Gold Surprises to the Upside

Gold Surprises to the Upside

Commentary for Tuesday, July 2, 2019 – Gold closed up $19.00 today at $1404.60 – really out of nowhere – but enough “up” to refocus this market. And the icing on the cake came in the aftermarket – up another $45.00! To be honest I don’t know what to say at this point, but this latest bang in gold is in place without seeing the dollar fade – the Dollar Index being steady around 96.7 and that is impressive.

If you buy the current rhetoric over the gold coffee pot crowd you would be led to believe that the big Sunday/Monday drop of $24.00 was the result of traders seeing the G-20 meeting as dovish. Trump and China are now pals and any problems which may have raised their ugly head in the past are now forgiven and forgotten. Or not – look at that aftermarket number again – perhaps things are not as rosy as projected. 

And I always wonder about large drops in the price of gold like we saw earlier in the week – especially over a weekend and before our domestic market opens.

You might call me a Doubting Thomas here – guilty of pessimistic thinking especially when the following day (today) gold miraculously bounces higher and the trade claims that this latest pop to the upside is the result of bulls buying the dip.

I guess in the end it really does not matter much – gold is once again back above $1400.00 and the bulls are presenting a positive technical picture.

Whether someone in Hong Kong just decided that selling a bunch of paper gold in a thin market was a way to test weak hands will have to go unchallenged especially in light of today’s surge to the upside. But I wonder how much these large trades influence prices in a market which everyone knows is at best choppy and volatile – in both directions.   

Time will tell if gold remains solid above $1400.00. In other words we are still dealing with the reality of a market which has moved much higher in a short period of time. It remains to be seen if traders will continue to liquidate long positions and take profits – or again double down looking for continued deterioration – especially as Trump is now threatening the EU with tariffs and telling Iran he is just getting warmed up – so much for my under the table negotiation idea.

Still the bigger question remains – what will the dollar do and how will the price of gold react to a world that is more and more committed to plenty of cheap money.

No one seems to be concerned that the FOMC has reversed its long standing position that the US economic growth miracle would normally usher in higher interest rates.

Wall Street is now drunk – touting even higher numbers and more corporate profits.

If the old paradigm still holds water – recent growth should introduce monetary restraint. Lower interest rates have created new business and expansion but now it’s time to consider how we are going to pay back all the money. In reality – CNBC seems to be saying that “full speed ahead” makes sense and don’t miss the economic boat of goodies coming your way. I know this sounds crazy but our leaders both politically and financially should at least be on the same page.

Our across the counter sales are just as mixed up – they are hot, cold, hot and cold. I’m not kidding – the daily bullish/bearish joke in inventory control changes with the wind and general persuasion pushed by how the press spins the latest out of the White House. This really suggests that the public remains fixed on the short-term.

At this point I would be content to see a typically choppy market trying to settle itself. Just where the price of gold will get comfortable will sort itself out in short order. I’m hoping for some kind of middle ground which will continue to encourage the physical players and allow enough time for the dollar to unwind. Then you will see consistently higher gold prices and a real physical market moving back into the accumulation phase.

Discount recent news that US Mint gold eagle sales are in a slump – they are from a numbers standpoint – but keep in mind that this market has seen a lot of sellers. And premiums have not collapsed – which is a good sign. US Mint sales will pick up, perhaps dramatically when this market decides “up” is really “up” – if you know what I mean.

We will be closed this Thursday and Friday for Independence Day. The domestic market will be closed Thursday but open Friday, normal hours – Globex will close early. And while the 4th is obviously an American holiday I think not much will be happening through this coming weekend – Europe will also go home early. But keep your powder dry, if someone decides to place a fat thumb on the scale while our domestic market is closed it could re-refocus everyone.        

This from Zaner (Chicago) – “Obviously the gold market is under a liquidation rout because of the decision to restart US/Chinese trade talks over the weekend. Adding into the liquidation pressure is the fact that the dollar has forged a six day high and saw a lot of its mid-June selling off fears that the trade issue would pull down the US economy. Another element feeding into the liquidation action and could accentuate the selling directly ahead is the fact that the most recent positioning report showed an extensively overbought market. The most recent positioning report in gold showed a net long of 302,000 contracts which effectively puts the spec long at the highest level since the third quarter of 2016! It should also be noted that open interest in gold reached 321,953 contracts, and the violent new high for the move reversal on June 25th saw trading volume of 577,605 contracts in what now appears to be a blow off top. Therefore, the market is vulnerable to more classic stop loss selling particularly if it appears that the August contract is poised to close below the psychological retracement level at $1,383. While we doubt the President’s visit to the Korean demilitarized zone is a major cause to extract safe haven premium from gold, the situation might push some additional longs to the sidelines early this week. The Commitments of Traders report for the week ending June 25th showed Gold Managed Money traders added 39,983 contracts to their already long position and are now net long 229,664. Non-Commercial & Non-Reportable traders added 47,311 contracts to their already long position and are now net long 302,909. Unlike the gold market, the net spec and fund long in silver is minimal and therefore silver might not be facing as much stop loss selling pressure. On the other hand, the 200 day moving average in September silver was temporarily violated overnight and that average will be a critical pivot point today at $15.20. The Commitments of Traders report for the week ending June 25th showed Silver Managed Money traders added 18,724 contracts to their already long position and are now net long 23,472. Non-Commercial & Non-Reportable traders net bought 18,981 contracts and are now net long 53,145 contracts.

The palladium market impressed the trade last Friday with a massive $47 trading range at the end of last week. The market also appears to have forged a value zone with a series of lows around $1,508.60. On the other hand, open interest rose consistently throughout the month of June and some see that as a sign that a lot of buying fuel has been expended. However, the palladium market does not appear to be overbought from classic spec and fund long readings in the COT report as the net long remains at one-third of the record level. While palladium has not seen a tight rational correlation with the ebb and flow of Chinese economic prospects, the delay in tariffs should be a supportive element for palladium. Palladium positioning in the Commitments of Traders for the week ending June 25th showed Managed Money traders net bought 386 contracts and are now net long 11,396 contracts. Non-Commercial & Non-Reportable traders were net long 10,580 contracts after increasing their already long position by 67 contracts. The platinum market surprised the trade with a massive range up extension Friday and at times surpassed its 200 day moving average at $837.30. Therefore, the market starts out the new trading week with an edge and a spec and fund long positioning that is only one-sixth of its all-time record high. The June 25th Commitments of Traders report showed Platinum Managed Money traders added 2,420 contracts to their already short position and are now net short 23,479. Non-Commercial & Non-Reportable traders were net long 10,916 contracts after increasing their already long position by 107 contracts.

Clearly the gold market is facing a corrective track as the easing talk from the G20 meeting appears to have been less than significant and there was clearly a downtick in trade tensions between the US and China. Recently the dollar has been pressured as a result of fears that its trade battles would dramatically slow its economy and a tempering of those fears have the dollar rising this morning back above the critical 96.00 level and into the position of turning up the currency selling pressure on gold. Given gold’s history, it can see violent corrective action especially given exploding open interest and a large spec long. A 50% retracement of the high to low rally in June allows for a decline down to $1,383.25 without altering the trend, and yet another retracement point is seen down at $1,373.25.”

This from Allen Sykora (Kitco) – INTL FCStone: Gold To Hold In Higher Range during July – “Gold surged during June and likely will remain in a higher trading range during July, although the metal may not see the same explosiveness as last month, said INTL FCStone in a monthly commodities outlook. Much of the metal’s jump last month came from dovishness from the Federal Reserve, along with a decline in the U.S. dollar and Treasury yields, INTL FCStone noted. “We expect gold to trade in a higher range during July, but it will likely not see as dramatic a surge as we saw in June,” INTL FCStone said. “The recent trade accord has already had a negative impact, knocking gold back below the $1,400 mark, but we expect prices to regroup and test the June highs, with a $1,350-$1,450 range likely being in store for us. Silver and platinum – not pulled higher by the gold in June – could do a little better this month as some fund money could rotate into both these relative laggards.”

Silver closed up $0.04 at $15.15. Steady public buying here – not dramatic but steady. 

Platinum closed down $3.90 at $827.20 and palladium closed up $8.10 at $1547.20.

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