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Gold – The Bears Return

Gold – The Bears Return

Commentary for Friday, Sept 17, 2021 ( – Gold closed down $5.20 at $1749.40 and silver closed down $0.45 at $22.30. While gold prices look to be stabilizing after yesterday’s big 3% drop there was little bounce in early trading today which is disappointing. The upcoming FOMC meeting this Monday and Tuesday looms large as traders continue to fear early hawkish Fed monetary action in response to improving US economic conditions. We believe the Fed is too optimistic over the US recovery considering the unexpected rise in US Covid infection rates worldwide. This still growing medical tragedy may yet prompt a more dovish FOMC response on the shorter term. In the longer term, the factors supporting the bullish gold scenario are still in place early bargain hunting on large price dips. And the massive yet still growing US debt, now approaching an astounding $27 trillion. Last Friday gold closed at $1789.60 / silver at $23.86 – on the week gold closed down $40.20 and silver closed down $1.56.

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 gold moved higher in early trading as the Dollar Index was somewhat weaker. But this trend did not develop, and gold closed almost unchanged with little interest. The monthly consumer price index will be out tomorrow. Perhaps traders are anticipating rising inflation which would stall Fed plans to modify quantitative easing. But as long as the Dollar Index remains strong (there is support going back to June), it will be difficult for gold to break higher.

Reuters “Cleveland Fed President Loretta Mester said on Friday she would still like the central bank to begin tapering asset purchases this year, joining a chorus of policymakers stating plans to begin scaling back support despite weaker jobs growth in August.”

This continued tapering chatter between Fed governors also weighs on the bullish gold scenario. Citi Research maintains a slightly hawkish bias into the September 21st FOMC meeting. But they claim a dovish surprise could allow gold to break higher ($1900.00).

Zaner (Chicago) still favors a downward bias this morning but notes – “Surprisingly, last week gold ETF holdings increased by 49,422 ounces which is surprising given the trend of outflows. In retrospect, the gold and silver trade discounted a wave of global inflation news last week in a fashion that suggests the expectation of self-perpetuating inflation is not being embraced yet. Instead, the gold and silver trade focus is usually on a combination of the ebb and flow of physical demand views and the impact from the dollar. In fact, recently the Chinese government has instructed businesses to “set commodity prices reasonably”, which is another attempt by Beijing to dampen rising inflationary conditions that is not likely to yield results. In the near term, gold and silver look to remain unresponsive to inflation news despite record readings in components of last week’s US PPI report. While the gold and silver markets may not react to the Japanese producer price index readings for August the cycle of monthly inflation data will continue Tuesday with US CPI for August. We suspect that gold and silver will continue to monitor the ebb and flow of economic sentiment and derive some direction from equities and the crude oil market as both those markets are proxies for the direction of the economy.”

These “upward/downward” swings in gold are a grind, which can lead to mischief as traders push the envelope looking for strength/weakness. On the other hand, stock investors at some point may blink if the FOMC becomes hawkish. These folks would not need much encouragement to take stock profits and choose gold bullion as an undervalued alternative. On the day gold closed up $2.40 at $1792.00 and silver closed down $0.11 at $23.75.

Gold on Tuesday drifted lower on the open. But quickly caught a bid as August underlying US consumer prices increased at their slowest pace in six months, suggesting that inflation numbers have peaked according to Reuters. This soft inflation number pushed the dollar lower as traders once again suspect the Fed will be less hawkish regarding quantitative easing. This is the old “back and forth” logic which has plagued the higher gold scenario for months.

And it most likely will not fade until the FOMC decides the best QE action coming out of the pandemic. But it does somewhat enhance the bullish gold scenario in that soft inflation gives the Fed more room to push their financial envelope without paying the price. It figures that if inflation remains soft the talk of tapering before year may end up on the back burner. Whether this will further embolden gold remains to be seen but it is the first step in the right direction.

Today’s morning surprise created buzz because traders believed that inflation numbers would come in hot. This latest excitement however may be short-lived as professionals hold a negative bias and are apt to sell these rallies, as usual. The Fed will also use the upcoming FOMC meeting (September 21st and 22nd) to bang on about tapering, which allows them to have their cake and eat it too. This is beginning to look like the European model. EU Central Bank President Lagarde modestly trimmed bond buying while claiming the EU was not tapering but adjusting to a new reality. This led to the now famous quote that the EU has secured a taper without a tantrum. On the day gold closed up $12.70 at $1804.70 and silver closed up $0.09 at $23.84.         

Grant on Gold (Zaner / Chicago)(1) “Gold has been trading in a lackluster manner after failing to take out chart resistance at $1831.73/$1834.10 early in September. (2) Silver fell to a two-week low of $23.38 to start the week yet remains well within the range established in early August. (3) Platinum remains on the ropes, falling to a 9-month low on Monday of $947.50, just shy of the midpoint of the Covid-era range at $947.65. (4) Palladium has plunged nearly 13% in the past week, setting a more-than one-year low of $2070.84. This puts palladium well below the midpoint of its Covid-era range.”

On Wednesday gold opened flat but soon began to drift lower in what has become a really ho-hum trade. Which is interesting because technically gold still has a slight advantage and fundamentally it looks like a more dovish FMOC will take its time to taper. Gold has also held up nicely just under $1800.00 even when bearish talk was all the rage. Not that the bears are going away anytime soon, but you could make a mild case that this market is simply resting and wants another shot at trying to move above $1830.00. This optimistic opinion is in the minority, but it is still alive and well, looking for fresh bullish news to awake from it slumber. And the bullish view is underpinned by hard asset logic which does not completely trust big government. Not wanting to put all their eggs in one basket as my sweet Mom was fond of saying.

Professionals like Zaner (Chicago) hold an opposite view. “While the gold and silver markets remain within proximity to yesterday’s pulse up highs, we view the charts as vulnerable in both markets. Furthermore, we also see the fundamentals in favor of the bear camp in the wake of yesterday’s surprisingly soft US CPI readings. Not only did CPI fail to confirm surging inflation, but a portion of the trade interpreted the data as a sign that the US economic activity pace was slowed last month due to Covid and reports that businesses are closing because a lack of employees. Additionally, a popular fund manager claimed that severe deflationary conditions were more likely than inflationary conditions. Adding into the potential demand malaise for gold and silver is soft Chinese retail sales and industrial production readings overnight which in turn add to the pre-existing view that China’s economy has also slowed because of the Delta variant. Yet another negative angle for gold and silver is a rising chorus of market dialogue predicting “stagflation”. In conclusion, big picture macroeconomic issues have punctured bullish sentiment and it could take a definitive downside breakout in the dollar to cushion gold and silver against extending the initial slide in prices today.”

In the meantime, traders are watching for anything which might suggest what the Washington deep thinkers have in mind. Today the New York Fed Empire State Survey predicted a strong recovery. The implications here are that the Fed would taper sooner, a negative for our shiny friend. At the same time, Biden is meeting with Manchin, Sinema to discuss the US $3.5 trillion spending bill. More and even more money suggests inflation will not remain benign down the road. A plus for both gold and silver bullion. If this were a Shakespearian play, we are not even in the third act, which is where all the action usually takes place.

On the shorter term the ultimate predictor of gold’s movement will be the dollar. But even here the tea leaves are not clear. Treasury rates are drifting lower suggesting that traders believe the Fed will do little to rock the interest rate boat. Perhaps even through year end. Which suggests the Dollar Index now trading around 92.50 could drift to lows not seen since June (90.00). This would be just what the gold bulls need to revitalize their base. On the day gold closed down $12.30 at $1792.40 and silver closed lower by $0.08 at $23.76.

On Thursday gold got clobbered as the bears took control and the dollar and treasury yields moved higher. Zaner (Chicago) remains pessimistic. “In retrospect, the action in the gold market in the previous two sessions hints at a market unable to sustain rallies even in the face of patently bullish fundamental developments. The inability to rally from previous extremely hot inflation readings highlights markets that are not tracking classic inflation signals. However, it does appear as if this week’s slack US CPI reading has combined with predictions of deflation and stagflation to knock the chair out from under the gold and silver bulls. At this point, we are not even sure if a noted downside extension in the Dollar would turn the tide back in favor of the bull camp, as gold and silver prices declined yesterday in the face of Dollar weakness! In other words, hot inflation evidence last week, a weaker Dollar yesterday, surging grain and energy prices all failed to stimulate buying and instead both gold and silver remained under pressure.”

Professional physical traders worried about gold’s recent double top ($1820.00) and a fading technical edge. Now consider that the bullish gold scenario has failed to gain traction or buzz despite traditional reasoning. You could have made a plausible case that gold prices were just gathering themselves earlier in this week, with the idea of making another attempt at breaking above $1840.00. But the bearish sentiment was too heavy, and the Fed talk of tapering too persistent. The government focused on improving US economic conditions and ignored the growing Covid D variant threat.

With today’s significant loss gold pricing will refocus on the yearly chart and the double bottom in early March ($1700.00). Traders will also look closely at any recovery from today’s low ($1745.00). A significant bounce would be encouraging but a whimper will suggest a market still trying to find its feet. In the meantime, consider that cheaper gold prices always encourage the physical trade. The cheaper gold becomes the more interest, especially in the Chinese and Asian trade. The recent talk of problems with the Chinese economic recovery and the possible impact on their gold trade is overstated. A bad economic day for them would still represent powerful economic activity by any western measure.

Finally, my feeling is that a good blowout is just what this market needs if gold decides to be contrary about moving higher. It will bring in fresh speculative money and refocus a “value” orientated discussion. On the day gold closed down $37.80 at $1754.60 and silver closed down $1.01 at $22.75. Very turbulent out there – be careful.

Gold Friday opened a few dollars higher but lacked any conviction, so the paper traders sold this small rally and gold dipped into the $1745.00 range. The Dollar Index this past week has roared, moving from a low of 92.33 through a high of 93.12. Most likely anticipating a move from the FOMC next week regarding tapering. And while there is some indication using volume numbers on yesterday’s washout which suggest gold may now be oversold, I think the bullish faction is just happy to get into the weekend and have a few days to steady themselves.

Jim Wycoff’s (Kitco) technical look puts the bears in control. “Technically, October gold futures bears have the overall near-term technical advantage. Bulls’ next upside price objective is to produce a close above solid resistance at $1,800.00. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at $1,700.00. First resistance is seen at the overnight high of $1,765.40 and then at $1,775.00. First support is seen at today’s low of $1,750.70 and then at this week’s low of $1,743.50.”

As far as the physical market is concerned, we are selling everything on the shelves. This is the still curious reaction the real gold and silver market presents when prices get cheaper. And a dynamic which is always good to keep in mind. Clearly the bulls are staggered this week but like I have been saying – conviction on either side of this trade is thin. Traders and the media sound convincing but a blink, one way or the other from the FOMC and price trends evaporate. For the present the bears hold all the cards, but the professional trade is already looking for a bargain hunting entry point. Also keep in mind a kind of tried-and-true aphorism in the metals business.  Whatever the Fed finally decides to do with interest rates or bond tapering will already be factored into the price of both gold and silver by the time it become public information. So, deciding whether to buy, sell or stand pat before the fact can be problematical. That being said looking closely at percentages of market retracement from all-time highs can provide important technical clues. So, stay tuned as we all wait to see what the Fed has in mind next week. On the day gold closed down $5.20 at $1749.40 and silver closed down $0.45 at $22.30.    

Platinum closed up $7.30 at $932.50 and palladium closed down $37.70 at $1981.20.

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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