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Gold Quietly Settles

Gold Quietly Settles 

Commentary for Thursday, Sept 13, 2018 – Gold closed down $2.70 today at $1204.70 still holding above $1200.00 which is good news. The bad news is that this market gave up earlier gains which were encouraging in light of yesterday’s strong close.

Today’s action turned soft most likely over trade issues and the Dollar Index which weakened considerably yesterday but turned flat today in the 94.50 range. Peter Hug (Kitco) is almost optimistic – “As per our comment last week, we remain constructive on gold and continue to see the risk to the bear camp. The first nudge was the lower PPI print, which created some speculation that the Fed may be less aggressive going forward. Then came yesterday’s suggestion that the U.S.-China trade war may be calming, with the U.S. invitation to the Chinese to continue dialogue. Interest rates still favor the dollar but any conciliation on the trade front should mitigate dollar flows from a safe-haven perspective. This is certainly not an all clear for gold, but it looks like the bottom has been established in August. The shorts will become increasingly restless should gold break above $1,212 and given the amount of short interest in the market, the exit door is growing smaller. We see small support at the $1,202 level.”

Now most of you will not see anything dramatic in the above commentary – but actually he is sticking his neck out here – anything that challenges the short contingent in this market is a kind of outlander. But there are signs, perhaps appearing only around the edges that gold is coming back into focus after a summer of ho-hum trading and negative commentary.

And Neils Christensen (Kitco) is also posting positive commentary. Morgan Stanley Makes Rare – Tactical Case to Own Gold – “Morgan Stanley may have little love for gold but the bank still sees some potential for the yellow metal as a tactical asset. In a rare trade investment recommendation, Lisa Shalett, head of wealth management resources at Morgan Stanley Wealth Management, recommended that investors take profits in some of their equities and use it to build a 3% to 5% position in gold.

“While we do not see gold as a long-term holding, we believe it can be used tactically as a potential hedge for a stock-market correction and/or a reversal in the dollar and real interest rates,” she said in a report published at the start of the week. “We rarely use gold in our asset allocation, but occasionally there are opportunities and currently we see one of them.”

The sixth-largest bank in the U.S. expects that gold prices will eventually recover by the end of the year and push to $1,300 an ounce as market volatility rises, the U.S. dollar weakens and the yield curve continues to invert, highlighting the growing risk of a slowdown in the U.S. economy. While the U.S. economy and stocks continue to outperform, Shalett noted that complacency is dominating investor sentiment. She added that she doesn’t expect that the U.S. economy can continue its current pace in relation to the global landscape.

One significant threat Shalett highlighted is the ongoing trade dispute with China. She said that if the U.S. government increases tariffs on another $200 billion in Chinese imports, it could drag global gross domestic product down by 0.5% next year.

“The relative outperformance of U.S. assets this year and this past decade is now at extremes. While that alone is not reason to question the durability of the trend, complacency is,” she said. “Our analysis suggests that current market positioning is not sufficiently discounting an interruption of the current trend in which growth is strong and the Fed is perceived as dovish, nearing the end of its hiking cycle. Although these conditions may in fact persist, gold may benefit from any reappraisal of the outlook.”

So is everyone turning bullish? Hardly but I think the overpowering bearish sentiment is dissipating somewhat and the continuing worrisome talk about tariff wars is helping this thinking shift along. And as I have been saying now for some time – cheaper prices always moves the needle and creates interest.

Finally consider the latest Reuters post – the US government had a $214 billion budget deficit in August, almost double the amount for the same period last year. Sooner or later someone is going to have to pick up the tab for all of the “big spending” plans on the table. Now add that full employment is finally back – this means wages will finally begin to increase.

Wage competition and the fallout from tariff problems are both sources of inflationary pressure. Not that this is current concern but over time my bet is that inflation will edge its way back into the conversation and this is exactly what gold needs to make new highs.

This from Zaner (Chicago) – “Gold and silver were able to draw strength from improvements on the trade front on Wednesday, but some concerns over Brexit progress developed overnight, and that threatens to stall their progress. UK Prime Minister Theresa May called a special meeting today to discuss a “no deal” Brexit, and this has raised concerns. Yesterday it was reported that Canada and the US were getting closer to an agreement on NAFTA and that the US was interested in resuming trade talks with China. The dollar fell to its lowest level since August 31st on the news, while December gold had its highest close since August 28th. Canada is apparently ready to offer US some limited access to their dairy market, and news of this supported the Canadian dollar against the US dollar. Also, reports that senior US officials, led by Treasury Secretary Mnuchin, have sent an invitation to their Chinese counterparts to resume trade meetings helped soothe some of the trade anxiety that has been responsible for the dollar’s strength recently. Earlier in the day, the US Producer Price Index came in lower than expected, which also pressured the dollar and supported gold and silver on ideas that it might lower the chances for more Fed rate hikes in 2019. Not only did the PPI not increase as expected, it actually declined 0.1% last month, the first drop in wholesale prices since February 2017. If the CPI number this morning is below expectations calling for +0.3% on the month (+2.8% year on year) it could spark some additional buying in gold and silver. With last week’s COT report showing speculators net short gold, the market is vulnerable to short covering if resistance levels are taken out. December silver also rallied off the news yesterday and traded to its highest level since September 6th. The gold/silver ratio has reached its highest level in more than 20 years, suggests that silver would have more to gain on a short-covering rally. Specs have reached a record short position in silver.

October platinum inched higher overnight and appeared ready to test the high of its month-long trading range after the market drew strength from the weakness in the dollar yesterday. Although it is considered an industrial metal, platinum has tended to follow the same signals as gold recently because of its reduced demand as an auto catalyst. Specs are also heavily short platinum, so we would not be surprised to see platinum follow gold and silver higher on a short covering rally driven by weakness in the dollar. On the other hand, auto catalyst demand plays the dominant role in the palladium market, and as such we see palladium responding to traditional supply/demand factors more than movements in the dollar. Progress in trade negotiations should be good news for palladium demand, but the market is looking technically overbought, with a recent negative crossing in the stochastics, divergence with momentum indicators, and the rally off the August lows being accompanied by a steady decline in open interest. Therefore we would expect palladium to lag the other markets on rallies and lead on the downside. Support for December palladium comes in at $954.00, with resistance at $978.30. If the market falls below the 100-day moving average at $943.60, it could project to a correction of the August-September rally, with an initial target of $916.30. Look for resistance in October platinum at $810-$813.”

Silver closed down $0.05 at $14.14. People might speculative about gold’s turnaround but these prices have heated up our across the counter silver sales. We sold more 2018 Silver Eagle Monster Boxes in August than we sold in the previous 3 months.

Platinum closed up $3.40 at $802.10 and palladium closed up $3.70 at $997.00.

This is our usual ETF information – All Gold Exchange Traded Funds: Total as of (9/5/2018) was 65,788,922.  That number this week (9/12/2018) was 65,586,416 ounces so last week we dropped 202,506 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 2018 was 70,728,953 and the record low for 2018 was 65,576,518.

All Silver Exchange Traded Funds: Total as of (9/5/18) was 645,584,285.  That number this week (9/12/18) was 648,130,298 ounces so last week we gained 2,546,013 ounces of silver.

All Platinum Exchange Traded Funds: Total as of (9/5/18) was 2,370,903.  That number this week (9/12/18) was 2,375,280 ounces so last week we gained 4,377 ounces of platinum.

All Palladium Exchange Traded Funds: Total as of (9/5/18) was 1,001,826.  That number this week (9/12/18) was 975,989 ounces so last week we dropped 25,837 ounces of palladium.

This is our usual Thursday Chicago Mercantile Exchange report covering the last 5 trading days – so we are looking at the trading volume numbers for the “September” Gold contract: Thursday 9/6  (360219) – Friday 9/7 (358305) – Monday 9/10 (362045) – Tuesday 9/11 (361629) – Wednesday 9/12 (362874) and the trading volume numbers for the ” September ” Silver contract: Thursday 9/6  (185603) – Friday 9/7 (184852) – Monday 9/10 (183067) – Tuesday 9/11 (182345) – Wednesday 9/12 (180144).

The Unscientific Activity Scale is a “5” for Thursday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Friday – 4) (Monday – 5) (Tuesday – 4) (Wednesday – 4). 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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