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Gold – Quite and Engaged

Gold – Quite and Engaged 

Commentary for Tuesday, May 7, 2019 – Gold closed up $1.80 today at $1283.50. Pretty typical pricing pattern this morning – the market opened flat around $1282.00 and then sold off turning around at $1278.00 and settling about unchanged.

This weakness might have been caused by a stronger dollar – the Dollar Index traded around 97.4 and then moved to 97.7 most likely over continued trade worries which benefit safe haven buying of the dollar at least in the beginning. 

Still gold’s recent pricing movements are steady if not impressive.

Since last Monday it has traded in a two dollar range which is surprising. More problems with the China/US trade talks created a 400 point drop in the DOW this morning but little in the way of safe haven demand for gold. This situation however is fluid – new tariffs are a possibility and if world trade gets shaky (it already has a cold) demand for gold will certainly rise.

Gold has also ignored the increased international tensions between the US and Russia, Iran and Korea. Even recent anticipation of increased physical buying from both India and China has done little to move the needle.

The US market also remains quiet and has been in a “wait and see” mode since mid-April bouncing on either side of $1275.00. This is actually semi-positive in that some were worried that this support level might be breaking down – yet continues to catch a regular bid.

Back and forth pricing will eventually create technical nay-sayers but this market continues to create a somewhat bullish expectation. This from Allen Sykora (Kitco) – TDS: ‘Gold At $1,300/Oz Is Well Within Reach’ – “Gold prices of $1,300 an ounce are “well within reach,” particularly amid potential for increased volatility and risk in other markets, says TD Securities. Gold benefited early Monday after U.S. President Donald Trump threatened increased tariffs against China, with equities and industrial commodities such as oil and copper coming under pressure. Gold later retreated while equities, oil and copper all bounced, with risk appetite returning with markets seemingly viewing the Trump’s “aggressive statements” as an effort to pressure China rather than a willingness to engage in a full-blown trade war. TDS analysts say they expect an eventual trade deal between the U.S. and China, but also say markets may have already factored in a best-case scenario. “The higher market vols and risk profile should see an increase of capital flows into gold from both private and official sectors,” TDS says. “Gold at $1,300/oz is well within reach.” As of 9:26 a.m. EDT, spot gold was 80 cents stronger at $1,281.40 an ounce.”

As we all know – patience is also virtue in the physical market. There is nothing like higher prices and fireworks to excite the physical base but cheaper prices also carry their own reward. And while gold remains sleepy but still very much in the game the physical silver market draws attention. There are plenty of buyers below $15.00 and legions of buyers at $14.50.  

This from Zaner (Chicago) – “Apparently “gold buying day” in India has done little to stimulate global gold demand overnight with prices this morning spending most of the overnight trade in negative territory. While Indian gold jewelers apparently had to reduce prices to stimulate sales some sources have predicted sales growth for the day might be 15 to 20%. On the other hand positive demand was seen from overall Indian gold imports figures as estimates suggest April imports will reach 121 metric tons from 52.8 tons last year. In yet another bullish headline that has been largely discounted by the gold trade this morning Chinese gold reserves last month increased for the fifth straight month but the increase was slightly less than 500,000 ounces. Certainly fears of a strong Dollar remain limiting although not a definitive force in the gold trade to start this week. In fact with gold not gaining significant ground off serious threats to trade progress earlier this week and more specifically failing to rally definitively off signs of rumors that Iran might retaliate against aggressive US military deployment in waters off its shores, it is clear that safe haven interest early this week is not a major item for the gold trade. On the other hand, we would be careful selling gold at current levels because of the liquidation last week but also because of the history of US/Iran interactions which has usually resulted in everything short of actual military aggression. While the gold market last week did not show bullish reaction to soft economic data, another setback in US/Chinese talks ahead of what was supposed to be the finish line, did foster some modest macroeconomic anxiety buying. Therefore, traders should expect expanded two-sided volatility this week with the $1,275 level continuing to build out as a general value zone. While the IMF yesterday showed that India raised its gold holdings by 3.7 tonnes that was offset by news that Qatar lowered its gold holdings by 3.11 tonnes.

Obviously the palladium market was undermined as a result of the potential breakdown in US/Chinese trade talks as that hits right at the heart of the potential for revived palladium demand from Chinese auto catalyst production. Furthermore ideas that trade talks might not yield a deal combined with aggression in the Middle East could add additional physical demand deterioration fears. Given the poor action on the palladium charts yesterday and the lack of credible support close-in we can’t rule out a temporary retest of the $1,299 level today. On the other hand we suspect that platinum could garner some lift in the event that gold soars off aggression in the Middle East, but not in the event that trade talks yield official predictions of another significant extension of talks. Despite the positive action in platinum yesterday it would appear as if it has forged negative early chart action this morning with support in July platinum pegged at $873.20 and resistance at the bottom of the late April consolidation (which is also the overnight high) up at $887.50.

While the gold market did not respond in kind to a pair of surprising geopolitical issues over the past 48 hours, we are not inclined to press the short side of the market because of the brewing tensions in the Middle East especially since the tensions involve Iran. Not only has the US deployed a “strike force”, but Iran is thought to be poised to respond aggressively to that deployment. While we think June gold can periodically spike below $1,275, the Iranian situation could be a catalyst to throw off the downtrend pattern in place since the February highs. Downtrend channel resistance in June gold is seen up at $1,297 and that downtrend channel resistance line falls to $1,293.70 this Friday.”

Silver closed unchanged at $14.86.

Platinum closed down $7.50 at $870.20 and palladium closed down $4.70 at $1328.10. And the physical platinum market is picking up speed at these lower levels.  

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