Gold Still Waits – DOW and Dollar are Featured  

Commentary for Friday, Feb 9, 2017 – Gold closed down $3.80 at $1313.10. The trading pattern for today looks a lot like yesterday – gold is trying to resolve itself. With another failure at the $1360.00 level the bulls are less enthusiastic than they were in mid-January.

What is not certain is whether gold’s price consolidation above $1300.00 will hold even though there is support at this level going back to September of last year. If this support holds the bulls are back in the driver’s seat – if prices do not hold up the bears will have their way and push prices to a more sustainable level most likely around $1280.00.

Still with all the fanfare gold only lost $20.00 this week. Not too bad and this supports a more optimistic outlook – granted with cross-winds.

The two big factors still in place are the short term movements of both the dollar and the DOW.

The Dollar Index today has drifted around 90.23 but the 5 day picture is definitive moving from 89.00 through 90.50 with recent lows being 88.67 in early February. This generally higher index is a drag on bullish sentiment. Yet it is still unclear if this higher “trend” will continue.

Some believe higher interest rates are a done deal even short-term – the economy is doing fine. But others are not so sure. What damage will higher rates do to record high stock market prices?

Beyond this interest rate / stock price correlation is recent stock market volatility. Extreme volatility makes everyone nervous – although it should be expected considering the gains which have been made since Trump was elected.

Still this background uncertainty points to an unresolved question. Are we at record highs because stocks are worth the money or are higher stocks the result of a continued honeymoon with the President?

I don’t have an answer to either question – common sense would suggest the dollar – given much talked about higher interest rates should be stronger. In fact it has lost about 10% of its value this past year and we could see another 10% loss if there is a structural problem between us the UK, the EU and Japan.

The DOW drops 1500 points on a single day – which leads to questions about its stability at these higher levels – this morning it was in the green and commentators turned optimistic – the coast was clear. Before the market closed it moved into the red by 400 points and again recovered. Most would shrug off this kind of action if it were not for the big drop earlier in the week.

You could make the traditional case that the longer the DOW remains defensive the better case you can make for owning gold bullion in a defensive position. We are seeing some of this but not much and there is a common belief that gold is being liquidated to cover stock market loses – thus the current weakness in prices. So you get a lot of moving parts to this current clock.

For now traders are watching the dollar and DOW carefully – trying to figure out if stocks and the dollar will settle down. This tension alone will support gold’s price short term and is most likely the reason gold is bouncing around the $1300.00 support.

But I suspect everyone is waiting for the other shoe to fall – whether it will support the bull or bear case remains to be seen.

This from Zaner (Chicago) – “While the action in gold on Thursday was impressive with a noted recovery the market has settled back down and is clearly not benefiting from the latest downside extension in equities this morning. Clearly a firmer dollar has undermined gold and silver to start this morning but it is also possible that the deflationary threat thrown off by the combination of declining equities and the US government shutdown is providing ongoing selling pressure in gold. One could also suggest that favorable US data yesterday, even higher treasury yields and weakness in crude oil prices has put a bearish environment in place again today. Apparently the gold trade is un-interested in news of an increase in jeweler buying in India overnight but traders might expect ongoing physical demand into the Indian wedding season and perhaps some increased retail volume in China off of the looming Chinese new year celebrations that start on February 16th. In the end it is clear that gold is not benefiting from safe haven conditions and that leaves the Thursday/Friday quasi-double top at $1324.50-$1325.00 as initial resistance and a pivot point. However it should be noted that debate continues in Washington as of this writing with the latest reports suggesting a possible debt ceiling extension deal that would allow the US government to function until March 23rd. In short gold is seemingly behaving like a physical commodity fearful of slowing/deflation and therefore it looks to track both equities and crude oil pricing directly today. While the gold market hasn’t paid that much attention to classic supply-side developments Harmony Mining overnight reported improved “operating performance” at its South African facilities and that could be seen as a negative. In a possible supportive development Goldman has raised its year end gold price targeting to $1,450 which is significantly above their prior forecast of $1225!”

Silver closed down $0.19 at $16.12.

Platinum closed down $16.90 at $958.50 and palladium closed up $1.15 at $967.30.

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 2 thinks gold will be lower and 1 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: 41 people thought the price of gold would increase next week 43 believe the price of gold will decrease next week and 16 think prices will remain the same.

Precious Metal Closes & Dollar Strength – Feb. 5 – Feb. 9

Gold Still Waits - DOW and Dollar are Featured

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