Gold – Up or Down?
Commentary for Friday, June 29, 2018 (www.golddealer.com) – Gold closed up $3.50 at $1251.30 in another round of quiet trading. If you find the title a bit perplexing I don’t blame you – this market has even the best traders scratching their heads. Not over gold’s general direction – most everyone left in that theater of thought has turned either neutral or negative.
It makes sense in that how many times do you have to hear that gold will move lower as interest rates move higher? The logic behind a bearish market is difficult to question but there are always a few who offer a reasonable alternate price dynamic.
Today the best on the table is a classic “cause and effect” scenario. Gold moving lower is not the issue – the physical market continues to suffer from the dollar moving higher.
This is not just a matter of linguistics – it’s an important principle to keep in mind especially when the rest of the world begins to parrot a now common theme – “there is something wrong with gold and the roof is about to cave in”.
For the “cave in” principle to work meaning a further break down in gold pricing it must follow that the dollar will continue higher. It’s already in nose bleed territory but is there precedence for even higher numbers – of course.
The Dollar Index over the past 3 years reached as high as 102.00. Today it opened above 95.00 but sold off in early trading and is looking at 94.50 – a downward trend which is why gold is seeing some mild support into the weekend.
And what about that hawkish FOMC – promising higher interest rates as the economy continues to improve. Does is not make sense that higher rates will push the dollar higher and so the precious metals will remain under pressure?
Surprisingly the answer is not as obvious as it might appear. On gold’s big plus side is demand from China, India and Russia as prices trend lower. Core inflation numbers are trending higher and crude oil prices continue even higher (up $1.00 today) as OPEC is now behind the production curve relative to increasing demand from China.
I have also said before that the Federal Reserve can promise higher interest rates but can they deliver? Significantly higher interest rates upset economic recovery and increase the chance of recession – so they must tread softly and over a long period of time.
It is within the trading dynamic of higher interest rates and a stronger dollar that you will discover the best opportunity to acquire precious metals. Think gold is moving lower – step aside and watch the continuing battle between the bulls and bears.
At the same time keep an important point in mind.
I believe this most recent weakness has been created in the short paper market. It is a highly leveraged attempt to disrupt pricing created by professionals seeking short term paper gain.
It has been successful in that gold is testing longer term support ($1250.00) but the leverage required to “push” prices is extreme so look for a short-covering rally and long term holders should not be afraid to buy this weakness.
We will be closed for Independence Day. Enjoy your 4th of July!
This from Zaner (Chicago) – “While the lower low/sharp range down move yesterday in gold extended the second half of June selloff, the August gold contract early today has generally managed to respect yesterday’s low and in turn has produced a quasi-double low on the charts around $1,246.90. Clearly improved macroeconomic sentiment from the equity markets over the last 48 hours combined with a sharp range down in the dollar this morning has temporarily halted the skid in the gold and silver markets. However the threat of deflationary conditions off the trade situation remains in place and is probably the reason why gold is not fully responding stronger to this morning’s bullish factors. Gold might have been lifted slightly by news that the Chinese central bank raised its gold reserve holdings as of the end of May, as that might suggest the central bank is indeed accumulating some reserves. However, the gold market has generally ignored the persistent strength in energies this week and it has only drafted minimal support from dovish dialogue from two Fed members over the last 36 hours. Certainly the massive slide in prices in the second half of June of roughly $66 combined with a fairly moderated net spec and fund long positioning from a week ago in gold, should be reducing the potential for aggressive stop loss selling going forward. On the other hand, given the severe damage on the charts and the prospect of further slowing fears off “tariff mania”, it is difficult to argue against further downside work. However, traders now have to go to the weekly charts to find some level of support down at $1,240, which would then give way to a $1,234 downside targeting. As we said earlier in the week, we expect gold to bottom with a volatility event, and that could mean a spike all the way down to the July 17th lows!
Not surprisingly, the PGM markets came under fresh selling pressure yesterday in the wake of spillover selling from gold and also from residual concern that trade war threats will eventually become trade war realities. However the market this morning has recovered from the soft action yesterday in response to a slightly better macroeconomic condition, weakness in the dollar and from positive spillover from the gold market. The PGM complex might gain some support off news that Anglo-American platinum indicated they could not provide guidance because of a lack of certainty in their business as that highlights the ongoing difficulties in the PGM mining sector and therefore the uncertainty of supply flow. Fortunately for those long the October platinum contract the net spec and fund long has probably come down aggressively with the slide of $18 per ounce since the last COT report was measured. Unfortunately, both platinum and palladium look to remain classic physical commodity markets focused on big-picture macroeconomic views and outside market pressures.”
Silver closed up $0.15 at $16.10.
Platinum closed up $2.10 at $958.30 and palladium closed up $20.00 at $958.30.
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: 40 people thought the price of gold would increase next week 32 believe the price of gold will decrease next week and 28 think gold prices will remain the same.
Precious Metal Closes & Dollar Strength – June 25 – June 29
The GoldDealer.com Unscientific Activity Scale is a “4” for Wednesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 2) (last Friday – 3) (Monday – 2) (Tuesday – 3). 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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