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Gold Rather Ignores Europe – For Now

Gold Rather Ignores Europe – For Now           

Commentary for Tuesday, May 29, 2018 ( – Gold closed down $4.30 at $1299.00. With the DOW off considerably I would have expected the price of gold to be something more than choppy to lower. We were down in early trading as gold reacted to a stronger dollar – the Dollar Index moved from 94.31 through 95.00 before settling in the 94.80 range. The dollar was strong because of the developing mess in Europe – we are back to the big question – what to do with all that debt in Italy – will they really leave the EU (doubtful) but who knows these days and what about Spain?

For the record Italy is 5th on the list of countries with the highest debt to GDP ratios at 131%. But the US is not far behind our free spending Italian friends – we are tenth at 105%.

The bigger point being that Italy is not even the poster child of misplaced monetary policy. Much of the world central banking system is operating on a kiss and a promise and yet American optimism is soaring – another reason that physical gold demand remains quiet.

The DOW was off 4 or 5 hundred points today over European unrest and the best gold could do is to trade unchanged to slightly weaker.

I guess we should be grateful pricing is still holding up considering the strength in the dollar but it’s puzzling to me at least why gold remains stymied – not exactly on the sidelines – yes at the higher end of its recent range but with political unrest is still not creating much of a buzz.

You could blame gold technically – the latest breakdown from $1340.00 and gold’s inability to hold $1300.00 places the bears in control. But there is enough bargain hunting and political angst to suggest that perhaps the bears are worn out and paper sellers have evaporated. I’m sure no one wants to be short with all the hullabaloo going on in Europe but the US market remains quiet.

Peter Hug (Kitco) is right on the money this morning – Gold Continues to Search for Direction – “Gold continues to be caught in a series of crosswinds. Financial risks in Europe continue to grow as political uncertainties in Italy and Spain dominate the headlines. The euro remains under heavy selling pressure, as traders perceive the ECB may delay plans to unwind their quantitative easing policy, as the Fed continues to tighten. Elections in Italy are likely to be called for late summer or early fall and in Spain a non-confidence vote may happen as early as Friday. The growing populist movements in Europe may once again bring into focus the viability of an EU membership with younger voters. Gold buying has picked up in Europe over the past few weeks, as the metal has appreciated in euro terms but the trend remains conflicted in North America. The on-again North Korean summit, the strengthening dollar and yield differentials continue to be headwinds for gold prices in U.S. dollars. The contagion risk to the U.S. financial system from current events in Europe remains slight in the short term but has the potential of being disruptive of the Italian and Spanish votes become a referendum on the EU. We continue to advise holding a percentage of the portfolio in gold. For traders, the whip-saw action remains challenging. The momentum indicators are neutral. Technically, we need a break above the $1,307 level and support sets up initially at $1,292 and then again at $1,287.”

This from Zaner (Chicago) – “All things considered the gold bulls are lucky they are facing only modest losses to start this morning as the US dollar has thrust significantly into new high for the move ground early on. However the gold market was undermined at times and it was tracking moderately lower before recovering back above the psychologically important $1300 level. In addition to dollar pressure the gold market is also seeing some modest pressure from the revelation that the US/North Korean Summit is back on again. An issue that probably provides some pressure to gold is the fact that Switzerland’s gold exports to Hong Kong from the prior month were reduced by half but that news was partially offset by Swiss exports to India which registered a flow of 26.2 tons from just 12.3 tons previously. Perhaps the gold market is cheered by the somewhat dovish comments from the Fed’s Bullard in Tokyo overnight as the Fed members suggested US policy might be near neutral and that could eventually check-up the dollar rally and that could also temper fears of rising rates for many physical commodity markets. In the end the Italian political crisis combined with the mere hint of a euro zone breakup should help gold respect the $1,300 level to start the trading week. The Commitments of Traders Futures and Options report as of May 22nd for Gold showed Non-Commercial and Non-reportable combined traders held a net long position of only 103,927 contracts and that should mean the gold market is somewhat balanced from a technical perspective. The Commitments of Traders Futures and Options report as of May 22nd for Silver showed Non-Commercial and Non-reportable combined traders held a net long position of 31,727 contracts which is relatively low but that positioning has been rebuilding consistently after posting the lowest spec long ever earlier this year.

Like the gold market the platinum and palladium markets have held up impressively against potentially negative dollar action and against a risk off global mentality. While the platinum market has not reacted to typical supply-side movements the trade was presented with news overnight that Switzerland became a “net importer” of platinum last month. Switzerland has typically been a clearinghouse for distribution of platinum throughout the world and the trade watches Swiss flows for signs of demand. In addition to Switzerland becoming a net importer of platinum their data showed imports from the US registered their highest reading of the year. The Commitments of Traders Futures and Options report as of May 22nd for Platinum showed Non-Commercial and Non-reportable combined traders held a net long position of only 8,504 contracts and that should mean the platinum market is leveled and capable of respecting the general consolidation zone around $900. The Commitments of Traders Futures and Options report as of May 22nd for Palladium showed Non-Commercial and Non-reportable combined traders held a net long position of 11,549 contracts.”

Silver closed down $0.17 at $16.31.

Platinum closed up $5.60 at $903.80 and palladium closed down $6.70 at $972.30. There is some gathering interest in the platinum bullion market as platinum is trading almost $400.00 less than gold but considering this huge discount the public should be lining up.

The Unscientific Activity Scale is a “3” for Tuesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Wednesday – 3) (last Thursday – 2) (last Friday – 3) (Monday – Memorial Day). 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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