Gold Remains Firm 

Gold Remains Firm

Commentary for Wednesday, April 10, 2019 – Gold closed up $5.60 today at $1309.10 reclaiming for now the important ground above $1300.00. Since late last week the Dollar Index has softened somewhat – moving from 97.50 through 97.00 – not a big deal but enough weakness to help support the price of gold. And Tuesday’s early dip to $1297.00 was met with a sharp rise pushing to $1304.00 and holding steady. This might indicate that physical demand is also working on the gold price equation.

Today’s firmness in gold might be the result of today’s late FOMC discussion. Everyone expected a continued dovish dialogue but the idea that the Fed will not raise interest rates this year is beginning to seep in around the edges. If true this would be a great help to the price of gold but remember the FOMC can and often does change its mind.    

Inflation data suggests that while higher gas prices and rents boosted US consumer prices in March core inflation remains subdued. What I don’t get is that everyone remains ambivalent about inflation numbers. According to the US Labor Department the Consumer Price Index has climbed steadily higher since 2014 moving from virtually zero through almost 3% before settling closer to 2%. Think about that – a 2% climb in prices will not stop the US economic machine but the accumulated damage over the years makes a substantial case for owning gold and silver bullion. If anyone took 2% of your earnings for 5 years in a row you would be out a great deal of money – this is exactly the case the US government is making in plain sight to support its inflationary spending habits.   

This from Zaner (Chicago) – “While the gold market is not throwing off definitive direction this morning there appears to be a minimally bullish bias in place from the prior four day’s upward action on the charts and a vulnerable looking dollar. With an 8 day low in the Dollar yesterday, and 8 day high in gold yesterday was not that surprising. In addition to a weak Dollar, this week gold has clearly been given fresh lift by reports that China posted its fourth straight month of net central bank gold buying (+11 tonnes!) Unfortunately for the bull camp, the amount of gold China added was nearly offset by a liquidation of IMF gold holdings by Venezuela of 8 tonnes. In a minimally bearish development exchange traded funds sold 40,000 ounces of gold from their holdings yesterday which reduces this year’s net purchases to 808,808 ounces. ETF holdings of silver were also reduced by 210,953 ounces which brings this year’s net sales to 6.27 million ounces. However, with the US potentially opening up a second trade battlefront with the EU (regarding airline manufacturing subsidies), an increased amount of geopolitical safe haven interest could return to the precious metals markets. Furthermore there also appears to be a slight uptick in macroeconomic uncertainty taking place this week in the wake of IMF downward global growth revisions and also because of significant weakness in Japanese machinery orders overnight. Unfortunately for the bull camp, the rally over the prior three sessions was forged on deterioration in trading volumes while open interest has basically been flat, and that suggests to us the bull camp is reserved or hesitant. In short, geopolitical, macroeconomic and currency-related forces give the bull camp a slight edge.

The PGM markets once again saw divergence with the palladium market holding ground while the platinum market is failing in a fashion that suggest it will be vulnerable going forward. The bull camp in the platinum market has to be discouraged as prices slid yesterday despite positive leadership from gold, generally positive motion in many other metals markets and in the face of weakness in the dollar. However, the overall macroeconomic outlook minimally favors the bear camp in platinum unless fresh trade battle fears become reality and or US scheduled data from CPI hints at deflation. While platinum derivative holdings have basically tracked sideways since April 2nd, they remain very near modern era highs (if not all-time highs) which suggests investors are paying attention to the space. However, the platinum market was extensively overbought from a 7-day compacted rally and a normal retracement of that rally could allow for a setback to $889.20 in the July platinum contract today.

The path of least resistance in gold is up despite a lack of fresh and definitive fundamental fuel. Critical support to start today is $1305.10 and then a more important support/pivot point is seen at $1295.50. Initial resistance is close in at this week’s high of $1310.40 with short-term uptrend channel support seen at $1298.50. The silver market overnight re-damaged its charts with a range down extension but repaired part of that damage with a bounce from the low of roughly 9 cents.”

This latest post by Neils Christensen (Kitco) is worth the read – China Buys 360,000 Ounces Of Gold In March – “The race to accumulate gold continues as the central bank of the world’s second-largest economy added more ounces to its official reserves for the fourth consecutive month. According to the latest statistics from the People’s Bank of China, the central bank added 360,000 ounces of gold to its foreign reserves last month. Gold reserves totaled 60.62 million ounces as of the end of March.

Commodity analysts at ING said that since November, China has added 1.38 million ounces to its reserves. “This increased buying comes at a time when trade tensions between the U.S. and China continue to drag on,” the analysts said.

Analysts have noted that central-bank gold demand has provided an important support for the yellow metal as it continues to facing growing competition from rising equity markets and resilient strength in the U.S. dollar. Some analysts have also said that they don’t expect central banks to stop buying gold anytime soon as countries reduce their dependence on the U.S. dollar.

“One suspects China is like Russia, and probably some other nations too, in diversifying its reserves away from dependence on the U.S. dollar as a reserve currency,” Lawrie Williams, creator of Lawrieongold.com, said in a recent note. “The U.S. has been demonstrating its readiness to use the dollar, and its links to global trade, as a weapon to try and bring enemies and allies into line with its global foreign policy.”

Analysts at Bank of America Merrill Lynch also see global U.S. dollar deleveraging as a growing trend that will benefit gold prices. “We believe that de-dollarization could also lead to rising share of gold holdings in gold portfolios,” the analysts said in a report published last month.

Gold central-bank gold demand continued to attract more market attention following unprecedented demand last year. According to data from the World Gold Council, in 2018 central banks bought a total of total of 651.5 tonnes of the yellow metal, the most significant increase in roughly half a century.”

Silver closed up $0.03 at $15.20.

Platinum closed up $9.30 at $903.20 and while palladium closed up $0.60 at $1366.40, it moved up almost $26.00 in the aftermarket.   

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