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Gold – Tapering Worries

Gold – Tapering Worries

Commentary for Friday, Sept 10, 2021 ( – Gold closed down $7.80 at $1789.60 and silver closed down $0.27 at $23.86. Gold finishes the week under a “tapering” cloud as commercials lose interest. And gold remains left footed even in the face of rising inflation numbers. But to say the bears rule is an overstatement as the Fed considers options and possible next moves between now and the end of the year. Still the world is a big place, and the pandemic continues to rage so there is little room for complacency. But these demand crosswinds do present choices which include extra time to make sure you are on the right side of this trade. Yearly EFT holdings are on the anemic side, off 7% but considering a hawkish FOMC things could be worse. And while the paper trade is turning sideways with a modest negative tilt the physical market remains hot. We are selling everything which is not nailed down. As gold’s 30-day price trend continues to consolidate between $1780.00 and $1800.00 the daily buzz continues to fade. So, the bulls are looking for something besides cheaper prices to refocus core support and stop drifting negativism. Last Friday gold closed at $1830.90 / silver at $24.76 – on the week gold closed down $41.30 and silver closed down $0.90.

The good news is that delivery on 2021 US Gold and Silver Eagles is getting better (still not “normal” but improving). And we are finally receiving early .9999 fine silver round orders. The bad news is that “any new orders” are still 2 to 4 weeks coming from the manufacturer. My guess, however, is that delays will soon shorten. 

Should you decide to use our Delayed Delivery Program please talk with your service rep and understand how this program works. It is handy if you want to lock in the price “now” and insist on new product – but is not for everyone. Just like us – you must pay upfront to “lock in” prices and you can’t “change” your mind. So, unless God has blessed you with patience, please ask your rep for other options and thank you for your understanding.

On Monday the domestic markets were closed for Labor Day.

Gold on Tuesday opened flat but quickly dropped lower moving on both sides of $1795.00. The reason being that the Dollar Index, trading at 92.00 this past Friday has moved to 92.50. That is not a monthly high (93.5) but it is a big step in the hawkish direction.

Considering the big jump in gold before the long holiday today’s trade will be a disappointment to the bullish scenario. Yet gold’s significant drop is surprising considering the disappointing employment news released by the Labor Department Friday. The higher Covid D variant numbers could upset the world’s economic apple cart. It is also troubling that the domestic aftermarket yawned after today’s loss, suggesting traders may not be eager to buy this dip. The technical picture, a big plus for gold on Friday may not hold much water by the end of the week.

If you attribute this latest drop to profit taking due to economic jitters, consider that the price region between $1780.00 and $1800.00 allows paper traders to “continue buying the dips and selling the rallies”. But a drop below this support level would be bad news. And as usual your Uncle Sam is hovering in the background. Which does not help matters as the FOMC will again meet later this month. Allowing, or should I say encouraging all sorts of speculation.

While the dollar reached a 3-month low in June, helping the bullish scenario, the green back is notoriously cyclical, and its subsequent recovery has created the usual headwinds. And as long as the FOMC continues to talk about tapering the dollar will remain strong hindering gold.

Zaner (Chicago) – “The gold market was presented with bullish and bearish news overnight, but clearly embraced the bear side of the equation. From the bull side of the equation, Indian gold imports for August jumped by nearly 50% last month and reached the highest level since the first quarter reportedly from restocking, bargain-hunting buying and festival interest. In fact, on a year-over-year basis India saw its gold imports of 121 tons dwarf the 63 tons seen one year earlier. However, the trade expects a dollar rebound this week, investment interest in Gold ETF remains very poor (total ETF gold holdings at the end of last week are 6.8% lower on the year), US Treasury yields have jumped this morning and Chinese official gold holdings declined by 0.6% last month versus July. We suspect part of the weakness in gold this morning is a classic “give back” of an overdone reaction to the Fed’s likely on hold stance following a serious “miss” on the August US payroll report. It should be noted that December gold after breaking out above its 200-day moving average on Friday has fallen back below that average today at $1817.40. While not significantly overbought in spec categories, the most recent positioning report probably understates the size of the net long given the post report rally of $18. The August 31st Commitments of Traders report showed Gold Managed Money traders added 4,273 contracts to their already long position and are now net long 98,865. Non-Commercial & Non-Reportable traders are net long 253,987 contracts after net buying 8,819 contracts. Like the gold market, the silver market has also posted significant declines in a classic “give back” of an overreaction to the likely delay in US tapering because of the slack jobs report last Friday. Fortunately for the bull camp in silver the net spec and fund long is near the lowest levels since June 2019.” On the day gold closed down $35.00 at $1795.90 and silver closed down $0.43 at $24.33.

On Wednesday gold consolidated in early trade but eventually sold off continuing yesterday’s downward momentum. The good news is that the paper market caught a bid at the important $1785.00 level and trended higher, perhaps on a short-covering rally. It is too soon to call this a short-term bottom, but it does support the other notion that gold at levels under $1800.00 creates bargain hunting. Which keeps a leash on the short trade and helps lessen volatility as the FOMC tries to balance quantitative easing to meet the needs of this changing pandemic.

Now while it may appear the FOMC is holding all the cards – keep in mind this financial mess is far from over and a reasonable solution is elusive. Reuters – “U.S. Treasury Secretary Janet Yellen on Wednesday again urged Congress to tackle the nation’s debt ceiling, saying it was unclear how long Treasury’s efforts to temporarily finance the U.S. government would last and citing ongoing economic worries over the pandemic. The “most likely outcome is that cash and extraordinary measures will be exhausted during the month of October,” Yellen wrote in a letter to lawmakers regarding the limit on U.S. government borrowing. Democrats and Republicans are staring down a historic fiscal crisis if they do not act, which could trigger a catastrophic default on debt repayment obligations or a temporary shutdown of some federal operations. Leaders of the Democratic-led Senate and House of Representatives are expected to force votes to lift the $28.4 trillion debt limit in late September. The nation’s current limit was technically breached on July 31, but the Treasury Department circumvented any default by taking what it called “extraordinary measures.” The likelihood of a government shutdown is zero, they have enough troubles on their hands. The important part of her message is that our $28.4 trillion dollar debt limit is not enough. The plus for gold today is that treasury yields have fallen from yesterday’s highs. The negative being that a 4-week uptrend has been reversed in one trading session suggesting that gold has once again failed to translate rallies into sustained uptrends. On the day gold closed down $5.20 at $1790.70 and silver closed down $0.32 at $24.01.

On Thursday the gold bulls first smiled, then frowned and finally scratched their heads. So goes today’s gold trade as perceived bargain hunting pushed prices higher ($1800.00) which then turned into bearish route as the short paper sold the rally. And after the smoked cleared gold pricing finished the day in the green. The Dollar Index has been steady around 92.5 since Tuesday so this gold volatility did not much relate to dollar strength. ECB’s Lagarde claim that lower bond purchases amount to recalibration – not tapering, may have set the mood. Atlanta Fed President Bostic’s comment that weaker US economic activity will likely push back the Fed tapering helped intensify the turbulence.

Zaner (Chicago) does not sound happy. “Perhaps the gold market is benefiting from the 13-year high in Chinese Producer prices as that has sparked talk that China may have to abandon its efforts to squash raw material prices or risk tripping up their recovery. With the recent short covering/delayed tapering rally extending the gold market into an overbought condition at the end of last week, the reversal down this week is justified. Fortunately for the bull camp, the dollar is showing signs of retrenching from yesterday’s spike high and while we doubt currency action today will benefit gold and silver, it may not be as much of a weight hanging on the back of the markets. However, fundamentals justify further corrective action as strength in the dollar looks to have legs, a deflationary vibe is creeping back into many commodity markets and equities are beginning to show consistently vulnerable action.”

Reuters this morning offered up a stock warning: “Banks including BofA, Morgan Stanley, Citi and Credit Suisse this week told clients to trim exposure to stocks. Some are predicting a sharp fall in prices.” This is of course an old bullish gold argument – that stock prices would correct and support gold. But the reality here is that stocks may correct, and real tapering measures will continue to pressure gold prices. So, no winners for either side.

Gold’s inability to forge higher prices over dovish information remains troubling. But our shiny friend continues to hold up at $1780.00. While the bearish tapering scenario holds the most water at this time, gold’s ability to hold up below $1800.00 suggests that traders are not 100% sold on this latest FOMC version of truth or dare. If you believe the dollar is overvalued or the stock market is overheated, you will continue to buy price weakness in both gold and silver bullion. If you are turning hawkish on FOMC choices stand aside and be patient. It’s likely the metals will continue to be dogged over tapering – real or imagined. It’s also possible we see another washout. But the FOMC will likely drag its feet into 2022. Supporting reasonable safe haven demand and the notion that gold and silver bullion provides an important financial anchor in turbulent times. Gold closed up $6.70 today at $1797.40 and silver closed up $0.12 at $24.13.

Gold Friday opened mildly lower despite the fact that the Dollar Index is a half point off its Wednesday highs and has turned choppy. Inflation data continues hot which suggest that the Fed will be forced to raise interest rates (yawn) an old argument that still holds sway.

Zaner believes the most recent US daily infection rate of 163,164 will spark some safe haven demand perhaps reflected in the modest rise in the latest ETF holdings. But for gold to rekindle its uptrend the Dollar Index would have to continue to weaken. Gold would also have to move above its 200-day moving average ($1816.00). They also like the notion that gold is at least holding up in light of the recent news that the ECB is planning to curtail its asset purchases.

I think gold represents a heavy trade but until the FOMC does something this market will likely remain rangebound. Reuters notes that Fed officials claim the August slowdown in job growth would not throw off plans to reduce asset purchases this year. This is not as significant as it might first appear. Their move might be ceremonial if the reduction is a token amount. And the Fed has plenty of room considering they purchase $80 billion worth of Treasury securities and $40 billion of mortgage-backed bonds each month. This emergency response to the pandemic has helped balloon the Fed’s balance sheet to a whopping $8 trillion, or double what it was at the beginning of 2020. Also keep in mind that President Biden’s social agenda is not slowing down – he still has big plans which require big borrowing.

It is likely the “taper” will begin with baby steps and the US will continue its more than generous quantitative easing programs to forestall any panic over the rising infection numbers. This will support the bullish scenario but it’s unlikely the bulls will be dancing in the streets. At the same time, I believe the possible damage to the bullish gold scenario is overstated. Simply because bargain hunting will roar at lower prices. On the day gold closed down $7.80 at $1789.60 and silver closed down $0.27 at $23.86.    

Platinum closed down $17.10 at $956.70 and palladium closed down $16.80 at $2123.00.

My Brothers and Sisters, we thank you for your business and fellowship. If you have unusual circumstances, need cash or are looking for a special visit – talk to Harry. Many on our staff have now received the vaccine as we continue to enforce rigid safety standards between people and product. Be careful, this virus remains a danger. At the same time trust that God will soon get us back to normal. Richard Schwary

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