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Gold Quiet but Watched Carefully 

Gold Quiet but Watched Carefully

Commentary for Wednesday, Feb 13, 2019 – Gold closed up $1.60 today at $1310.80. So while this market remains quiet it is also holding the public’s attention, which is unusual because when trading ranges get close it’s like watching the paint dry. Gold remains engaging however because everyone wants to see if $1300.00 will hold up.

And according to the latest Gallup poll Americans are feeling pretty good about their financial future with 79% seeing a better tomorrow. This optimism enforces Fed Chair Jerome Powell’s rather upbeat assessment as to the economy – he feels the FOMC has this interest rate conundrum under control. This settles Wall Street to some extent and while I think it’s a mistake to read too much into this most recent wave of optimism it does calm the waters and deemphasize the need for higher interest rates at least for the short term.

The next “big” meeting will be March 19th and 20th and my bet is that the Fed will leave interest rates unchanged and the latest CME FedWatch Tool agrees – the probability of a “no change” outcome being 98.7%. This shows how dramatically the FOMC has altered course since early 2018 when higher interest rates were touted and generally accepted by everyone. Just a point of accuracy here – there were a few thinkers that claimed higher interest rates were never going to happen because “cheap” money had become addictive. I was not one of them but in hindsight they appear to be at least ahead of the curve.  

There are also those looking for a big dip on Wall Street (and therefore more safe haven buying in gold) if the Trump/China trade deal sinks. This is wishful thinking – even if all the tariffs were left in place, which is not likely the actual change in US GDP would be almost zero because our Gross Domestic Product number is so large. Thus a deal or no deal with China will create no waves or opportunity for gold. And considering the renewed American enthusiasm I see the fear of a shaky DOW growing less over time.

What makes gold interesting and engaging at this point are two important points. First, the combination of a now dovish FOMC and the fact that gold pricing has seen a generally rising bottoms pattern since early 2016. The first bottom ($1050.00), the second bottom ($1150.00) and the third bottom ($1200.00). Gold could even break-down at $1300.00 and this encouraging technical pattern would remain in place as long as $1200.00 was not breached.

What I would really like to see on the shorter term is a break above $1350.00. This alone would reinvigorate the gold market and dispel the notion that pricing, while higher on the shorter term is just stuck in a channel which has been in place between $1200.00 and $1350.00 for 3 years.

Everyone should be patient here – the latest Consumer Price Index suggests that the increase in inflation is the lowest we have seen in 2 ½ years and while you might think this is not good for higher prices it actually favors the bulls. Subdued inflation will encourage a dovish FOMC. And no interest rate hikes equals higher gold.

Second, and completely ignored these days is our massively large US debt. The latest numbers on the national debt are a staggering $22 trillion dollars – the largest in history. And by some accounts this explosion will soon be growing by a trillion dollars a year. These numbers are so big that most people can’t even imagine how large a “trillion” is. And further this number does not include unfunded liabilities so who really knows where this disaster might lead.      

This from Zaner (Chicago) – “Global equities were mostly higher with Russian and Australian markets bucking the trend. Overnight South Korea saw its unemployment rate jump up to a nine year high and many see that economy as a bellwether indicator for Asian economic activity. Japan saw January PPI rise by 0.6% on a year-over-year basis and that was slightly softer than expected. From the UK, core CPI on a month over month basis declined as much as was expected, but PPI input prices on a month over month basis contracted and were obviously weaker than expectations. From the euro zone the market was presented with industrial production for December and that figure came in much weaker than expectations but not as soft as the prior month. On a year-over-year basis, euro zone industrial production declined by 4.2, which is a full point worse than expectations. The North American session will start out with a weekly private survey on mortgage applications. The January consumer price index is expected to have a moderate decline from December’s 1.9% year-over-year rate. The January core consumer price index (ex-food and energy) is forecast to have a minimal downtick from December’s 2.2% year-over-year rate. Atlanta Fed President Bostic and Cleveland Fed President Mester will speak during morning US trading hours while Philadelphia Fed President Harker will speak during the afternoon. Earnings announcements will include Barrick Gold and Louisiana-Pacific before the Wall Street opening while tech bellwether Cisco Systems, Williams, Kinross Gold and The Andersons report after the close.

While the Dollar range up extension pressured gold and silver prices in the Tuesday morning trade, the Dollar fell back in a fashion that the bear camp in gold has to be a little frustrated. In fact the gold bulls seem to be capable of shifting their focus from bearish outside market forces (like risk-on and declining macroeconomic flight to quality) to alternative bullish themes like the hope for a recovery in physical demand. While the market hasn’t paid that much attention to classic supply issues there is a threat of a strike at Sibanye following news that the company might close unprofitable shafts. In the end, the action in the Dollar has been a solid force for the daily direction of gold prices for several months and therefore buyers should be poised to exit long gold and silver positions in the event that the March Dollar Index returns to 96.85 or prices start to erode in sync with big stock market gains! The Commitments of Traders report for the week ending January 15th showed Gold Managed Money traders reduced their net long position by 6,142 contracts to a net long 43,806 contracts. Non-Commercial & Non-Reportable traders are net long 133,866 contracts after net selling 9,906 contracts. In conclusion, internal fundamentals might have little control over gold prices over the coming 3 days and expanded volatility should be expected. The Commitments of Traders report for the week ending January 15th showed Silver Managed Money traders are net long 39,349 contracts after net selling 3,459 contracts. Non-Commercial & Non-Reportable traders added 2,722 contracts to their already long position and are now net long 72,854.

While the palladium market failed to make a higher high during the Tuesday trade, it forged another upside breakout overnight and seems poised for a return to $1,400. Obviously the platinum market will continue to lag behind palladium on upside moves and it should lead palladium on downside moves, but a definitive risk on environment from one or two solutions to budget or trade problems could bring about a short covering bounce in platinum of $15. Under a definitive risk on environment, we suspect March palladium will spike above $1,400 and will eventually post a fresh record all-time high spec and fund long positioning. The January 15th Commitments of Traders report showed Palladium Managed Money traders added 268 contracts to their already long position and are now net long 14,159. Non-Commercial & Non-Reportable traders are net long 15,097 contracts after net selling 67 contracts. Uptrend channel support in March Palladium today is seen at $1,337.85 while support in April platinum is seen at $787.80. The Commitments of Traders report for the week ending January 15th showed Platinum Managed Money traders added 3,459 contracts to their already short position and are now net short 10,700. Non-Commercial & Non-Reportable traders are net long 16,133 contracts after net selling 5,081 contracts.

As we have said several times over the prior five trading sessions, the action in gold is impressive as it has shown resiliency in the face of adversity. However, a critical juncture and decision on the markets focus sits directly ahead and volatility could be similar to the volatility seen on January 25th when gold forged a daily trading range of $25. Uptrend channel support in April gold today is seen at $1,308.15 and the failure to hold that level could result in a slide down to $1,282 before the end of the week. However, if the dollar falls precipitously on progress on either trade or budget, that could give gold a double lift from currency buying and from improved physical demand hopes. Unfortunately, gold has seen some divergence with silver, platinum, palladium and copper on days with a major fundamental inflection point and that inflection point is likely to be Friday.”

Silver closed down $0.04 at $15.62.

Platinum closed up $2.30 at $788.00 and palladium closed down $2.80 at $1411.00.

This is our usual ETF information – All Gold Exchange Traded Funds:

Total as of (2/6/2019) was 70,210,305. That number this week (2/13/2019) was 69,849,383 ounces so we dropped 360,922 ounces of gold.

The all-time record high for all gold ETF’s was 85,112,855 ounces in 2013. The record high for Gold ETF’s in 2019 was 70,515,544 and the record low for 2019 was 68,732,549.

All Silver Exchange Traded Funds: Total as of (2/6/2019) was 614,978,173. That number this week (2/13/2019) was 612,266,157 ounces so we dropped 2,712,016 ounces of silver.

All Platinum Exchange Traded Funds: Total as of (2/6/2019) was 2,425,580. That number this week (2/13/2019) was 2,486,025 ounces so we gained 60,445 ounces of platinum.

All Palladium Exchange Traded Funds: Total as of (2/6/2019) was 780,546. That number this week (2/13/2019) was 772,640 ounces so we dropped 7,906 ounces of palladium.

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