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Gold – Short Covering or a Bear Trap?

Gold – Short Covering or a Bear Trap?

Commentary for Friday, May 3, 2019 – Gold closed up $9.50 today at $1279.20. So prices were higher today – a semi-big deal because traders bought weakness around $1270.00. You could quibble here, actually support was around $1275.00 but I think today’s close was high enough to provide gold with street credibility. An important point when you consider the technical boys are eyeing carefully that breakdown in early April at $1305.00.

But I still question whether gold is forming a short-term bottom around $1275.00. The Dollar Index broke lower today – 98.00 through 97.50 – this was welcome news for the bulls. But 97.50 with a solid economic recovery and the possibility that the Fed might change its mind on interest rates are big reasons to give everyone at least some pause.

Still, going into the weekend let’s enjoy a bit of sunshine in the physical market.

For what it’s worth our afternoon gold bullion business yesterday (at recent lows) picked up dramatically. Sales of 1 oz bars woke up which is typical market action in the Asian trade when these folks want to take advantage of lower prices and believe pricing is cheap enough.

Which brings me back to my discussion about “what is cheap enough” to get the US public involved? Most of the US trade backs away from the gold bullion when it’s weak.

The Asian trade in the US however waits for prices to settle but always buys on the way down.

This difference in approach is because while the Asian trade actually wants to own the physical market from a generational standpoint the US trade is looking to make money on the shorter term. I think this dynamic will change when inflation returns to the US conversation but for the moment I would classify the US trade as simply momentum players.

So has gold bottomed? Or do you believe this upward bounce is a bear market trap?

This bounce was encouraging but as in all things related to the precious metals patience is rewarded. First, going into an uncertain weekend – the short-money was worn out and so short-covering was the order of the day. Second, there is not a line waiting in our parking lot encouraged to buy this bounce. There is more interest but the buzz remains subdued.

Next week should prove interesting – yet I suspect prices will remain choppy unless gold can move above $1285.00. This would encourage paper traders that this latest weakness did in fact establish a short-term bottom. So for now let’s wait and see.  

This from Zaner (Chicago) – “The charts in the gold market remain negative with yesterday’s large range down extension generally held into today’s trade. In fact given signs of an uptrend in the dollar, signs of a downtrend in gold should be embraced. In fact the market has not shown support from news that India might be considering a reduction of their import duty on gold from 10% to 4%! Furthermore the world Gold Council news this week of rising overall global gold demand in the first quarter, ongoing central bank gold purchases in the first quarter and an increase of Indian gold buying in the 1st quarter of 159 tons that should have been enough fundamental news to have driven gold higher. Unfortunately for the bull camp the gold market is currently suffering an exodus of capital headed for equities which are thought to be one of the few games in town. Furthermore the market continues to embrace ideas that a US/Chinese trade deal is near and that seems to increase the allure of equities even more and that logically comes at the expense of risk instruments like gold. Not surprisingly gold ETF saw another day of selling with 43,890 ounces sold bringing this year’s net sales to 184,071 ounces. The trade is looking for a gain of 185,000 for the April payrolls report today, but it will take a very disappointing number to boost gold prices but even then gold might not benefit as it failed to rally off slack numbers earlier in the week.

Big volatility continues to weaken the bulls’ resolve in the PGMs. The mine shutdown in South African platinum mine for a safety check is now expected to remain shut until an official investigation is carried out but that should only offer minimal support against the downtrend in platinum. Furthermore platinum seems to be following gold lower in reaction to the FOMC news. July platinum has also fallen to its lowest level since April 2nd after breaking out of a month-long consolidation on Wednesday. Thursday’s low was $67.90 off its April 8th high, a 7.4% decline and that damages bull sentiment. However it closed just above the 50% retracement of the February-April rally on Thursday, and that level ($853.50) could be a key support area on today. The next downside target is $837.50, which happens to coincide with the 200-day moving average. Look for resistance at 869.10 and the gap at $873.20-$877.40. June palladium was near unchanged on Thursday, inside Wednesday’s range and well off its spike low from Wednesday. Still, the market appears to be in a fairly weak position, as it failed to move back above the 50-day moving average on Thursday. We may see some consolidation in upcoming sessions but would not be surprised to see a full resumption of the downtrend next week. The market has found buying support at $1,300 on three occasions since the end of March, and that should be considered a key support level. After the sharp selloff this week, the trade may be reluctant to push too far to the downside quickly. A positive result on a US/China trade deal could be considered bullish but perhaps only a minor offset to sagging auto sales.

It is difficult to suggest this week’s trends will suddenly reverse especially if US data is middle-of-the-road or better than expected. In fact even a surprisingly soft number might not result in a sustained recovery in gold as uncertainty from soft data earlier in the week failed to cushion prices. In fact given the very strong chart set up in Dollar early today we see more lows for the move in gold today. While the $1267.30 level might be support that support should be violated through the payrolls window and we suggest traders brace for a possible extension down to $1250 unless June gold through the post payroll release window manages to regain the $1275 level.”

Silver closed up $0.37 today at $14.91.

Platinum closed up $20.60 at $871.60 and palladium closed up $14.80 at $1362.70.

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: 7 believe gold will be higher next week 1 thinks gold will be lower and 2 think 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: 46 people thought the price of gold would increase next week – 16 believe the price of gold will decrease next week and 38 think prices will remain the same.

Precious Metal Closes & Dollar Strength – April 29 – May 3

Gold – Short Covering or a Bear Trap?

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