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Gold – Saying Goodbye to $1200.00?

Gold – Saying Goodbye to $1200.00?

Commentary for Tuesday, Sept 4, 2018 ( – Gold closed down $7.60 at $1192.70. Safe haven demand once again disappoints as gold drifts lower and the dollar moves higher. Stocks are weaker, escalating disputes with China suggest that further tariffs are in the making, and the Argentine peso, Turkish lira, South African rand, Brazilian real, Indonesian rupiah and Indian rupee moved lower against the dollar over trade concerns.

All of this should have pushed gold higher but again traders sought refuge in the dollar – so safe haven demand goes missing in action as gold drifts lower and the dollar moves higher.

This growing storm has been in place for more than a week as the Dollar Index has moved from 94.50 through 95.50 and keep in mind that the FOMC meets at the end of this month and promises another rate hike. The ISM numbers out today also support higher interest rates – the index reading was 61.3% and anything above 50.00 is seen as a sign of economic growth. So this cabal of a higher dollar coupled with paper currency weakness in several countries and tariff retaliation continues to dog gold traders.

The hopeful bounce in gold we saw in mid-August also seems to be fading as gold once again dips below $1200.00. From a technical standpoint the bulls were hoping to make the case that the recent $1170.00 low was just that and the bounce above $1200.00 was a precursor to higher numbers. The latest CFTC numbers seem to support the notion however that this bounce to higher ground was simply a short-covering rally. So it would now appear that the bears are once again going to test support – most likely around $1150.00 – the next big line in the sand.

On the positive side the Asian demand in general is reinvigorated as prices drift lower and the Dollar Index this past year has moved between 90.00 and 95.00 perhaps suggesting that the current strength (95.00) might just be an overbought condition.

All of this is really above my pay grade but an interesting article by Jeffery Sachs (Project Syndicate) suggests that President Trump’s efforts to rebalance the “fairness” issue with trading partners and anti-Iran sanctions will accelerate the move away from the dollar.

There is also the notion that as the summer draws to an end the typical summer doldrums will be replaced with more interest in the physical market as India’s “gold season” draws near.

One thing is sure – prices are getting better and “cheaper”. This always moves the physical needle – our downstairs is open to the public and has been crowded all day – all silver bullion buyers or folks trading something else for silver bullion.

This from Zaner (Chicago) – “So far, the emerging market currency crisis continues to bubble under the surface and that has not yet brought gold out from under a physical commodity market selling standing. In fact with the Indian rupee continuing to make new all-time lows, the gold purchasing power of key Indian buyers is clearly ruptured. Apparently significant financial and political issues are surging in both Venezuela and Argentina adds to the physical commodity market orientated selling interest in gold and silver as conditions have not worsened enough to shift to a safe haven buying orientated trade. In fact given the deterioration in US/Canadian trade talks, the situation this morning is closer to risk off than risk on and gold, silver, platinum and palladium are clearly out-of-favor. Obviously the strength in the US dollar is also dominating the press lower in prices and the inability to hold above psychologically important $1,200 in December gold today and the early failure below $14.50 in December silver leaves the technical edge with the bear camp. However both gold and silver are sold-out of spec longs and are probably building “net spec and fund shorts”, especially given that prices are below the level where the COT positioning was calculated last week. In fact the combined spec and fund in silver posted the “first ever” net short in history. The COT report as of August 28th for gold showed non-commercial and non-reportable combined traders held a net short position of 1,578 contracts and with the gold contract to the low this morning, trading another $15 an ounce below the level where that report was calculated, the net short is clearly even larger today. As indicated already the silver market posted the first ever net spec short of 569 contracts and into the low this morning, and it is trading another $0.60 below the level where the first short was registered! However just because the markets have shifted into a net short posture doesn’t mean more losses are not in order as physical demand concerns continue to surface in an environment of trade strife and currency related pressure.

While the palladium market is lower this morning it is holding up relatively impressively considering the overt weakness in other precious metals markets. Surprisingly the platinum market is sharply lower with a six day low and in the wake of a COT positioning report that showed a net short spec and fund position of 3,382 contracts. Furthermore the October platinum contract from the COT report mark off date into the lows this morning has declined another $20 an ounce which should puff up the net short even more. Clearly the platinum market is suffering its physical commodity market standing and we suspect it also continues to be pressured as a result of long palladium/short platinum spread activity. Near term consolidation low support in October platinum is seen at $774.10 and then again down at $770.70. In the palladium market the early losses today are moderate but the market did manage a fresh higher high and the highest price since the middle of June earlier today. However the COT positioning report for palladium showed a net spec and fund long of 3,414 contracts and into the high this morning, the market since the report mark off gained another $36 an ounce, which should leave the market short-term vulnerable to stop loss selling on weakness. The US will release vehicle sales figures later today and that report should have a cushioning effect for palladium, only if it meets expectations for small gains. Initial support in December palladium this morning is seen at even numbers of $950 and then again down at $944.50.”

Silver closed down $0.38 at $14.06. This is low enough to wake up the physical market.  

Platinum closed down $8.90 at $777.00 and palladium closed down $2.40 at $977.90.

The Unscientific Activity Scale is a “3” for Tuesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Wednesday – 3) (last Thursday – 4) (last Friday – 5) (Monday – closed). 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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