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Gold Surprisingly Quiet Considering the Angst

Gold Surprisingly Quiet Considering the Angst       

Commentary for Monday, April 9, 2018 – Gold closed up $4.40 at $1336.30 – that makes for a gain of $13.50 based on the closes over the past 6 trading days -so not much going on considering all the hoopla. But this market is still sitting in the shadow of heightened international relations with China.

Each side is playing poker and both sides know how far they can push the trade envelope before real damage is done. So gold remains defensive – a kind of last alternative for both sides in case this continuing rhetoric does develop into something bigger but the chances of that happening are small and both sides understand this dance completely.

Trump is hollering about the trade deficit between us and China but historically the deficit has been pretty steady since 2010 moving between on either side of $40 billion. He is right in that we are approaching $60 billion but this too is not completely out of line – we saw something like $70 billion in 2009.

So what gives? Both sides of this ongoing and potentially dangerous argument is looking for wiggle room in a gigantic economic pie and by the time these “talks” are over each will claim an economic advantage.

The short-term surrogate in this fight is the dollar and today the Dollar Index is weaker – moving from 90.20 through 89.80 and gold receives this small benefit being up a few dollars.

This of course is not a trend – it’s a political aberration. The Dollar Index this past 3 months has been steady – surprisingly so considering all the higher interest rate talk.

During this time the index has dipped three times to the 88.60 range but for the most part has been happy around 90.00. Not too hot and not too cold which might suggest that gold’s future is a bit more bright than the 2 remaining interest hikes this year would suggest.

Since December the price of gold has moved to the higher end of its 12 month trading range and stayed there – something between $1320.00 and $1360.00 but has failed to break higher on three separate occasions.

So there remains two forces – pushing and pulling this market. Both are clearly in the open and are being watched by traders carefully.

The first is old news – traders believe the FOMC will raise three times in 2018 – bullish because it could have been worse and settling this issue provides some market certainty. And two more increases between now and Christmas will still make money cheap.

The second and in the longer term not nearly as important (if this train does not go off the tracks) are the ongoing talks between the US and China about tariffs. These have created a rocky DOW which unfortunately has given a great deal of credence to something which should have been kept behind closed doors in the first place and most likely will soon blow over.

Neither of these forces (in my opinion) have the horsepower to push gold either significantly higher or significantly lower so expect more of the same until another dynamic enters this picture. In the meantime if you are bullish be thankful for small favors – gold is holding this latest higher ground nicely as the US economy continues to improve.

This from Zaner (Chicago) – “The gold market saw a measure of safe haven buying return to the trade Friday but the gains were a little disappointing to the bull camp considering the circumstances. In fact, given the combination of a weak Dollar, increased economic uncertainty from scheduled data and given the likelihood that more trade salvos are expected ahead, we would have expected gold to have finished last week on a very firm footing. While trade tensions appear to be toned down given global equity market action we see the overnight “official” Chinese statements to have actually ratcheted up tensions with the Chinese blaming the US for the conflict and suggesting that talks are impossible. In fact, the Trump Administration over the weekend indicated that the US would see trade concessions from China and that clearly prompted a response from Chinese daily papers calling for US product boycotts. Adding into the safe haven condition, were reports of a chemical attack in Syria with Trump indicating there would be a “big price to pay”. Other issues combining to underpin gold came from what appears to be two separate terrorist incidents in Germany within several days. The world’s largest gold ETF saw their holdings rise by 0.90 tonnes to reach their highest level since the end of September. In conclusion, we think the trade situation will become more anxious before a resolution is found and that should make the $1,325 level in June gold some form of value. The Commitments of Traders Futures and Options report as of April 3rd for Gold showed Non-Commercial and Non-reportable combined traders held a net long position of 196,289 contracts and since that reading represented a decrease of 38,867 contracts in the net long position, which should mean gold is in a better technical position to rally versus one week ago. The silver market has a very supportive technical spin from the Commitments of Traders Futures and Options report as of April 3rd for Silver the market showed “combined” spec and fund Net long 1,969 contracts which is the lowest spec long reading ever!

While platinum and palladium will remain vulnerable to negative big picture physical commodity market environment the complex is seemingly drafting some lift from a slight recovery in global equities. It is also possible that the PGM complex is seeing some technical short covering and some speculative buying interest off the events in Syria over the weekend. Apparently there are reports that a chemical weapons attack has taken place and it is possible that US/Russian tensions could escalate to a point where trade sanctions on Russia are expanded and that could (a long shot probability) threaten the flow of PGM exports from Russia. While a slight risk on psychology will provide some initial support we see little in the way of fundamental justification for a sustained recovery and we suspect the technical recovery action will run its course quickly. Therefore July platinum would seem to have little in the way of significant support until the top of an old gap down at $902.70. However closer in and weak support might be seen at the quasi double low from last week around $920.10. As in platinum, the palladium market finished last week with a fresh downside breakout and little in the way of support until the $875 level. However it has also forged a noted bounce to start the trading week and that might balance the market for a resumption of declines later this week. In looking at this week’s COT data, both platinum and palladium would appear to have further liquidation potential especially with the early corrective action today. We would suggest that both platinum and palladium positioning reports are probably overstated as to the spec long given the slide in prices after the report was compiled. The Commitments of Traders Futures and Options report as of April 3rd for Palladium showed Non-Commercial and Non-reportable combined traders held a net long position of 10,326 contracts. The Commitments of Traders Futures and Options report as of April 3rd for Platinum showed Non-Commercial and Non-reportable combined traders held a net long position of 27,678 contracts.”

Silver closed up $0.17 at $16.50. Gold Surprisingly Quiet Considering the Angst

Platinum closed up $21.90 at $933.90 and palladium closed up $37.35 at $933.50.

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