted these times are much more intense but gold must prove itself above $2000.00 before considering even higher numbers. I would actually like to see some back and forth filling of these hot trend lines before moving higher – as we stand now pricing could become unstable. On the day gold closed off its highs (a good sign) but still up $33.70 on the day at $1931.00.

This past Tuesday gold traded lower in Hong Kong but recovered in London. The domestic trade was higher from the open pushing towards $1950.00. On the day gold closed up $13.70 at $1944.70 in another round of higher price optimism. The aftermarket was up another $15.00 and our physical trade was busy all day, still not many sellers. Some believe pricing pushed higher today because consumer optimism is waning, but I don’t believe it. I hope you will see a working vaccine by the end of summer – which should rearrange the deck chairs. Still this market has so much fizz that gold did not blink when the Dollar Index firmed this morning. On the week however the index has moved lower by more than a point supporting gold and the notion that the dollar will continue to weaken. It will most likely, but not fall apart, that is fantasy. Look for $2000 + and consolidation waiting for inflation. For a decade Japan has been the poster child of cheap central bank money and business bailouts, yet inflation is still not a problem.

Trading Wednesday saw another round of higher prices. John Miles comments are right on the money – “While some traders are beginning to express concern over the overbought technical condition of gold (with short-term technical measures flashing extreme readings) press coverage has been so intense that additional buying interest should not be difficult to find. In fact, overnight gold ETF’s added to their holdings for the 23rd straight day, with the purchase of 562,489 ounces the largest daily inflow since June 19th. It should also be noted that silver ETF holdings increased by 2.17 million ounces bringing net-purchases for the year up to 260.7 million ounces! While the markets are certainly hopeful of additional support from the Fed at the culmination of its 2-day meeting later today, the Federal Reserve earlier this week extended its emergency lending program through the end of the year and therefore the impact from the Fed will likely remain positive through today.” Public buying here remains intense and we are still not seeing much in the way of selling.

Gold pricing for Wednesday did not disappoint closing up $8.80 at $1953.50 and higher by $13.00 in the aftermarket as the FOMC left interest rates and monetary policy unchanged.

Neils Christensen (Kitco) cites Bloomberg Intelligence (Mike McClone) – An impending equity bear market will ultimately push gold to $4500 – “In the short term, we have gold about 21% above its 52-week mean, that’s the most since the peak in 2011,” he said. “You don’t want to be the first buyer at these levels. Anytime gold gets this high above its 52-week average, you got to expect consolidation.” Although gold investors should be a little more strategic with their buying, McGlone said that they shouldn’t lose sight of the bigger picture, which is materially higher gold prices. McGlone reiterated his call that gold will need to get “stupidly” expensive before this rally ends and that could mean prices above $4,000 an ounce.

“Basically, after 2008, gold dropped around $700 and then it rallied around three times to the peak in 2011,” he said. “So just a simple rhyme of history means we get to near $4,500 and it’s about time. You just have to look at debt to GDP, look at central bank balance sheets, and they’re just on an upward trajectory.”

Gold decided to catch its breath Thursday finishing the day down $11.20 at $1942.30 a normal round of profit taking while ignoring the worst GDP contraction on record. This is good for the physical market and may portend price consolidation. Which makes sense in any bull market and adds stability to longer term trends. To reinforce bullish sentiment gold reversed itself in the aftermarket moving higher by $16.00 so traders continue to buy the dip – another bullish sign.

Friday saw gold push into “blue sky” territory – I love David Erfle (Kitco) commentary as he rightly states – “everyone who has ever purchased an ounce of gold is now in the money”. And if you have been sitting on your hands and “watching” waiting for cheaper prices which might be a good idea in overheated markets let us consider David’s comment about value. Adjusted for inflation the real gold record was set 40 years ago (1980) when prices closed at $850.00 if you are still wondering about pricing today. The World Gold Council claims that in 2020 dollars gold would have to move above $2800.00 to beat that old record! On the day gold closed up $20.50 at $1962.80 going into an uncertain weekend. Stage 4 negotiations between the Democrats and Republicans as to more virus stimulus remains stalled. It may well be that political inaction will replace virus damage and inflation as the most dangerous threat to the American people. This ridiculous political fight reminds me of Pilgrim’s Progress Slough of Despond – a depressing swamp of unending trouble to avoid because it never stops making pilgrims miserable.

Silver closed up $0.85 at $24.19. This market still has plenty of buzz and product remains in short supply. The first guy that said silver would be $30.00 before summer was overlooked crazy but now the moderate bet in the trade is higher – perhaps much higher.     

Platinum closed up $6.30 at $912.20 and palladium closed up $20.40 at $2135.30.   

As always, we appreciate your friendship and business. If you have unusual circumstances, need cash or are looking for a special store visit – talk to Harry. Let us be careful out there – stay safe and trust in God’s blessings. Richard Schwary

This from Zaner (Chiacgo) – “Global equity markets overnight were almost all higher with gains ranging from 0.4% to as high as 1.3% with the surge in prices generated from a series of out of the park earnings from several of the big tech behemoths. Overnight economic news saw a downtick in the Japanese unemployment rate for June, better than expected Japanese industrial production readings for June and perhaps most importantly better than expected Chinese nonmanufacturing and manufacturing PMI readings for July! Other news out included a slight contraction in Australian credit and prices, a much weaker than expected Japanese construction order reading, a slightly better-than-expected Japanese housing starts result and not as bad as feared Japanese consumer confidence readings for July. Continuing the avalanche of scheduled data French GDP did not decline as much as feared, German retail sales did not contract as much as feared while Spanish GDP was weaker than expected and Italian GDP was not as weak as expected. In conclusion Japanese numbers were positive and the rest of the world posted disappointing readings. The North American session will start out with June personal income which is forecast to have a sizable uptick from May’s -4.2% reading. June personal spending is expected to have a moderate downtick from May’s 8.2% reading. The second quarter employment cost index is forecast to have a modest downtick from the previous 0.8% reading. May Canadian GDP is expected to have a sizable uptick from April’s -11.6% reading. The July Chicago PMI is forecast to have a moderate uptick from June’s 36.6 reading. A private survey on July consumer sentiment is expected to have a modest downtick from the previous 73.2 reading. Earnings announcements will include ExxonMobil, Merck, AbbVie, Chevron, Colgate-Palmolive, Illinois Tool Works, Dominion Energy and Phillips 66 before the Wall Street opening.

Clearly bullish forces are back in control of precious metals this morning, with gold prices breaking out into new high ground again and silver prices showing noted gains off yesterday’s low of $1.30! Traders should see strong Chinese PMI readings and more gains in Chinese equities as a signal of more improvement in the Chinese economy, which in turn should reverse very dismal physical gold demand patterns in China. Furthermore, with a fresh lower low/new contract low/gap down trade in the dollar early today the currency market action looks to add to the bullish mix. Not surprisingly, gold ETF’s added to their holdings for the 25th straight session yesterday with net purchases year to date now at 25 million ounces. The year to date additive demand from Gold ETF inflows has already surpassed the combined net world Gold ETF purchases of the prior 3 years! It should be noted that the gold market is forging today’s gains in the face of a World Gold Council update which posted an 11% decline in 2nd quarter physical gold demand. Therefore, it is not surprising that the improvement in the Chinese economy is important to the bull camp in gold as that news begins to improve the prospects of physical demand recovering in the 3rd and 4th quarters. In another minor fresh supportive development, the Newmont Mining CEO overnight indicated he was concerned about South American production being disrupted by the virus with his special focus on Mexico Peru and Argentina. In a final and perhaps very significant bullish development, the New York exchange saw the largest daily gold delivery notice on record of 3.27 million ounces against the August gold contract. While the large New York delivery could be the result of arbitrage with London, it is also possible that investors are seeing value and are taking the gold to hold! Lastly uncertainty from the spread of infections throughout the world should foster even more safe-haven interest in gold ahead of the weekend. While the silver charts and fundamental issues are less supportive of the bull camp in silver than in gold new all-time highs in gold, a huge inflow to silver ETF’s yesterday, new lows in the Dollar and a bullish shift in the silver charts rekindles upside potential this morning. In fact, silver ETF’s yesterday added a blistering 5.72 million ounces bringing this year’s net purchases up to 272.5 million ounces. Going forward as-long-as gold provides significant spillover lift, physical demand from disappointing numbers is avoided and September holds above $23.36 silver should carve out some gains today.

While palladium prices have bounced this morning and new record highs in gold should lend support, the aggressive breakdown on the charts this week is very disappointing to the bull camp. Furthermore, the palladium market has yet to catch investment interest in ETF’s as has been seen in gold and silver and that suggests to us that the market remains a physical commodity and not a financial instrument. However, palladium should see some support from the better-than-expected Chinese PMI readings overnight but also from the ongoing strength in Chinese equity markets. We see critical support in September palladium today at $2110 but the failure to hold above $2079 could project a return to $2000 next week. In a similar fashion, the platinum market ranged down sharply yesterday and in the process the market severely damaged its charts and fundamental psychology in the process. While we suspect higher gold, a softer Dollar and higher equities will lend some support today rallies will likely be measured unless gold and silver prices light up on the upside.

It would appear as if another wave up has begun in the gold market, with a series of bullish fundamentals intensifying over the last 24 hours. The strength in the gold market is likely to drag silver upward, with the big catalyst for the remainder of the US trading session today likely to be personal spending which is expected to be positive but not as strong as the prior month. It is also possible that noted movement toward a US bailout package could add to the upside bias later today we see solid support in December gold at $1971 and retain a near term upside target of $2011. As indicated already we see critical support in September silver at $23.41 and expect to see at least a rally up to $24.90.”

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