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Gold Remains Technically Weak

Gold Remains Technically Weak

Commentary for Friday, Aug 3, 2018 – Gold closed up $3.60 at $1214.20 off its highs but in the green. It opened on Monday at $1221.30 and closed today at $1214.20 a loss of $7.10 on the week. The pricing action for gold today looked more promising in early trading some indicating that the long awaited bargain hunting is waking up but its tepid finish is a reminder that the bears are still in control.

Yet today’s finish might portend a change in the wind in that gold is trading at yearly lows – setting the state for bargain hunters and the dollar has played along to a small degree.

The Dollar Index opened steady then sold off – supporting early gains in gold. It then recovered moving back into the 95.2 range muting early gains; still this softening helps the developing bullish thought which has recently been missing in action.

Could the “dollar is too strong” narrative curb the generally more popular opinion that higher interest rates will continue to club the price of gold?

A stubbornly hawkish FOMC makes this unlikely. This week Powell claimed that while they left rates unchanged – expect higher rates as soon as late September.

So a lot of cross currents here – but gold does hold a few cards. Even though the US/North American audience is looking in the wrong direction.

Increasing tariff problems should not be ignored. In theory at least higher tariffs should create a weaker dollar and higher inflation – both a potentially big plus for gold. Yet the bears remain resolute – claiming wishful thinking. And there are still plenty of bears in these woods.

Another plus for gold short term might be the new heat created over new and contentious political conversation between the US and Iran. The Middle East is always a potential hot spot for gold pricing but of late the geopolitical scene has been in cold storage.

Not much in the headlines these days has encouraged safe haven buying. This may be changing as the US moves ahead with sanctions and Iran claims there will be consequences.

For now everyone is watching closely $1200.00 gold – holding or not will be a big deal either way. The technical picture remains weak but not much more is obvious when it comes to its price direction in this oversold position.

At the same time I’m not suggesting that gold is getting ready to explode to the upside. Not likely – the US is still intent on interest rate “normalization”. And the hoped for return of a weaker dollar for the sake of US enterprise could turn into a pipe dream.

I would be happy with something like pricing “normalization” at the present which supports Cramer’s longer view that gold technically is looking at a bullish triple bottom of sorts. Trying to actually pick a bottom here is not in the cards but a consolidation would not surprise.

I will be more enthusiastic when solid safe haven buying returns. In the meantime the drop from $1340.00 to $1214.00 presents cheaper prices. And for the record we still do not see large sellers at these levels – it’s very possible this price curve simply oscillates itself into a prolonged and tight trading range.

This from Zaner (Chicago) – “The gold market remains under pressure as a result of an ongoing list of bearish factors. Clearly the thrust higher in the dollar this week leaves liquidation selling pressure in place again today, but news of soft second quarter global gold demand from the World Gold Council earlier this week adds a more permanent element of internal fundamental pressure to the outside market pressures. If the outside market conditions weren’t so persuasively negative, the potential supply threat from a South African gold producer/union wage negotiation might have offered some support to prices but fresh lows for 2018 hardly stirs buying interest this morning. The South African mining companies have offered a wage increase of 3.2% for the first year of the coming contract, and there has apparently been limited progress in the talks. It would be our opinion that the gold mining companies will have little room to negotiate given that gold prices from the high this year down sharply and are at the lowest levels in a year. As if the bear camp needs any more ammunition, it is likely that today’s US nonfarm payroll readings will add even further strength to the dollar which in turn should facilitate an extremely poor finish to the trading week in both gold and silver.

The ability to reject the new lows for the move in the PGM complex yesterday and the ability to hold up against a rising dollar and the washout in gold this morning is impressive. However, with a South African mining minister suggesting that Impala Platinum acted in bad faith with the announcement earlier this week to eliminate over 13,000 jobs, it is possible that the unions and/or the government might be set to enter into a battle that could eventually threaten supply. In the past, mining unions have shown solidarity and have walked off the job to support workers likely to lose their jobs, but we don’t think supply fears will be significant enough to cushion prices against more declines. Unfortunately for the bull camp, the outside market negatives weighing on the PGM complex are still pervasive and demand concerns remain on the lips of market participants in the wake of soft Chinese Services PMI readings overnight. Given the market setup a quick improvement in conditions seems unlikely and the bias looks to remain down. However, given the new low rejection yesterday in September palladium and the respect of the $900 chart level, a pulse back up to the top of the recent range at $934.30 is possible. In the end we are not ready to call for an end to the last two weeks liquidation pattern. While the platinum market also rejected a lower low for the move, it sits closer to overhead consolidation resistance on the charts and a bounce could be limited to $842.”

This from Reuters – “I think gold is close to bottoming out. Whether its $1,200, $1,210 or $1,190, it’s impossible to tell,” said Georgette Boele, commodity strategist at ABN AMRO in Amsterdam, adding that speculators will probably want to test the $1,200 level.

“Gold is getting cheap and positioning wise, that should be a reason for bottoming out. The shorts are relatively big.”

Spot gold may fall towards the next support at $1,194, as it has resumed its downtrend from $1,309.30, according to Reuters technical analyst Wang Tao. Weighing on the market was a report by the World Gold Council showing that global demand fell 6 percent in the first half of the year to the lowest level for the period since 2009.

“As long as the dollar remains strong – we believe another couple of months – demand should stay soft and prices should trade rather range-bound,” Julius Baer analyst Carsten Menke said in a note.

Silver closed up $0.08 at $15.41.

Platinum closed up $8.70 at $832.10 and palladium closed down $7.60 at $915.90.  Platinum was up $6.00 on the week on news that Impala would cut platinum production by 30% because of lower prices and you might expect similar actions by other producers. This cut at Impala is enough to move a platinum world surplus of 125k ounces to a deficit around 100k ounces and even with lower prices it becomes increasingly difficult to put larger platinum bullion deals together – there is just not enough product available in today’s marketplace.

Our Patented Employee Survey – Gold’s Direction Next Week?

Of course, it’s not really patented but we do have some fun along the way. This is what the employees think: 8 believe gold will be higher next week 1 thinks gold will be lower and 1 thinks it will be unchanged.

Our Patented Customer Survey – Gold’s Direction Next Week?

Like the employees, our customers were given three choices – up – down – unchanged. We limited the survey to a random sampling of 100 transactions – unscientific but worth considering because these people took action: 68 people thought the price of gold would increase next week 20 believe the price of gold will decrease next week and 12 think prices will remain the same.

Precious Metal Closes & Dollar Strength – July 30 – Aug 3

Gold Remains Technically Weak

The Unscientific Activity Scale is a “4” for Friday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 3) (last Friday – 3) (Monday – 3) (Tuesday – 4). 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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