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Gold Reflects Mild Profit Taking

Gold Reflects Mild Profit Taking

Commentary for Wednesday, March 7, 2018 ( – Gold closed down $7.60 today at $1326.00 in what looks like a small round of profit taking. Don’t laugh as last week’s low close was $1302.20 so things like tariff talk from the White House and possible retaliations from the European Union have lifted all the boats. But I can’t say all this commotion has not created much of a buzz.

It has been supportive of prices in that gold remains married to the dollar. They move in opposite directions and if you look at the Dollar Index this past week we have moved from 91.00 through 89.62 – this has encouraged the bulls.

But the dollar could just as easily move higher – given there was less confusion coming out of Washington. It’s this general financial fog which creates a choppy precious metals market. Traders are still just dealing with “potentials” here. The Fed will raise interest rates but when and how much. President Trump is a “no problem” kind of guy – he might be ready for a tariff fight.

See what I mean – traders have been shadow boxing with possibilities and yet even serious tariff talk has not created much of a stir with stocks. Don’t get me wrong – it might which will support the price of gold. But it has not as yet and it’s possible this discord will blow over.

And hawkish FOMC interest talk would easily cool. Factory orders yesterday declined 1.4% in January – perhaps a sign our economy is not as rosy as described.

We also see signs of increased inflationary pressure – higher CPI and PPI. There is also that pesky 1% increase in import prices something which could snowball if tariffs become a reality.

I’m not trying to knock this recovery – there are signs of solid growth but let’s not get too optimistic – economic malaise could give the Fed reason to reduce interest rate hikes from the talked about 4 to a realistic 2 supporting gold prices. And keep in mind that a 1% increase in the cost of borrowing money raises government borrowing costs by $200 billion dollars yearly.

Even with these cross-currents gold has held a fairly tight price range this past year. Top to bottom we are looking at something between $1200.00 and $1360.00. Not much really if you consider that traders have been talking about gold price consolidation for years.

You might make the case that gold is doing its job – keeping the paper community honest.

Especially because there have been potential hot spots along the way.

The world central bank system will not balance its books and believes fiat paper money can be created out of thin air with no consequence. If you look at the price of gold this may be a reasonable conclusion today but in a few years this lack of “cause and effect” might be seen as one of the great early warning signs ignored by everyone.

It’s clear that nuclear proliferation has always been in the cards. This amounts to a political failure which has huge consequences if civilized countries continue to ignore the obvious.

My point being that while the financial “worry” bag fills up the price of gold has not only been quiet the speculative dialogue has drifted away from this safe haven. The fact that people are still talking about cryptocurrencies is illustrative. Speculators like price action.

Gold’s relatively tight trading range does not make headlines – it’s kind of boring.

In the 1970’s if you invested in gold you were part of the Avant-guard from the French “advance guard” or “vanguard”. Today the use of gold bullion as a financial hedge is part of everyday financial planning even here in the US.

The rest of the world including the central banks consider gold bullion a “must have” when it comes to disaster planning. And countries like China and India just like the stuff.

The fact that you can add gold bullion to your holdings at prices significantly below recent highs should be seen as a value statement – not a sales pitch. The fact that it does not create buzz is only a mindset. Consider how you would react to today’s pricing if you knew that over the next decade gold would trade for $5000. See what I mean – it’s only a matter of perspective.

This from Zaner (Chicago) – “The gold market fell back overnight after reaching a new high for the week in the wake of the resignation of White House Economic Advisor Gary Cohn late in the day on Tuesday. He was a strong opponent to the steel and aluminum tariffs, so the trade views his resignation as a confirmation that Trump has made up his mind in favor of the tariffs. While this elevates concerns that the White House will adopt a protectionist stance that could threaten the economic health of the US and the world, the market’s reactions were muted, and safe-haven support to the metals was limited. The resignation wasn’t much of a surprise. Reports that North Korea is open to “denuclearization” have provided an offset to concerns about trade and have undercut safe-haven demand for gold and silver. Both markets saw some profit taking overnight after the stock market reacted less dramatically than many had feared. The focus may instead shift to today’s ADP jobs report and more importantly, Friday’s monthly employment data. Strong data would reinforce the idea there could be four Fed rate hikes in 2018 and would put pressure on the precious metals.

Platinum and palladium were weaker overnight, with palladium breaking out to the downside from its recent consolidation and platinum threatening to do so as well. Labor issues in South African mines have been quiet recently, leaving the market to focus on the auto industry. Reports early this week of disappointing US auto sales offer one source of pressure, and the increased likelihood of tariffs being imposed on steel and aluminum imports raises concerns about the supply chain for automobile manufacturers.”

Silver closed down $0.29 at $16.43.

Platinum closed down $17.40 at $951.70 and palladium closed down $19.25 at $968.90.

The Unscientific Activity Scale is a “2” for Wednesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 3) (last Friday – 5) (Monday – 3) (Tuesday – 2). 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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