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Gold – Remains Defensive

Gold – Remains Defensive

Commentary for Friday, March 5, 2021 (www.golddealer.com) – Gold closed down $2.20 today at $1698.00 continuing to struggle at a 9-month low. It appears that the bears hold all the cards, but my sense is that this market is oversold or close to oversold. And I would look carefully at the numbers next week for signs of a tiring bear. Last Friday gold closed at $1728.10 so on the week the market is off $30.10. Down for sure but not enough down to do more than further encourage the physical market.

Look for bullion delays of 4+ weeks in some gold and silver products, especially 2021 gold and silver eagles from the US Mint. If you decide to use our Delayed Delivery Program talk with your rep and understand how this program works. It is handy if you want to lock in the price “now” 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 ask for other options. Thanks as always!

This past Monday gold pushed higher in the overnight Hong Kong and London markets but turned choppy domestically before moving lower – not able to overcome a dollar at 3-week highs and a brighter Wall Street picture. Gold failed to draft any attention despite the 10-year US Treasury yields moving lower. And last Friday’s gold ETF numbers have dropped by 1.3 million ounces. Biden’s $1.9 trillion dollar stimulus package and the inflation consequence remains ignored by paper traders. Get used to a defensive gold market until real bargain hunters get interested. So, what is cheap? Make a distinction between physical gold and silver and the paper trade which so influences day to day pricing. In my mind, real gold and silver bullion is already cheap. On the shorter term however keep in mind that traders are looking for an official “wash out” number in a down market before coming out from under the bed. In the meantime, gold and to a lesser degree silver continue to struggle against investments which pay dividends. And the need for “safe haven” grows dimmer even though endless amounts of fiat currency are still available to the world economy. If you are watching numbers gold is now fighting to hold the psychologically important $1700.00 support. And faces significant overhead resistance at $1760.00. Best short-term guess (fingers crossed) – gold holds above $1700.00 and consolidates between $1720.00 and $1750.00. If gold beaks down at $1700.00 the technical chaps will see support at $1600.00. But I think the Asian physical trade would buy with both hands at something between $1625.00 and $1650.00. I would also at least consider a big turnaround in gold prices if the stock market became unstable. I am not a big fan of this scenario, but nothing keeps going up for ever and a significant correction in these troubled times is not crazy. On the day gold closed down $5.60 at $1722.50 and silver closed up $0.25 at $26.65. To keep these lower prices in perspective the public continues to buy everything on our shelves.   

After reaching an 8-month low gold on Tuesday suddenly bounced higher. Likely because the Dollar Index lost a half point. This small “pop” in prices might be early bargain hunting but it feels more like short covering. I believe these markets still remain “froggy” if you know what I mean. But there are some who are more optimistic. Reuters for example states that a close above $1725.00 today would be considered by many to be a key reversal day. The big Biden stimulus bill is being debated in the Senate this week and I am still surprised gold has yawned over this colossal bunch of cash. Still, bounce or no bounce gold remains left footed and technically bearish. It is true that follow-through momentum this week might change this short-term picture. But for now, consider gold “on sale” and plan for the longer-term consequences which include inflation.              

Anna Golubova (Kitco). “Where to” for gold price? Stay cautious, says Chris Weston (Pepperstone). “Weston identified three triggers that could reverse gold’s downside trend — inflation scare, deflation shock, or increased use of the Federal Reserve’s balance sheet. “The $1,700/$1,705 area interests, and I’ll see how price reacts should it get there – however, when it comes to gold, I am a buyer of strength and not before,” Weston said.”

If you step back and take a breath everyone sees opportunity in these falling prices. But few will claim that gold is oversold at this point. It is just too early in this latest fallout. You will know when it happens is the curt answer, but Weston is right – stay cautious. If today was the beginning of a longer-lived short covering and the dollar continues lower you are presented with a great opportunity and gold is still cheap. My input continues to be that physical buyers are better off buying too soon than too late. On the day gold closed up $10.60 at $1733.10 and silver was higher by $0.20 at $26.85.     

On Wednesday gold could still not get its act together. The reasons which pushed gold lower on Monday are still in place and still hold sway. Rising bond yields and a stronger dollar as the Dollar Index moves toward 91.00. And gold cannot shake these bearish clouds even though we are seeing weaker than expected US economic data and a huge stimulus package around the corner. So why are traders ignoring our shiny friend? Neils Christensen/Matt Weller (Kitco) offers suggestions. Weller said that there could be a few different reasons why gold is not responding as one would expect in this environment. But he pointed out that a significant factor could be natural volatility or “noise” in the marketplace. “It’s always possible that the market’s collective understanding of gold as a hedge against fiat currency debasement is no longer relevant, but more often, traders will ignore a seemingly relevant development before coming around to respect it again all at once,” he said. Weller said that gold’s uncorrelated relationship to other financial market assets could be another factor weighing on the precious metal. “Many long-term gold holders are most interested in the yellow metal’s diversification benefits when their other investments are falling, an environment that we haven’t seen much of late.”

So where to from here? Be vigilant yet cautious. My sense is that a bottom is near and if you are considering a value buy more patience may prove rewarding while giving you some peace of mind. Some commentators are suggesting both stocks and gold are showing technical chart patterns that suggest an imminent correction, said Chris Vermeulen, chief market strategist at TheTechnicalTraders.com. “It feels like the calm before the storm. I think this market, the stock market, is setting up for potentially a pretty big downdraft,” Vermeulen said. On the day gold closed down $17.80 at $1715.30 and silver closed down $0.49 at $26.36

Gold opened Thursday up a couple of dollars in mild book squaring but after traders heard Fed Chair Powell comments about rising interest rates it tested support at $1700.00. Powell dismissed the rise as transitory, but Wall Street is now worried about inflation. Powell’s assertion that inflation is also not a problem creates trader suspicion. They reason that if we are seeing the signs of early inflation the Fed will be forced to raise interest rates sooner than later bringing the “free money” party to an abrupt end.

So, does this “possibility” hold water? It is an interesting thought but a contradiction in their plan to keep money cheap until our economy gets back on its feet. This most recent weakness is a sign of tension in the paper markets and an overreaction in my mind. The Fed will do anything necessary to keep this recovery on track and low interest rates are a fundamental part of their plan to keep the US economy liquid without going bankrupt.

Powell’s talk remains very dovish and should be the perfect storm for the physical gold environment. Yet our shiny friend remains in an 8-month downtrend as traders second guess the FOMC. Interest rates are a straw tiger here – there are real reasons for lower gold prices without punching around in the dark. The stock market offers investors competitive interest rates, the dramatic drop in virus cases has eroded gold’s safe-haven demand and ETF outflows are the longest since December of 2016.    

It is worth noting however that the physical market is not suffering from these crosswinds. Lower prices in gold have pushed our gold bullion sales to record levels. And surprisingly, higher silver prices have done the same thing as investors see a bright “green” future once the pandemic is history. In both cases live physical products are lacking as world mints remain behind the production curve. Finally, consider that at these lower levels in gold “big boy” orders are building from established customers. On the day gold closed down $15.10 at $1700.20 and silver closed down $0.93 at $25.43.

John Miles (Zaner) While Citigroup Global commodities research projected gold prices to regain footing from emerging market central bank buying ahead and from increased jewelry purchases and from a return of ETF interest, the markets today do not appear to be interested in those forces in the short term. On the other hand, Bloomberg overnight noted Indian gold imports in February jumped 41% and posted a 15-month high and jewelers in India expect increased demand ahead of the wedding season especially given that gold prices from last August have declined by more than 20%. In our opinion, the biggest hope for the bull camp in the coming days would be to see a discouraging nonfarm payroll reading for February on Friday.     

Gold opened choppy Friday and I am surprised it is holding up as well as it has –  considering the dollar continues to increase in strength, bolstered by better-than-expected US employment data. The Dollar Index on Wednesday traded around 90.74 and this morning has moved through 92.00! If people are worried about Fed policies, stocks or whatever their safe-haven asset choice remains the dollar. Reuters – “This optimism in regards to the economy moving forward continues to drive bond yields higher and that certainly has been taking the wind out of the sails of many commodity markets, including gold,” said David Meger, director of metals trading at High Ridge Futures.”

I think the talk about gold “collapsing” must be some sort of cosmic joke. Prices are down but if gold were a faddish stock a 20% drop would have everyone and their brother claiming it presented the buy of a lifetime. Even with a still ridiculous multiple!

Investors will continue to have faith in physical gold which has been real money for centuries because it is the only thing that stands between them and possible financial ruin. The basis for this belief is the realization, either already in place or soon to be learned that central banks will eventually create a great deal of inflation grief over the next decade. My advice – take advantage of lower prices and ignore this bearish sentiment. It is not important that you buy at the exact bottom. Develop a “mind set” which embraces “cheaper” and the cheaper the better. When the metals turn around and investors not yet a part of this market realize that gold plays a more important part than ever in financial planning prices will move dramatically higher. And many will look back at these opportunities and wonder why they could not see the forest for the trees. On the day gold closed down $2.20 at $1698.00 and silver closed down $0.17 at $25.26.   

Silver closed down $0.17 today at $25.26.                        

Platinum closed down $7.10 at $1127.10 and palladium was off $13.40 at $2325.70.           

My Brothers and Sisters, we appreciate your fellowship and thank you for your business. 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. Be careful, this virus remains a danger. At the same time trust that God will soon get us back to normal. Richard Schwary

This from John Miles (Zaner / Chicago) – “Global equity markets overnight were down with-the-exception of 2 markets in Asia with most declines generally less than 1%. Overnight economic news of importance included a stronger than expected month over month gain in German January factory orders, a slight increase in French imports and exports, a slight contraction in UK Halifax house prices in February and a 3% decline in Italian retail sales in January relative to December. The North American session will start out with the highlight for global markets, the February employment situation report. February non-farm payrolls are expected to come in around 175,000 to 180,000 which compares to January’s 49,000 reading. February unemployment is forecast to hold steady at 6.3% while February average hourly earnings are expected to have a minimal downtick from January’s 5.4% year-over-year rate. The January international trade balance is forecast to have a modest uptick from December’s $66.6 billion monthly deficit. January Canadian international merchandise trade is expected to have a modest downtick from December’s monthly deficit. The February Canadian Ivey PMI is forecast to have a modest uptick from January’s 48.4 reading. January consumer credit is expected to have a moderate increase from December’s $9.73 billion reading. Atlanta Fed President Bostic will speak during afternoon US trading hours.

The overall environment for gold and silver entering the last trading session of the week remains bearish with huge declines on the charts, another definitive upside breakout in the dollar early on, indications from the US Federal Reserve Chairman that the rate rise is not disorderly (which has fostered views that the Fed will allow for even more gains in rates) and yet another day of outflows from gold ETF holdings. Obviously, the most problematic issue for the bull camp is the Fed’s apparent intention to allow further normalization of interest rates off the assumption that a modest jump in interest rates from near zero will not impede the recovery. However, the Fed Chairman did indicate he was “watching” the jump in long-term rates and that might result in the Fed undertaking another operation “twist”. From our experience in the markets threats of intervention typically result in the markets moving to “pull out” the promised/threatened action which in this case would mean the trade will test the resolve of the Fed by pushing rates even higher. In the event the Fed does step into retard the rise in long rates that would be temporarily supportive of gold and silver but probably not a factor capable of turning away from the current downtrend. While we see the ebb and flow of monies from ETF’s as a lagging indicator, seeing the World Gold Council document the 85-ton outflow of gold from ETF’s last month probably fosters even more liquidation today. Yesterday gold ETF’s posted their 14th straight daily outflow with year-to-date net sales approaching 4 million ounces. Overnight the Chinese government projected growth this year to be 6% and that targeting failed to elicit a bounce in gold or silver prices. In the end, we have little positive to say about the gold and silver markets as the bear camp appears to have definitive control and headline flow has removed a very large amount of bullish buzz from the markets. In looking forward to today’s critical monthly US nonfarm payroll report, almost anything at or above expectations on the headline nonfarm payroll jobs reading (+182,00) is likely to send gold and silver lower. However, we think there is a moderate chance that today’s payrolls will slightly disappoint given the very high anxiety in place into February from a pattern of record daily US infection in January.

Obviously, the path of least resistance in platinum remains down to start last trading session of the week as outside markets are applying pressure and platinum ETF’s yesterday saw a very sizable outflow of 8,384 ounces lowering the year-to-date gain in ETF holdings to only 0.7%. Apparently, a Chinese government 2021 growth forecast of 6% was floated overnight and that failed to spark fresh hopes of PGM demand from China. Therefore, the bull camp fails to have a theme capable of altering the downtrend. However, the Chinese government also announced a target of 11 million new urban jobs which in turn could broaden Chinese demand for platinum jewelry and auto catalyst. As indicated in gold and silver coverage today, fear of interest rates is a dominating force, and the markets have not embraced improved physical demand stories and there has not been any headlines pointing to improved physical demand recently. Unfortunately for the bull camp in platinum, the last net spec and fund long positioning showed a net long of 43,190 contracts and therefore ongoing stop loss selling could have residual fuel. Near term logical targeting is seen at $1,100 in April platinum and then again down at $1,084.80. Fortunately for the bull camp in palladium, the latest net spec and fund long was virtually flat at 1,335 contracts and that appears to have limited declines in palladium this week. In fact, given that palladium sits $170 below the last 4 months consolidation highs and given the relatively small spec long, it is possible the market is liquidated enough to respect consolidation low support just below $2,300 at $2,296. If there is a trend reversal today, it should begin in the immediate aftermath of the US jobs report!

The path of least resistance remains down across-the-board in the precious metal markets. As indicated already, bullish economic buzz has been replaced with interest rate anxiety and that continues to stoke confidence in the bear camp. At least in the near term, the fear of rising rates will be difficult to remove without a much softer than expected US nonfarm payroll result. In our opinion, the best outcome for the bull camp would be a middle of the road nonfarm payroll gain which could signals ongoing growth but slow enough growth to temporarily reverse declines in US treasury bond prices.”

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