Gold Weakens on Better Jobs Outlook

Commentary for Friday, Feb 2, 2017  – Gold closed down $10.60 at $1333.70. Gold faltered today after strong US jobs data and wage growth was the highest in 9 years. This strengthened the dollar – the Dollar Index moved from 88.72 through 89.25 pushing gold lower. Gold did close off its lows and you could make a case that the dollar was oversold and traders are looking for a reason to take profits off the table.

Still this suggests volatility remains a part of the trade especially when interest rates are in question. It’s not the job’s number – it’s the surprise over the “better than expected results” that rattled the markets – the DOW for example was off more than 300 points on the news.

And when traders are looking for a reason to square up the books they ignore the obvious – higher wage growth suggests higher inflation – a plus for gold.

Gold has been supported by a weakening dollar since the Dollar Index began to break down from 95.00 in last November. The index seemed like it would hold up (92.00) but pushed lower when Treasury Secretary Mnuchin commented that a softer currency helps the US in terms of trade.

From that point on the dollar was off balance and the President’s State of the Union Address this week helped seal the deal. Trump came out swinging with a $1.5 trillion dollar infrastructure package and traders saw all kinds of implications – including a weaker dollar.

No one wants to talk about just how all this money will be raised – the printing press no doubt and no one wants to talk about trimming a budget which is off the charts and supports the inflation scenario.

Gary Wagner (Kitco) claims that the dollar is at a critical technical juncture and sees the potential of another 2% or 3% decline in the dollar short term which could push the price of gold above $1400.00.

But dollar strength or weakness remains fluid because the FOMC equivocates – their picture of the economy is a moving target. Today’s jobs numbers might suggest FOMC hawkishness is again shifting – but we have seen this come and go many times. Today’s stronger dollar might turn into tomorrow’s weaker dollar – something the President wants and Wall Street needs.

So for now I see the gold price picture as two steps forward – one step back. It battles a FOMC still in transition – the interest rate question and changing physical demand as the public has an increased appetite for other speculation.

My belief is that only gold represents real money with no second-party obligation. And it is fundamentally cheap when compared with the huge fiat currency explosion we have seen this past decade. Inflation is returning, perhaps with a bang and the world will have to deal with over-speculation.

The price of gold is trading at 30% less than all-time highs and more people are considering precious metals as a kind of necessary financial insurance. They are long time holders who want control on their own destiny and less reliance of a political machine which seems to be broken. Not a bad plan.

This from Zaner (Chicago) – “While April gold has spent the early morning trade in the upper portion of the prior day’s trading range, building strength in the US dollar into the nonfarm payroll reading could serve to knock gold back into negative territory. However the dollar remains firmly entrenched within the last two week’s trading range and that could mitigate the negative impact of early $ gains on gold to start this morning. One should expect gold and other physical commodities to derive some benefit from the favorable Goldman comments regarding its long-term bullishness toward commodities and the likelihood of reflation. While the gold market might not be directly impacted a slight softening of US auto sales figures from yesterday certainly tamps down the view toward industrial commodities at the same time that noted weakness in equities further tamps down the risk on mentality. In fact the slide in the US equity markets to start today is severe enough already to provide some measure of safe haven buying of gold which has been largely absent for several weeks. In addition to the recent Goldman prediction of $82 crude oil prices another news service yesterday floated a $1,400 gold targeting and those storylines also help to offset the dollar adversity somewhat. However it is clear that gold has maintained a fairly strict inverse relationship with the dollar and that should be the gold trader’s guide today. In fact gold might be poised to carve out its standard daily trade pattern with early weakness rejected and a recovery in the afternoon action. Make no mistake about it the nonfarm payroll report and its influence on the dollar will be the dominating junction early this morning. We still get the feeling that it will take a stronger than anticipated US payroll to drag the dollar higher.

While the platinum/palladium spread continued to show volatility yesterday, both markets ended up favoring the upward tilt yesterday in a move that suggests they were tracking their industrial/physical commodity market fundamentals. However the benefit of the bullish Goldman commodity forecast was clearly counter veiled by the disappointing US vehicle sales yesterday. On the other hand the palladium market has clearly gotten beyond the disappointing auto news with a very impressive early rally today. However part of the recovery off the low in palladium is probably the result of the extensive short-term oversold status in the wake of a five day high to low slide of $88 an ounce! Given the weakness in silver, copper and platinum early this morning it would appear as if the risk off psychology flowing from stocks is pressuring some commodities and that could hold back palladium prices. Like the crude oil market, the net spec and fund long in palladium has probably been adjusted enough this week to begin to balance the market. In fact, the March palladium contract rejected the latest new low for the move spike down and at times this morning was already trading roughly $30 an ounce above its Thursday low! While we would prefer to be a buyer on a decline below $1,000 in Palladium, the market has dashed that opportunity early today unless equities implode and US payrolls rekindle fears of an anemic 2018 climb-out by the economy and that rekindles late selling today. The gold market didn’t seem to pay attention to news that a new Indian budget would levy a 3% import tax on gold perhaps because the market has been fairly tone deaf to physical demand developments.”

Silver closed down $0.44 at $16.68. Interesting – usually the sale of 90% silver coins falls into two categories – $1000 face bags and $500 face bags. Recently the public has been buying smaller bags ($250 face is available) in larger quantities. Most folks who put away 90% silver coins do so because they like the legal tender aspect in case the paper dollar fails but lately the premiums on these old silver coins is remarkably low – 20 cents over spot! Considering that 90% premiums have traded for $3.00 or even $4.00 over spot not long ago this is like getting a “higher” option included for no additional cost. And I have always liked the idea of a small bag of real silver coins available in case of emergency. Gold Weakens on Better Jobs Outlook

Platinum closed down $8.40 at $996.40 and palladium closed up $20.25 at $1048.90.  

The Unscientific Activity Scale is a “4” for Friday. The CNI Activity Scale takes into consideration volume and the hedge book: (Monday – 4) (Tuesday – 3) (Wednesday 4) Thursday – 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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