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Gold Weakens – Technical or Not?

Gold Weakens – Technical or Not?

Commentary for Thursday, April 11, 2019 – Gold closed down $20.50 today at $1288.60. So we are looking at a nice downside correction in gold once again pointing out that it is struggling above $1300.00. Most likely today’s downdraft was caused by a combination of a stronger dollar and perhaps a technical correction. This according to Allen Sykora (Kitoc) – RJO’s Pavilonis: Gold Retreats On Technical-Chart Factors – The pullback in gold futures so far Thursday is largely based on the technical charts rather than any fresh news, says Daniel Pavilonis, senior commodities broker with RJ Futures. As of 9:16 a.m. EDT, Comex June gold was $14.80 lower to $1,299.10 an ounce. Some selling set in when the market wasn’t able to push through resistance in the $1,315 area on Wednesday, he says. The market had posted good gains lately, so “there was some profit-taking,” Pavilonis says, adding that sell stops may have booted some traders out of positions as well. “I think this is purely technical.”

Well, let’s wait and see as they say – but gold has some positives and negatives hanging in the wind. The good news for gold enthusiasts is that inflation is stirring and if you have not noticed crude oil remains strong and pushes higher. We have moved from $42.00 in December through $63.00 currently with talk of $80.00 oil before year end. And the talk of a possible recession pushing the Fed to reduce already low interest rates also encourages a positive gold outlook.

On the negative side – look at the DOW. It has had a nice run since January and after Vice President Pence’s recent nice comments about China analysts are getting more excited that trade talks are progressing. A trade deal here and continued cheap money would be great for Wall Street and encourage higher DOW numbers just in time for the elections. This would certainly cap any gold upward momentum unless the inflation genie returns to haunt us all.

So with all that hedging what do I think gold will do in the shorter term?

First, I would like to see some rebound in today’s weakness – we saw a few dollars in the aftermarket which is too tepid for me so that leaves Friday’s action before the weekend. If this market continues cool I’m not hopeful. Keep in mind that the line in the sand continues to be $1290.00. A real break down here would not be good and most likely would create a short paper pile on typical in today’s liquid paper world.

Second, even with today’s weakness I don’t think the short paper is particularly emboldened at this point – the big question being whether the physical buyers will once again “buy” and support gold as it gets cheaper. The old “bargain” hunting conversation. 

I can’t say the US market is buying gold with both hands but it remains engaged and interested. And why not – with all the hubbub gold is still the only real recourse in case of financial calamity and is now trading at a substantial discount to old highs.

So who is buying? The people we see across our counter are mostly long term customers not fresh money. And the world of course remains engaged – what other choices are there that takes gold’s place if you are serious about everyone’s mounting debt? Sure the dollar will hold up short-term but no one thinks there is a place for a strong dollar when most other countries are embracing weaker currencies and continued quantitative easing – the EU being the poster child of this destructive monetary thinking.  

For sure the US mood at this point is most likely “flat” – everyone prefers that upward momentum scenario and there is nothing like higher prices to motivate the base. But be assured the base is paying attention and with any encouragement at all will reenter this game in a flash. In the meantime this market requires patience and the usual “bigger picture” view.

For now I think gold has not broken down but is defensive. Let’s hope it remains within reasonable limits of todays close and look for something more range bound before deciding which direction it favors on the shorter term. We saw virtually no gold sellers today.

This from Zaner (Chicago) – “Global equity markets overnight were weaker with the exception the Russian market. Economic information released overnight included Chinese consumer prices for March which came in at 2.3% on a year-over-year basis which was weaker than expectations but stronger than in the prior month. The headline Chinese consumer price index for March on a month over month basis actually declined by 0.4% which is a much weaker than expected reading. From the euro zone both German and French consumer prices matched expectations and the prior month readings with both posting 1.3% year-over-year gains. Overnight news of importance included the apparent delay in the exit deadline to October and that news was joined by a series of economic growth downgrades for the EU. The North American session will start out with a weekly reading on initial jobless claims that are forecast to have a modest increase from the previous 202,000 reading. Ongoing jobless claims are expected to have a modest weekly increase from the previous 1.717 million reading. The March producer price index is forecast to hold steady with February’s 1.9% year-over-year rate while the March “core” producer price index (ex food and energy) is expected to have a minimal downtick from February’s 2.5% year-over-year rate. Fed Vice-Chair Clarida, New York Fed President Williams and St. Louis Fed President Bullard will speak during morning US trading hours while Fed Governor Bowman will speak during the afternoon. Earnings announcements will include Fastenal and Commerce Bankshares before the Wall Street opening.

The gold market has initially recoiled from yesterday’s impressive extension of the early April rally as if buyers have suddenly turned cool toward the metal. Apparently the dollar index has failed to give off the impression of straightaway downside action ahead thereby giving pause to buyers. The gold market might be off balance because of a contraction in Chinese consumer prices for March, as that can sometimes be an indicator of poor economic health. Perhaps the gold is undermined as a result of Chinese government promises to increase regulation and clamp down on illegal gold trading, as that could blunt some demand. Not surprisingly the gold market this morning has also discounted/ignored news that South African gold output in January declined again this time by 22.8% relative to year ago levels. Over the last several years the gold market has not embraced a long-held pattern of declining gold production. Offsetting the decrease in South African gold output is news that Zimbabwe managed to post record high gold output last year but the net annual gain of two tons is relatively immaterial to the world Gold market. In the end we think the dovish central bank takeaways this week should underpin the gold market despite this morning’s early weakness but it could take a June dollar index trade back below 96.40 to reverse the corrective early track. Both gold and silver derivative holdings declined again overnight which extends a pattern of investor disinterest.

The platinum market was able to reject some moderate damage on its charts with a recovery bounce yesterday and the market this morning has added to the bullish chart action with a temporary higher high probe. Apparently macroeconomic optimism is missing this morning and the PGM trade has not been able to benefit definitively by dovish central bank headline flow this week. However, the platinum market should be supported by a private forecast suggesting platinum prices will continue to climb but the bull camp might need to see a fresh upside extension in total platinum derivative holdings sometime this week to see the $900 level in July platinum as a solid support zone. In fact, a quasi-double low down at $890.30 might not be solid support without a more definitive improvement in global economic psychology. Unfortunately for the bull camp in palladium, the rally this week in palladium has taken place on declining volume and open interest and that suggests the bull case is not widely attended.”

Silver closed down $0.38 at $14.82. I’m not worried much about silver at least lower levels, the public gets very interested in this range. 

Platinum closed down $12.90 at $890.30 and palladium closed $30.60 at $1335.80. 

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