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Gold – Tariff Retaliation or Classic Bear Trap?

Gold – Tariff Retaliation or Classic Bear Trap?

Commentary for Friday, June 15, 2018 (www.golddealer.com) – Gold closed down $29.40 at $1274.60. Oh where is the joy? After Thursday’s surprisingly higher market gold is once again back-footed on Friday as traders think about rising interest rates/dollar strength. And the President unveiled new tariffs against China – 27 minutes later China returned the favor. This ups the retaliation argument and suggesting the world may be moving closer to a full blown trade war and away from the argument that Trump was using tariffs as political bargaining chips. As always the devil is in the details.

Gold closed at $1298.90 last Monday so on the week we have lost $24.30. The loss is no big deal but the way it “happened” caught everyone by surprise.

So between the FOMC rate hike on Wednesday and the close of business today gold continues to surprise – higher when it should be moving lower and lower when it should be moving higher.

The rate hike was expected and so priced in on Wednesday – the market moved lower but not much and actually finished higher by a couple of dollars – all expected so no big deal.

The gold aftermarket yesterday however moved higher despite the stronger dollar – not expected. The Thursday market closed up another $7.10 solidly above the important $1300.00 psychological level even though the Dollar Index continued higher – also not expected.

Silver was also strong Thursday – moving up $0.28 to $17.23 – another surprise. Is silver stirring at the higher end of its current range anticipating higher inflation or is it just reacting to higher gold? We have seen some fairly large silver bullion sellers of late but I still see silver as fundamentally cheap considering the discount from all-time highs.

One thing is sure – demand here in the states is surprisingly lackluster. There is some interest for sure usually coming from long-time customers but fresh money is still missing. Can’t say this interest is coming from safe-haven buying although it’s worth noting that ECB President Draghi left interest rates unchanged and Europe continues to borrow and print more fiat currency.

Bitcoin is taking a price pounding of late and while I have said the two products really don’t relate much to each other this is perhaps another piece to this curious puzzle.

And while today’s fall from grace is disappointing you might have to dismiss this latest kerfuffle as just another classic bear trap. It may provide a minor reason why the American public remains on the sidelines but the primary reason is “boredom”.

You could make a good case that since last summer gold has held resoundingly steady in a range between say $1275.00 and $1350.00 which amounts to a whopping 6% spread. As the world dances on a leveraged precipice gold is doing exactly what should be expected.

From a pricing standpoint the gold party which began yesterday has been raided. We are back to testing that $1280.00 shelf which has been in place since October of last year. Whether it will hold remains to be seen but I look for gold price resilience supported by renewed Asian demand as we enter that traditional sweet spot below $1300.00. The farther gold falls below the $1300.00 mark the more interest the overseas market will show – look for bargain hunting to begin soon.

Peter Hug (Kitco) comments yesterday were interesting – “Gold traded as we expected after the Fed raised rates yesterday — first a swoon on the announcement and then a pop. This has been the pattern for the last three rate hikes. Although the message from the Fed was hawkish, indicating further rate hikes this year, traders ignored the statement and began focusing again on global issues, specifically the looming trade wars. There is a consensus building that an acceleration of trade friction will be negative for global growth, which may make the Fed’s hawkish statement a moot point. The focus will be on President Trump’s decision on moving forward with Chinese tariffs, due to take effect tomorrow. On this point, we are less worried, at least while talks with North Korea remain ongoing. The U.S. needs China, if a North Korea deal has any chance of success, and the president may defer implementation of the actions against Chinese goods. The ECB has left rates unchanged and indicated that asset purchases will end by year-end. Watch the China story. If Trump backs off, gold may run into selling. The $1,297 level indicates support and a break above the 200-day moving average at $1,307 will generate the momentum for a sustainable rally.”

This from Zaner (Chicago) – “One would have thought that reports that President Trump will impose an additional $50 billion in tariffs on Chinese would have supported gold overnight, but much of that news may have already digested by the market on Thursday. The main source of pressure was likely the dollar trading to its highest level in over a year. China’s statement yesterday that it stands ready to respond if Trump activated the tariffs seemed to contribute to safe-haven buying yesterday and helped bring gold back to its late-May highs. Another factor may have been the EU nations unanimously backing a plan to impose import duties on 2.8 billion Euros ($3.3 billion) worth of U.S. products in response to the US tariffs on steel and aluminum. The ECB pushing back its rate hike prospects into the second half of next year supported the dollar. This may have limited gold’s advance, but the move could be considered inflationary, and it also keeps some interest-bearing assets from being too competitive with gold. But in the end, the dollar trading to its highest level in almost a year keeps a limit on gold. The gold market did not seem phased by reports that South African production contracted for a seventh straight month in April. Production shrank 5.7 percent from a year earlier compared with a revised 14.9 percent decline in March, according to Statistics South Africa. August gold traded to its highest level since its big selloff on May 15th at one point yesterday but then settled back below the May 25th highs and inside of trading range it has followed since May 16th. It will be difficult to break out of its consolidation in the face of dollar strength. July silver continued to make strong gains on Thursday, with a wide-range extension of its recent rally. It reached its highest level since its April 19th peak and its second-highest level since early February. Silver continues to outperform gold, partly on epectations for strong industrial demand. The lowest ongoing jobless claims number since 1973 and a strong jump in retail sales for the months of April and May add to the bullish outlook on the economy. The gold/silver ratio has fallen to its lowest level since November.

Like gold, platinum tested the highs of the recent consolidation range yesterday but backed off those levels and traded back into its recent range. And like gold, it seemed unphased by reports of lower production out of South Africa. South Africa’s PGM output was down 6.5% in April, compared to a revised 8.7% drop in March. For a brief period of time yesterday, July platinum managed to trade above its 50-day moving average for the first time since March 1st but closed below it and did not approach that level overnight. A key resistance area in July platinum would be the 50-day moving average at 913.50, as a close above there could set the stage for a breakout above the month-long consolidation/base-building. Chinese industrial output, investment, and retail sales all grew less than expected in May, and this may have pressured palladium. Key support for September palladium comes in at 990.80.”

Silver closed down $0.78 at $16.45.

Platinum closed down $23.10 at $885.80 and palladium closed down $25.10 at $993.80.

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 GoldDealer.com employees think: 8 believe gold will be higher next week 1 thinks gold will be lower and 1 thinks 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: 65 people thought the price of gold would increase next week 22 believe the price of gold will decrease next week and 13 think gold prices will remain the same.

Precious Metal Closes & Dollar Strength – Jun. 11 – Jun. 15

The GoldDealer.com Unscientific Activity Scale is a “3” for Friday. The CNI Activity Scale takes into consideration volume and the hedge book: (Monday – 2) (Tuesday – 3) (Wednesday – 2) (Thursday – 4). 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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One thought on “Gold – Tariff Retaliation or Classic Bear Trap?

  1. So, I never do get the forecasters and the post-casters who always rely on the price of the dollar, the market, bonds, the interest rate, oil, and now tariffs have entered the picture…… One would think that after 30 years of losing the tariff war that this present campaign would give new energy in taking back the lost territory and every one would be behind it rather than thinking of the short term pain. Yet here we are with an unexpected 2.3% drop in one day on the Gold spot. Silver was blasted at almost 5% down. The thought process on the PM’s has given way to spasticity. The only thing left is to fall back on the mantra that “I’m in it for the long run.* With nothing really set to change much in the next week one could use today to make the forecast but who knows with all the fickle buyers and sellers.

    ANY THOUGHTS….??

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