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Gold – Quiet/Strong Dollar

Gold – Quiet/Strong Dollar

Commentary for Friday, Aug 20, 2021 ( – Gold closed up $0.80 at $1781.00 and silver closed down $0.11 at $23.11. Again, this week there was the usual round of opinions. Worth noting however is that the Dollar Index is trading at 10-month highs and gold still maintains its bearing ($1781.00). The bears will claim this dollar strength is either the result of expected Fed tapering or “safe-haven” worry. But no matter, for gold to still “hold up” should be encouraging. The reason being that many believe once tapering begins this removed fear will support higher gold prices. Any strength suggesting that $1900.00 is back in the cards could reinvent that old mojo the bulls have been missing. Now before you hock the house remember that the bigger longer term technical picture for gold since last summer has been bearish. There have been three attempts at pushing the bullish envelope at or above $1800.00. All have failed but the Fed is still dragging its feet, inflation moving higher and the pandemic turning cloudy, so the longer-term bullish scenario remains alive and well. Last Friday gold closed at $1775.20 / silver at $23.77 – on the week gold closed up a quiet $5.80 and silver was off $0.66.       

The good news is that delivery on 2021 US Gold and Silver Eagles is getting better (still not “normal” but improving). And we are finally receiving early .9999 fine silver round orders. The bad news is that “any new orders” are still 3 to 6 weeks coming from the manufacturer. My guess, however, is that delays will soon shorten. 

Should you decide to use our Delayed Delivery Program please talk with your service rep and understand how this program works. It is handy if you want to lock in the price “now” and insist on new product – but is not for everyone. Just like us – you must pay upfront to “lock in” prices and you can’t “change” your mind. So, unless God has blessed you with patience, please ask your rep for other options and thank you for your understanding.

On Monday gold opened flat, disappointing considering Friday’s big close and I was hoping for a big push above $1800.00 to put some of the naysayers to sleep. And while the domestic market did gather itself, pushing towards $1800.00 even as the Dollar Index remained flat, traders will criticize this lack of momentum follow through. Zaner (Chicago) – “A couple of key inflation indicators this week showed the highest year over year increases since the recovery off the Great Recession in 2008, and this prompted expectations that it would accelerate any Fed tightening moves, but the gold market appeared to ignore it. It seems the market already accounted for this when it sold off in the wake of the strong jobs report last week. Some are of the opinion that Fed tapering is already “baked in the cake” and that the next focus will be on interest rates. The trade will have another chance to react when the Fed meets in Jackson Hole next week. Countering Fed tightening fears are Covid caseload increases, as any economic damage resulting from new shutdowns could postpone any Fed move. As if on schedule, ETFs increased their gold holdings yesterday by 41,641 ounces after declining for five straight sessions.”

Gold seems to be ignoring the human tragedy as Biden pulls out of Afghanistan and the Taliban seize control. But I remain seriously worried about that region and wonder what happened to the days when any large Middle East problem would make the gold trade nervous.

For sure the lower US Treasury yields today helped gold remain firm, which suggests Wall Street does not soon expect any FOMC monetary modification. Gold’s technical picture is now a push between the bulls and bears which is significant considering how bearish this picture looked just a week ago. Still, gold sentiment remains negative, and it must show some strength above $1800.00, or risk losing focus and consolidating while waiting for the next FOMC move.

Fed Chief Powell and the crew will meet Tuesday and Wednesday this week so we won’t have long to wait and any hint of continued dovishness or returning hawkishness will be reflected in this week’s pricing after the news is released after the market close on Wednesday.

Reuters suggests gold moved higher today for two reasons. Higher Covid numbers in Europe are contributing to renewed safe haven demand. And the gold paper trade is experiencing a short squeeze. These “short” positions, accumulate when traders were worried about the taper are now being covered, pushing prices higher. On the day gold closed up a modest $11.70 at $1786.90, which is good but still no cigar. And silver closed almost unchanged up $0.01 at $23.78.    

Gold on Tuesday opened stronger, pushing toward $1800.00. But once again, this overhead resistance proved troublesome as the Dollar Index pushed above 93.00. According to Reuters the dollar is being bolstered by safe-haven demand, rising political tension over Afghanistan and fear of potential lockdowns as the Covid Delta variant numbers continue higher.

The inability of gold to move above $1800.00 given last week’s dovish tapering news seems to indicate that traders remain unsure of the Fed’s “unwinding” intentions. Sharper than expected decline in Tuesday’s US retail sales curbed gains in the dollar, a plus for the gold market. Still this picture remains a mixed bag. Which produces a typical bouncing ball market, favoring the daily paper trade – “buy the dips and sell the rallies”.

I expect some clarification after the Federal Open Market Committee comments this week after Wednesday’s close. And there might also be fireworks at the Jackson Hole Symposium late next week as central bank officials and academics gather at their annual meeting. On the day gold closed down $1.90 at $1785.00 and silver closed down $0.13 at $23.65.

Grant on Gold (Zaner) – “(1) Gold started the week on the bid, setting a one-week high at $1789.26, just shy of the 20-day SMA. The yellow metal has gained more than 6% since a 4-month low was established at $1680.23 a week ago. (2) Silver saw some modest upside follow-through on Monday, adding to the gains seen at the end of last week. However, price action remains confined to the broad range established last Monday. (3) Platinum has recovered somewhat after falling to a 7-month low of $959.09 last week. That low was shy of the COVID range midpoint which stands at $947.65. (4) Palladium remains contained within the $3017/$2452 range established earlier in the year, underpinned by a persistent supply deficit.”

On Wednesday the domestic gold market opened flat drifting lower over mild profit taking, tapering concerns and a stronger dollar. A bit of economic uncertainty might also have Wall Street worried suggesting less risk-attitude when it comes to stocks. Sustained higher prices in gold, while choppy support this small shift to safe haven choices like the dollar and gold. A weaker dollar after the close pushed gold back into the green, waiting for the Powell speech.

The latest FOMC minutes from July indicate a willingness to start reducing asset purchases before the end of the year. Officials stressed that there is no link between tapering and potential interest rate hikes. Some members expressed concern over inflation, though opinions vary widely according to CNBC. For now, the gold bulls and bears continue to squabble, and while the news remains mixed the bull camp can add a few pluses to its toolbox. This from Jim Wycoff (Kitco) – “Technically, gold bulls have gained the slight overall near-term technical advantage. Bulls’ next upside price objective is to produce a close above solid resistance at $1,800.00. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at $1,700.00. First resistance is seen at today’s high of $1,795.00 and then at $1,800.00. First support is seen at Monday’s low of $1,769.80 and then at $1,760.00.”

Palantir Technologies, a publicly traded company is seeing media attention for its unconventional $50.7 million dollar purchase of gold bars in August (Barron’s). COO Shyam Sankar tells Bloomberg “You have to be prepared for a future with more black swans events.”

This kind of purchase in gold bullion is no big deal but it suggests an important point which is overlooked in today’s gold commentary. A Black Swan is a metaphor describing an event which is unpredictable and carries severe consequences – something unexpected and out of the blue. Today most are so old school that a Black Swan is not even considered. Even as the world is staggered in a monstrous pandemic which ushered in record amounts of fiat currency expansion.

There are also a few loose ends which are worth considering. The first is how serious to take the “flash crash” gold experienced two weeks ago, which collapsed prices in the overseas paper market ($1677.00). By the time our domestic market opened Monday most of this loss was recovered. And while there was obviously technical damage, the psychological damage remains part of this equation even though bullish sentiment is pushing gold again towards $1800.00. The big plus gold argument is that the physical market aggressively bought this dip. The negative being a suspicion that pricing may eventually test this blow out number if the FOMC turns aggressively hawkish. A reasonable middle ground would be to say that gold overreacted to this wash-out and traders expect a value orientated physical trade which supports bargain hunting. Which suggests consolidation might continue given inflation remains tame.

The second issue – growing pandemic numbers. World Covid D infections show a third pandemic wave forming – approaching 600,000 infections using a 7-day average. US infections are also moving in the wrong direction. LA County down to a few hundred cases 3 months ago are approaching 4000 cases using the 7-day average. Worse, the last day of summer June 22 is this coming Sunday. Winter months bring higher infections.  Zaner’s (Chicago) sad comments about the gold market are noted “Slow grinding gains as delta virus offsets tapering talk”. On the day gold closed down $3.40 at $1781.60 and silver closed down $0.24 at $23.41.       

On Thursday gold moved nicely higher approaching $1790.00 but this move was stopped by a stronger dollar. The Dollar Index has moved from 92.50 through 94.50 this week which might suggest traders do not consider the FOMC dialogue as dovish as it was a few weeks ago. It’s clear the Fed is considering “something” related to quantitative easing simply because they continue to highlight the subject. I thought initially this was just part of keeping everyone on the same page, but our strengthening recovery will eventually require a definitive answer. But this pandemic picture has never been easy or especially clear even to the medical trade because few in this generation even considered this monstrous possibility.

Now we may be seeing a slight shift in sentiment between FOMC governors. For example, the Fed’s Kashkari says he will reconsider tapering if delta variant slows down hiring. This is a big change because surprisingly the initial variant threat was dismissed. The rising infection numbers cannot now be ignored because the University of Oxford is showing diminished effectiveness from coronavirus vaccines to the delta variant.

This possible change in the pandemic view is still not fully understood but it has created an increase in safe-haven demand especially in other countries. And Wall Street is nervous but data from the labor department today showed weekly unemployment claims at a 17-month low, further supporting the view that a job market recovery was underway.

For now, the gold plus created from increased physical demand meets the minus created from continued planning for the eventual FOMC of modified quantitative program. These opposing forces allow gold to hold recent gains but cap it from moving above the important $1790.00 overhead resistance. I don’t see any chance of new recent highs if the Fed continues to rattle on about quantitative easing. But this dynamic has a lot of moving parts so stay tuned. Gold closed down $1.40 at $1780.20 and silver closed down $0.19 at $23.22.

Gold Friday continued rather flat with lower highs and lower lows into this last trading day of the week. The bulls still hold a technical advantage short term, but the very strong dollar has capped gains and may be suggesting that the bulls will have to be satisfied with a channel trade on both sides of $1780.00. Waiting for additional Fed or economic information which might come to light at the Jackson Hole confab next week.

This week gold has benefited from rising safe haven demand over concerns with the rapid spread and more virulent Covid D variant. At the same time the Dollar Index has moved from 92.5 through 93.5 (10-month highs), which might sound counterintuitive but confirms the notion that during times of uncertainty the dollar remains a popular safe haven choice.

Crude oil has moved from $75.00 through $63.00 in about 40 days, perhaps the result of the variant worry but also offering a whiff of deflation. This may offset the reasonable inflationary scenario which has been in place since last November when crude was trading at $40.00 a barrel.

It is also interesting that traders now see a divergence between the price of gold and silver favoring gold. Zaner (Chicago) points to the so-called “death cross” as the silver 50-day moving average crosses below its 200-day average. They also note that silver ETF holding are moving in the wrong direction. While all of this is true the physical silver market is still behind the production curve as illustrated with continued high premiums on new product. Judging by the numbers Wall Street believes this recovery is intact, perhaps challenged but moving forward. If you belong to this group silver would be an aggressively bought as it moves lower considering its widespread application in industry and technology.

According to Reuters there are two primary forces working on the price of gold. For the bulls there is the continued and perhaps growing safe demand created over the Delta variant. For the bears there is the slowing economic recovery and possible tapering from the Federal Reserve.         On the day gold closed up $0.80 at $1781.00 and silver closed down $0.11 at $23.11.  

Platinum closed up $22.90 at $993.50 and palladium was down $21.40 at $2274.70. .                          

My Brothers and Sisters, we thank you for your business and fellowship. If you have unusual circumstances, need cash or are looking for a special visit – talk to Harry. Many on our staff have now received the vaccine as we continue to enforce rigid safety standards between people and product. Be careful, this virus remains a danger. At the same time trust that God will soon get us back to normal. Richard Schwary

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