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Gold – Safe-Haven Fear Returns

Gold – Safe-Haven Fear Returns   

Commentary for Friday, May 29, 2020 (www.golddealer.com) – Gold closed up a surprising $23.60 today at $1736.90 as tensions continue to rise between the US and China and safe-haven buying comes back into view. Fed Chairman Powell’s talk today was basically reassuring but still focused on the work ahead. The gold market closed last Friday at $1734.60 so on the week we up a few bucks ($2.30) but this belays the unsettling nature of this pandemic.

While gold was not that enthusiastic earlier in the week things have changed going into the weekend. The trade generally now expects higher prices even in the short term. But I would not be surprised to see profit taking settle this renewed enthusiasm. In the bigger picture however – without a miracle virus recovery safe-haven demand will ebb and flow but not go away. And the possibility of much higher prices is not just wishful bullish thinking anymore.       

We were closed Monday for Memorial Day. Tuesday the gold market was weaker in overnight trading both is Hong Kong and London. The domestic market saw further weakness at $1730.00 and we finished the day down $29.80 at $1704.80. This drop in the price likely the result of factors which cool safe-haven demand.

The increased “opening up” of US business leads the charge – people feeling better about their future. But the drop is also concerning because the Dollar Index moved from 100.00 to 99.00 and provided no encouragement to the bulls. This cooling of safe-haven demand led into what became a sound round of profit taking. Still I would not be too concerned, expect a bumpy ride considering gold is up $430.00 this past year.  

That being said – the bigger picture favors the bulls, but the technical picture struggled with market momentum earlier in the week.

Favoring gold is the growing rift between the US and China which is developing into something beyond political posturing. The tension between China and Hong Kong has not recently supported gold but it is hard to imagine it will not sooner than later.

Tuesday’s action was also lackluster in that the bulls saw no reason to buy the dip. Gold again pushes below the important $1700.00 support – testing $1690.00 support on two occasions. Crosswinds continue – the Exchange Traded Funds push higher – Asian demand remains weak.

At the same time Citibank is looking for $2000 gold by 2021. They do not see a big break to the upside however, just a steady push fueled by cheap money. This supported by continued uncertainty over global economic virus damage and safe-haven demand.         

Gold pricing on Wednesday picked up a bit of support closing up $5.50 at $1710.30 but our normal business seems to have lost some buzz. Which brings me to a point. Yes, we are still closed to the walk-in traffic but you can buy or sell over the phone and through the mail.

And things are loosening up – we now offer what we call “special situations” and drive through service using our private parking lot. You must wear masks and gloves, stay in your car, and have an invoice written up before coming. But the process works and is safe so if you are within driving distance and this appeals to you call Harry at 1-800-225-7531 for an appointment.

We celebrated National Burger Day on Wednesday. I know, what does this have to do with the precious metals? Not much really but it did remind me of the good old days and boosted the staff’s sprits, reminding everyone that with God’s help we will beat this plague, get back to normal business and be able to enjoying little pleasures we may have taken for granted.

Thursday gold pricing presents no surprises but safe-haven was again in play as tensions flare between us and China and Wall Street sells off. Still there was simple price chop on both sides of $1720.00 and on the day gold closed up $3.00 at $1713.30 and $6.00 higher in the aftermarket. 

This from Zaner (Chicago) – “Global equity markets overnight were generally lower with the exceptions the Chinese markets which managed gains of less than 0.3%. Overnight economic news of importance included a wave of extremely negative Japanese readings ranging from retail sales, housing starts to industrial production. However Japan did manage to post a much better than expected consumer confidence reading for May which also bested the prior month’s result. From Europe Germany posted retail sales declines that were not as bad as feared while France managed to post a GDP reading for the first quarter that was not as weak as expected. However consumer spending in France for the month of April fell by 20.2% versus March and was much worse than expected. From Switzerland the KOF leading indicator report for May came in much weaker than expected. In the last significant European data point Italy saw its GDP for the first quarter fall by 5.3% versus expectations of a decline of 4.7. The North American session will start out with April personal income which is forecast to have a sizable decline from March’s-2.0% reading, while April personal spending is expected to have a sizable decline from March’s -7.5% reading. The April goods trade balance is forecast to have a modest uptick from March’s $64.4 billion monthly deficit. April wholesale inventories are expected to have a moderate downtick from March’s -0.8% reading. First quarter Canadian GDP is forecast to have a sizable decline from the previous 0.3% annualized rate. The May Chicago PMI is expected to have a moderate uptick from the previous 35.4 reading. A private survey of May consumer sentiment is forecast to have a modest uptick from the previous 73.7 reading. Fed Chair Powell will speak during morning US trading hours while President Trump’s news conference is expected to occur during the early afternoon.

With lower global equities, fresh warnings from Beijing to the US over the potential removal of “special status” for Hong Kong and another wave of negative European data that leaves gold and silver with a safe haven bid this morning. The Hong Kong situation will see fresh news at some point today with the President indicating he will announce his policy stance on relations with China. While not a front and center driving force this week, it should be noted that gold ETF’s increased their holdings for 25th straight session yesterday with net purchases on the year now climbing to 17 million ounces. With the consistent inflows to gold ETF holdings last month it was not surprising to see ETF holdings post a 6th straight monthly gain which according to Bloomberg is the longest monthly expansion since 2017. All things considered, the gold and silver markets managed to ride through US scheduled data yesterday without giving up gains, despite the fact that the data was not as disastrous as expected. In fact, we are surprised that gold and silver prices avoided a definitive reversal particularly with US equities looking beyond bad US jobs data to better economic times ahead. However, the markets will probably continue to draft support from US/Chinese tensions and perhaps in a less obvious manner the markets could see surprise support from US/Iranian exchanges in the Middle East. It is also likely that both gold and silver prices are benefiting from what has become a fairly significant slide in the dollar, especially with Citigroup yesterday indicating gains in precious metals are signaling the potential for a major sustained rotation out of the dollar. In fact, Citigroup has indicated that silver is currently one of their top picks and that comes on top of news coverage earlier in the week suggesting silver could perform as it did following the financial crisis when prices approached $50.00. Not to be left out of the precious metals investment wave silver ETF’s yesterday added 1.16 million ounces to their holdings bringing this year’s net purchases up to 121.7 million ounces. From a technical perspective, it would appear as if this week’s corrective setback balanced the trade and in turn reiterated very solid consolidation support sits under both gold and silver.

With the PGM markets failing to show definitive lift from ongoing gains in gold and silver, the markets not benefiting from Bank of America projections that South African mine supply will drop by 30% this year and prices not benefiting from Bank of America projections that both platinum and palladium will be in “deficits” this year, it is clear the bulls are absent. Therefore we continue to be bearish toward the PGM markets with the charts showing modest fresh technical damage this week and palladium in particular trading sloppy on very low trading volume. Obviously seeing another 2.1 million Americans apply for unemployment insurance and seeing a very significant decline in US durable goods figures for last month creates demand fears for both PGM markets. While the trade did see increased physical shipment flow from key export hubs recently, that increased activity is simply moving supply into position and is not indicative of a wave of better demand. Even more discouraging for the bull camp is the fact that both markets failed to rally alongside gold and silver and also failed to benefit from noted strength in US equities. Furthermore, with trading volume declining from last week’s highs and open interest flat-lining in palladium, we see further lower lows for the move especially with a failure to hold above $1893.50 in the September palladium contract at any point today.

We see the path of least resistance remaining up in gold and silver today, with the markets apparently able to remain strong without wide ranging macroeconomic uncertainty. However it should be noted that financial press coverage of both gold and silver continues to be decidedly bullish and more frequent and if it were not for the unrelenting gains in equities recently, both gold and silver might be trading significantly higher than current levels. In retrospect, this week’s lows should be viewed as very solid support/value with the markets now technically balanced and poised to work higher off this week’s ledge of support.”

Silver closed up $0.54 at $1844.

Platinum closed up $6.50 at $870.50 and palladium closed up $32.90 at $1934.50.  

We always appreciate your friendship and business. And if you have unusual circumstances talk with Harry, we may be able to help. Let us be careful out there – stay safe and trust that God’s blessings will protect us all. Richard Schwary            

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