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Gold – Turning Choppy?

Gold – Turning Choppy?

Commentary for Friday, May 21, 2021 (www.golddealer.com) – Gold closed down $5.10 at $1876.70 and silver closed down $0.58 at $27.47. Today’s gold pricing will be disappointing to the bulls – most were looking for a $1900.00 challenge. We got off to a good start but manufacturing data came in hot so traders of course revisited the idea that the Fed may be forced to soon “taper”. And gold remained in negative territory despite the third monthly drop in US existing home sales. I can’t argue with the logic, but I wonder if today’s action relates less to possible FOMC action and more to profit taking in a market which for now sees overhead resistance going back to last August as “a bridge too far”. Last Friday gold closed at $1837.90 and silver at $27.35 so on the week gold was higher by $38.80 and silver higher by $0.12. 

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 4 to 8 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.

Gold on Monday provided a good reminder to be careful about “group think”. It opened steady – pushed above $1850.00 and sold off ($1844.00) to the usual bearish chorus of “too much overhead resistance at $1850.00”. And then pushed quickly into the $1860.00 range. This most likely was just a short covering rally coupled with lower weaker Treasury yields – which does not mean much but intuitively it looks like gold wants to rally higher.

Whether it will or not likely depends on the dollar – the Dollar Index today has not been substantially weaker which supports the shorter-term bullish scenario. But for gold to really gather steam the index will have to break down at 90.00.

Reuters claims gold hit a 3 ½ month high because of the dip in US Treasury yields and persistent inflation worries. “Higher than expected (U.S.) consumer price inflation and weaker retail sales was really the potent combination for gold,” said Ole Hansen, head of commodity strategy at Saxo Bank. “Higher inflation has been the key source of inspiration for renewed demand that we have seen in gold, especially during the last couple of weeks.”

Federal Reserve Vice Chair Richard Clarida comments that the economy has not made the progress needed to begin tapering asset purchases again helps the current bullish scenario. Some veteran commentators believe the weakness in the crypto currencies is a plus for the metals.

In the last analysis gold must show strength above $1850.00 before traders will take this rally seriously but they are watching carefully as both gold and silver challenge their 200 day moving averages. On the day gold closed up $29.60 at $1867.50 and silver closed up $0.91 at $28.26.  

Gold opening choppy Tuesday but quickly challenged $1875.00 before prices moved back to unchanged just as quickly. I would not say the paper trade are turning into convinced bulls, but they are closely watching now that inflation worry is at least part of the conversation.

And with this most recent uptrend in place, they will continue to test overhead resistance while at the same time keeping an eye on the dollar. It is surprising that gold did not hold earlier gains given the index dipped below 90.00 and housing starts fell as builders contend with shortage of materials and labor (MarketWatch). This must bolster inflation concerns in some, but such is the power of rising Treasury yields as traders remain suspicious of FOMC interest rate intentions.

Physical dealers are impressed with this current upward trend because they are struggling with immediate delivery of larger orders. But the most promising bullish trends for gold and silver are the downside breakout of the dollar (6-month lows) and renewed safe-haven buying in the exchange traded funds and physical market. Both metals have a steep hill to climb in moving towards old highs – so expect volatility and buy weakness if you like the inflation argument.           

This from Neils Christensen (Kitco): It didn’t take much to drive hedge funds back into gold and push prices above $1800.00. Hedge funds once again see value in gold as money managers increase their bullish bets on the yellow metal and cover their bearish positions, according to the latest data from the Commodity Futures Trading Commission. The threat of rising inflation, coupled with economic uncertainty following disappointing employment numbers is prompting investors to find safe-haven assets again, analysts said. For many, gold’s push Monday to its three-month highs above the 200-day moving average means that momentum is just starting to pick up.” On the day gold closed up $0.30 at $1867.80 and silver closed up $0.05 at $28.31.       

The gold pricing for Wednesday began mildly bearish moving from $1870.00 towards $1850.00 but in early trading reversed itself and surprisingly challenged $1890.00. There are several factors including wobbly stocks over inflation fears and a weaker dollar – the Dollar Index has moved lower by almost a full point since last Thursday.

There is also an interesting twist in this story as China has moved to ban the cryptocurrencies. For some time now there has been talk that these new forms of computer created money have attracted investors looking for a gold replacement. Whether this holds water or not the collapse in Bitcoin today corresponds to the spike in the price of gold. I think this jump was more of a knee-jerk reaction than anything else – but it does suggest a nervous market.

Gold’s surprising move from $1780.00 through $1890.00 this past month has refocused bullish sentiment and presents a strong short-term technical picture at this 4-month high. Still, it faces a very tough overhead battle moving towards the magic $1950.00 level we saw in August of last year. The bullish pluses – safe-haven demand is returning pushed by inflation fear and perhaps developing world turmoil. The “fear factor” is not back but we did get a taste as Bitcoin prices crumbled in early trading. For now, let us say that “growing concern” is creeping in around the edges of this financial conversation. This alone is not enough to create all-time highs on the short to medium term, but it is enough to support current trading ranges. Folks are still trying to figure out the extent of the collateral damage created by this massive relief money. Gold on the day closed up $13.50 at $1881.30 and silver closed down $0.30 at $28.01. 

Gold on Thursday drifted lower in overnight markets but again pushed as high as $1880.00 domestically before settling into the $1878.00 range. The Fed minutes released yesterday suggested that some Fed officials believe it might be time to discuss “tapering” – if the recovery presented no problems. Just this discussion was enough to push Treasury yields lower this morning, but surprisingly gold trading remained passive. Still “passive” is a “plus”, under normal circumstances talking about less asset purchases would pressure gold lower.

This Reuters however suggests that economic recovery may not be as easy as hoped. “Pandemic Mindset” persists among global consumers. People in the world’s leading economies remain overwhelmingly nervous about returning to life as normal, even after having been vaccinated against COVID-19, a survey released on Thursday found.”

This from Zaner. “While it is premature to assume that gold is benefiting from the travails in bitcoin, if that relationship develops that could provide significant rotational buying interest in gold. In a very positive classic physical demand development, Chinese gold imports (according to Bloomberg) almost tripled last month from the prior month with April imports at 111,911 kg the highest reading since December 2019!”

Gold watchers believe that inflation is becoming a problem which will eventually push gold to all-time highs. But this timeline is very uncertain and dicey – coming out of this unprecedented pandemic. So, expect turbulent times and prices. At the same time, gold and silver bullion have always presented an independent insurance policy providing the slightly cynical with peace of mind. Not because the metals are infallible but because physical bullion is under their complete control. For now, that works! On the day gold closed almost unchanged up $0.50 at $1881.80 and silver was higher by $0.04 at $28.05.  

Gold pushed higher on the open Friday threatening $1890.00 but reversed direction on better-than-expected manufacturing data and moved into negative territory. “The US economy saw a spectacular acceleration of growth in May, the rate of expansion of business activity soaring well above anything previously recorded in recent history as the economy continued to reopen from COVID-19 restrictions. The service sector saw an especially impressive surge in growth, beating all prior records by a wide margin, accompanied by another solid expansion of manufacturing output,” said Chris Williamson, chief business economist at IHS Markit in a statement.”

Unfortunately, this trading pattern is nothing new – information which suggests a spectacular pandemic recovery feeds the bearish gold scenario because traders begin to doubt the Fed will continue their big spending plans and begin “tapering”. I still cannot figure out why this is the case. I appreciate the worry that higher yields create but the Fed has been very clear – it will not alter their loose money course until the economy and employment have fully recovered.

So, today’s reversal is perplexing in the face of higher inflation both here and in Europe and the reality that we all have a great deal of work to do just to stay ahead of the COVID problem.

Still, these are typical problems in a financial world trying to get on its feet while the pandemic still threatens. I would not call gold pricing “stuck” at current levels. We are still technically solid short-term, central banks are adding to their gold reserves, gold and silver ETF numbers are moving higher, and the metals should draft support from problems in the crypto world.

But today’s price reversal suggests that something more decisive will have to change or gold could settle into a prolonged channel on both sides of $1800.00. We certainly have enough fundamental buzz to support $1800.00 – regrouping next week (my guess – traders will buy the dip) and taking another shot at $1900.00. But not enough to make all-time highs.

It would be easy to figure higher prices if inflation pops or the dollar breaks down but while you are waiting consider a counterintuitive idea – deflation. This idea too has been around for a long time but gets less traction these days. Deflation would create significant stock market weakness – maybe even initial weakness in gold but would eventually reinvent safe haven demand.

The David Lin (Kitco) conversation with Chris Vermeulen (TheTechnicalTraders.com) is worth noting. “Overall, the stock market, it’s lost a lot of its winds out of its sails as well. We’re seeing half of the sectors that I follow are in a downtrend. That means, the market is definitely limping along here. There’s not a lot of power behind it. If you look at the NASDAQ…it looks like it’s forming a bear leg here and could very easily head lower. Overall, the stock market to me, is in a risk-off mode. You don’t really want to be in stocks right now. Everything is turning bearish. We’re seeing gold, utilities, bonds are holding up fairly well,” he said. Vermeulen noted that when defensive assets like utilities and gold are holding up well relative to the rest of the stock market index, it means that institutional capital is rotating away from risk-on to risk-off assets.” On the day gold closed down $5.10 at $1876.70 and silver closed down $0.58 at $27.47.   

Silver closed today down $0.58 at $27.47. Silver bullion business remains surprisingly steady.                                  

Platinum closed down $35.40 at $1167.80 and palladium closed down $95.20 at $2775.30.                   

My Brothers and Sisters, we always 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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