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Gold Takes a Breather

Gold Takes a Breather

Commentary for Friday, Jan 4, 2019 – Gold closed down $9.10 at $1282.70 today but the action across the counter has not slowed considerably. We were closed Monday and Tuesday of this week for the New Year so considering gold closed at $1281.00 this past Wednesday – on the week we have gained $1.70. Not much considering the big jump in across the counter and phone activity and a great start to the New Year.

With gold’s steady climb from $1240.00 through $1300.00 this past month the technical bulls remain encouraged but today’s sell-off was expected. It would be tough for gold to ignore both the steaming job’s report, the possibility of further interest rate increases in 2019 and the rebounding DOW after yesterday’s drubbing.

Underlying this more bullish sense and safe-haven support for gold is of course world uncertainty. Everyone is nervous – the Europeans are worried about Trump and the continued rumors about China’s economic slowdown are growing. Wall Street fears a recession one day and the next sells the precipitous drop as a buying opportunity.

In the middle of all this noise FOMC Chief Powell claims he will not resign if asked and tries logically to point out why he and the rest of the FOMC governors are never married to what they might have implied in the recent past. This past year they have moved from claiming 3 rate hikes in 2019 is a certainty to – we are watching this situation carefully and will stay in touch. Is it any wonder that gold under these changing circumstances continues to climb that wall of worry.

But that 30 day $60.00 paper profit in gold is also hard to ignore. This situation is very liquid and underlying motivation changes like the wind.  No one is exactly sure of what Trump, the Chinese, the Russians or the Europeans are up to as everyone’s red ink pile continues to grow. So where this continuing monetary experiment will end is difficult to pin down.

There remains some safe haven demand for gold but not much from the US side. Gold bullion sales across our counter are active but considering all the hoopla of late, especially with significant weakness in the DOW I would say this latest challenge of $1300.00 is just a modest response.

The possibility of real financial instability is small at this point. Take another look at that whopping job’s number. Still gold bulls are quick to point out that something is amiss, and they are right but we might be looking in the wrong direction.

Job’s numbers are typically seen as a lagging indicator – meaning they point to what has happened while the DOW is more seen as a forward looking soothsayer. Meaning menacing stock behavior of late may foretell bigger trouble on the horizon.

So interest is growing in the metals. But consider that in the past five years gold has challenged $1350.00 three times and fell back in each time. So while the pot is once again heating up gold may still be just trading at the higher end of an in place range. In the meantime look for prices to consolidate somewhat in the first quarter of 2019 with underlying support staying in place.

This from Zaner (Chicago) – “Global equity markets overnight were higher with the exceptions the TOPEX Index and the All Ordinaries. The highlight of the overnight session came from China where they cut their reserve rate requirement by 100 basis points. The Chinese Premier also indicated the prospect of more banking system liquidity if needed to support small and private companies. Economic data released overnight included Japanese manufacturing PMI which matched the prior month, UK nationwide home prices which were barely able to post a gain, euro zone consumer price index readings which notched lower than the prior month and euro zone services PMI which notched below the prior month by.1%, Also out overnight were euro zone employment readings which showed a touch of softening. Other economic data released overnight included the euro zone PMI composite which matched the prior month, UK consumer credit which ticked higher, UK mortgage approvals which came in lower than the prior month and euro zone producer prices which actually contracted 0.2%. The North American session will start out with the highlight for global markets, the December US employment situation report. December non-farm payrolls are forecast to come in around 175,000 to 180,000 which compares with November’s 155,000 reading. December unemployment is expected to hold steady at 3.7% while December average hourly earnings are forecast to have a minimal downtick from November’s 3.1% year-over-year rate. Canadian jobs data will be released at the same time with their unemployment rate expected to have a minimal uptick from November’s 5.6% rate. Fed Chair Powell, Atlanta Fed President Bostic and previous Fed Chairs Yellen and Bernanke will speak during morning US trading hours. Earnings announcements will include Lamb-Weston and Cal-Maine Foods before the Wall Street opening.

Certainly the gold market is moderately overbought and has clearly fed higher off sharp declines in equities and rising macroeconomic anxiety. Therefore it is not surprising to see a bit of corrective action to start today but traders should not underestimate the potential for a wild reaction to the US nonfarm payroll reading. In fact payrolls & wage readings should have significant ramifications for gold, the Dollar, equities and many other commodities this morning. Some of the initial weakness in gold prices this morning can be attributed to headlines touting soft Indian demand which some sources claim is the result of the $100 rally over the past two months. In our opinion, anything soft from the US payroll reading will provide gold with a fresh combination of safe haven and currency related buying interest and that could produce the largest upside extension since October. In fact, if the payrolls are below the prior month’s 155,000 tally that could whip up recession talk, neuter the Fed and result in the biggest decline in equities this week. In short, a major trend decision would appear to be in the offing and further declines in global equities ahead of the US payroll could easily throw February gold up toward $1,309. Another issue that has not gained as much attention as it should have this week in the metals markets is the prospect of another week of US government shutdown with some analysts predicting each week reduces US growth by 0.1%.

The PGM markets held up rather impressively yesterday in the face of several negative physical demand headlines. In addition to the largest monthly decline in the US ISM manufacturing index since the Lehman crisis, the markets were also presented with a downtick in US December auto sales and a number of downgrades for the Chinese economy. However, the palladium chart remains positive with a pattern of higher highs seen in six out of the last seven trading sessions, and the platinum market surprising this morning with an upside breakout and the highest trade since December 13th. However, palladium trading volume over the last month has declined significantly and is the lowest since early 2018 in a fashion that might suggest fewer buyers are willing to pay up for palladium above the $1,175 level. On the other hand, the PGM markets have shown the capacity to “stand up to” the significant deterioration in economic sentiment this week and Palladium remains within striking distance of the contract highs. In our opinion, the trend remains up but the risk/volatility to the longs remains unattractive. Uptrend channel support in March Palladium today is seen at $1,193.35 with resistance initially seen at $1,205.30. The platinum market technically broke out of its sideways coil this morning and has also managed to reject broad commodity market weakness correlated the week’s equity market declines. The PGM complex needs an as expected or slightly above expectation (+178,000) gain in payrolls to claw out more gains.”

Silver closed down $0.01 at $15.70. Even at these higher recent levels the public is still buying silver bullion – we had a flash sale on $1000 Silver Bags and sold half our position in a few hours. Call Alex if you are interested.  

Platinum closed up $27.50 at $822.00 and palladium closed up $34.10 at $1291.10. The platinum market could also turn hot – there is just not enough physical product out there and folks continue to sell palladium and buy platinum bullion.

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: 8 believe gold will be higher next week none think 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: 54 people thought the price of gold would increase next week 22 believe the price of gold will decrease next week and 24 think prices will remain the same.

Precious Metal Closes & Dollar Strength – Dec. 31 – Jan. 4

Gold Takes a Breather

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