Gold – Small Corrective Bounce

Gold – Small Corrective Bounce

Commentary for Friday, March 29, 2019 – Gold closed up $3.20 at $1293.00. So it closed a bit higher today and I will leave it up to the reader as to interpretation. Some will call this light bargain hunting but considering the bath gold took yesterday (down $20.60 at $1289.90) the bulls can’t be too happy – and will have to redeem themselves perhaps in next week’s trading.

I have already referenced the strong support gold enjoys around $1280.00 which has been in place since early 2019. But a break down there could turn into a route, the next big support line being $1200.00 which would negate the rather large gold bull leg which has been creating excitement since late last year.

I think the chances of such a plunge unlikely however, given the current almost universal acceptance that the FOMC is done with interest rate hikes for 2019.

But even the dovish governors concede that more interest rate hike might be necessary over time. The big question is whether the dollar will hold up given rising inflationary numbers (also very likely given enough time) and the always present possibility that the US could see recessionary headwinds perhaps as soon as late 2019.

This would place the FOMC in the unenviable position of having to soon lower interest rates to stimulate our economy and most think gold would go crazy under these circumstances. 

It’s also worth noting that while gold is settling probably the result of a nice round of profit taking in the paper market the basic underlying enthusiasm remains in place. Still gold remains a tale of two cities.

The bulls claiming a challenge of old highs is already baked into the cake given a dovish FOMC. The bears on the other hand are looking for a weakening technical picture – a place to get back on the “lower gold” bandwagon.

From a practical standpoint I think the “short” mentality is nowhere to be found at the present. But that does not mean it could not reappear at the drop of a hat – if there is one constant in the gold trade it is that sentiment can change with the wind.  

I remain mildly bullish – looking for confirmation because I can’t see the dollar remaining strong over the next year or two. And if the dollar trends lower it could easily lose 20% which could push gold to all-time highs. I certainly would not be “short” in this market because the next time gold roars it will really roar – if you get my meaning.  

This from Zaner (Chicago ) – “While the gold market is showing some capacity to reject prices below yesterday’s spike low close in the early going today, it is difficult to call for an end to the washout. However open interest in gold this week has already declined from 524,865 contracts to 457,650 contracts and the washout yesterday produced the most active trading volume since October 11th and that might signal a technical bottoming. The gold market might draft some support from overnight chatter pointing out the potential for ongoing Russian central bank buying of gold as some analysts think the country is working aggressively to diversify away from its exposure to the US dollar. According to the world Gold Council the Russian central bank bought 274 tons of gold last year and that represented 40% of all central bank buying of gold and 6% of total global demand! Furthermore gold now represents 19% of Russia’s foreign exchange reserves and that is the highest in 18 years. Gold derivative holdings forged a minimal gain of 2,500 ounces on 52.4 million ounces while silver derivative holdings increased by 483,082 ounces to stand at 531 million ounces. At least in the short term it could be difficult to alter overall market sentiment, so metals bears would seem to have an edge. However we think the markets are falling because of escalating economic uncertainty and clearly they are not benefiting from safe haven conditions, which is surprising to some. It is possible that a very significant washout in equities to end the week would rekindle flight to quality buying interest, but that could also ratchet-up deflationary selling of commodities in general, including metals. In other words gold might need a swing higher in economic sentiment to catch some short covering action or they might need a quasi-debacle in equities to ignite flight to quality buying.

The palladium market saw a $200/ounce break in just two trading sessions and has forged a very surprising and impressive $50 rally to start the Friday trade! We suspect the washout was a delayed reaction to several months of slowing global/Chinese physical demand expectations. Certainty big picture macro conditions have added to the washout in the PGM complex, and it should be noted that the talking heads are attempting to pile on overnight by labeling palladium a “Bubble” market and by dredging up stories touting a surge in re-cycled supply. For many weeks the palladium market seemed to be immune to the mounting evidence of slowing in China and therefore the fundamental foundation of the last $200-$300 in gains could have been very weak. Some longs indicated that suggestions from the White House that it might take weeks and perhaps months to get a US/China trade deal, stoked definitive deterioration of the bull case to the breaking point. However with June Palladium rejecting yesterday’s low, the $1308 level becomes some form of support/value today. Logical bounce potential is seen at $1,370 and then again up at $1,400 but it goes without saying that traders should expect fairly extensive two-sided volatility. While platinum has also recovered overnight it generally remains insulated from the wild action in palladium but it also appears to remain a fairly classically driven physical/industrial commodity condition where the bull camp remains in need of an improvement in economic conditions.

It is very difficult to throw off the bear track under current conditions, as there would appear to be a lack of alternatives to the dollar, economic conditions are more deflationary than panic-ridden, and many industrial commodities are simply out of favor because of slumping demand fears. In fact without news of some definitive trade talk progress, flows into the long side of the dollar look to continue, and that in turn could leave gold and silver under currency related pressure. Initial downside targeting in June gold is seen at $1287.50 (the March low) and then again down at $1280.00. With a key failure at the $15.00 level in May silver yesterday and again overnight, that level could be a major pivot point into the close today. In the event of more Dollar gains and Gold losses the next downside target in May silver is seen down at $14.88.”

Silver closed up $0.14 at $15.06. We still see steady buying at these lower levels.   

Platinum closed up $10.70 at $848.90 and palladium closed up $32.10 at $1345.00.

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: 6 believe gold will be higher next week 2 think 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: 50 people thought the price of gold would increase next week – 28 believe the price of gold will decrease next week and 22 think prices will remain the same.

Precious Metal Closes & Dollar Strength – March 25 – March 29

Gold – Small Corrective Bounce

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