Gold Tweets Higher
Commentary for Friday, July 20, 2018 – Gold closed up $7.10 at $1229.50 – a nice weekend surprise. Gold moved higher today as the dollar weakened considerably. The Dollar Index moved from 95.25 through 94.60 in early Friday trading – this drop is the result of President Trump’s comments about currency manipulation by China and the European Union.
The President is complaining that while the US is raising interest rates China and the EU are doing nothing to balance this picture and so are gaining another unfair trading advantage. This concern is really an old dilemma that really does not have any good answer. All countries want a “strong” currency but this is a political statement more than an economic one.
Raising interest rates in the US will make the dollar stronger obviously but it will also make our goods more expensive to foreign competition so it makes Wall Street nervous. I would not get too excited over another Trump tweet but that was all it took to stop the bears in their gold tracts.
The Dollar Index could easily move even lower by 5% if the President’s comments sway FOMC policy and regardless of FOMC protestations there is precedent.
In actuality this is unlikely – but his comments do come at a time when the price of gold is weak both seasonally (summer doldrums) and from a safe haven standpoint. This apparent new lack of interest caught everyone by surprise – where did the buyers go?
Still gold has been down for 4 of the past 5 weeks for a total decline of $45.00. Today we traded as low as $1215.00 before the $14.00 rebound over the tweet. This sudden attention might encourage that short covering rally that we have been expecting for some time.
You could also make the case that today’s higher prices while being helped by a weaker dollar were also encouraged in an oversold market.
Everyone is going to have to wait until next week to see if any of this amounts to much. Generally speaking the dollar is still king as long as the FOMC does not blink under White House pressure.
They of course are independent but they also understand that raising interest rates too high will become the proverbial wet blanket for Wall Street and the President – a very difficult agenda to sell even if their intentions are designed to hold inflation in check.
If you want to dig back into the old FOMC archives you will find that for most of the last decade of cheap money policy they have claimed that getting interest rates back to “normal” would take a long time. It has only been recently that they have become enamored with the US economy enough to push this time table forward. If they decide – for whatever reason to delay or stretch out the promised interest rate hikes all the now common bearish news will disappear overnight.
And keep in mind that this market is generally considered “cheap” relative to old highs. The steady decline in prices and lack of fresh bullish news has created a kind of fog even in the committed ranks. At the same time there has been in my mind a steady increase in pent up demand for gold bullion created by many traditional buyers simply looking for better prices. This “accumulated demand” will further accelerate prices once the bulls get back on their feet.
Finally – still no blowback over the ongoing tariff problems and the US is again raising the stakes ($500 billion) today. Don’t make the mistake of thinking this was just a flash in the pan for gold fans – this tariff dynamic could lay the foundation for new highs in gold.
This from Zaner (Chicago) – “While the gold market did manage to reject the latest big range down washout with a recovery yesterday afternoon, prices overnight have spent the majority of the early trade back in negative territory in a fashion that leaves the technical picture pointing downward. Clearly the dollar action this week has been the dominating force for gold and silver prices and we would expect that influence to continue again today. Fortunately for the bull camp the dollar is waffling around both sides of unchanged after falling back yesterday in a fashion that hints at a temporary blow off top. However seeing the September dollar index rise back above 95.09 could reignite the selling wave and send gold and silver quickly back toward this week’s lows. However the bull camp might draft some support from news late yesterday that the world Gold Council expects gold demand to rise in the second half of this year. The WGC thinks that higher inflation and a global trade war will impact currencies which in turn would have to mean a weaker dollar and increased gold demand. The World Gold Council also pointed to the potential for safe haven demand because of geopolitical turmoil but so far gold has not responded to the prospect of economic/financial uncertainty. In fact we think economic/financial uncertainty from trade might have to become very severe for gold to transition away from a classic physical commodity market fearful of slowing demand. For second half demand to rise might be very difficult with the Indian Rupee making a multi decade low and the Chinese Yuan making a 11 1/2 month low this week, as that means purchasing power by very key gold demand markets will continue to be suspect. An element that might provide some support going forward in gold is news that a South African gold mining companies wage offer is reportedly significantly below what the unions had demanded and that could increase the odds of supply disruption. The fundamental track in gold does not appear to have shifted away from the bear case and the technical situation also favors the bears.
The palladium market has obviously rushed to factor in slower Chinese physical demand from this week’s talk of a long-term US/Chinese trade battle. With the September palladium into the low Thursday sitting $80 an ounce below the level where the last COT positioning report was measured, it is possible that the net spec and fund long has been reduced dramatically. On the other hand, the platinum market since the last COT report to the low yesterday has declined by $52 per ounce and it has probably reached notable “net spec short” standing. Clearly palladium is seen as a more definitively Chinese demand-impacted PGM market than the platinum market, as palladium has outdistanced platinum on the downside in the wake of the latest trade war escalation. While the markets might be showing technical recovery action from an oversold condition the threat of softer global demand from trade barriers remains firmly entrenched and given news of an increase in second quarter PGM production from Anglo American platinum LTD the trade is also presented with bearish supply-side news. A normal retracement of the July wash in palladium allows for a trade back up to $895.10 with a similar retracement targeting in platinum seen at $820.30.”
Silver closed up $0.15 at $15.49. While the price of gold got the headlines the physical action across our counter was on silver bullion. This market always heats up as we approach $15.00 and keep in mind that silver bullion players are always interested – it is just a matter of price.
Platinum closed up $23.00 at $823.60 and palladium closed up $22.70 at $896.30.
This is our usual ETF information – All Gold Exchange Traded Funds: Total as of (7/10/2018) was 67,630,006. That number this week (7/18/2018) was 67,362,841 ounces so over the last week we dropped 267,165 ounces of gold.
The all-time record high for all gold ETF’s was 85,112,855 ounces in 2013. The record high for Gold ETF’s in 2018 was 70,763,846 and the record low for 2018 was 67,171,275.
All Silver Exchange Traded Funds: Total as of (7/10/2018) was 647,811,465. That number this week (7/18/18) was 650,492,161 ounces so last week we gained 2,680,696 ounces of silver.
All Platinum Exchange Traded Funds: Total as of (7/10/18) was 2,257,226. That number this week (7/18/18) was 2,299,169 ounces so this last week we gained 41,943 ounces of platinum.
All Palladium Exchange Traded Funds: Total as of (7/10/18) was 982,915. That number this week (7/18/18) was 973,488 ounces so this last week we dropped 9,427 ounces of palladium.
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: 7 believe gold will be higher next week 1 thinks 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: 51 people thought the price of gold would increase next week 38 believe the price of gold will decrease next week and 11 think prices will remain the same.
Precious Metal Closes & Dollar Strength – July 16 – July 20
The GoldDealer.com Unscientific Activity Scale is a “4” for Friday. The CNI Activity Scale takes into consideration volume and the hedge book: (Monday – 3) (Tuesday – 4) (Wednesday – 4) (Thursday – 5). 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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