Gold bullion, gold prices and gold markets

Commentary on Gold Prices for Monday, July 10, 2017 (www.golddealer.com)

Gold Market Newsletter with Richard Schwary

By Ken Edwards and Richard Schwary of California Numismatic Investments Inc ……
 

Gold closed up $3.50 at $1,213.20 today in what looks like book squaring or perhaps some mild bargain hunting. The dollar firmed up since Friday – the Dollar Index moved from 95.75 into the 96.15 before settling almost unchanged today – no big deal but firm as the Federal Reserve looks forward to another rate increase.

The Federal Open Market Committee (FOMC) has what they call a “Summary of Economic Projections and a press conference by the Chair” – these are the “big” events and there are two more such occasions this year (September 19-20 and December 12-13). They could raise rates anytime they wanted to but chances are they will use either of these “special” meetings to inform the world. My bet is that they will “work” this interest rate thing – no special benefit in September but everyone will “talk” it to death – most likely they will raise in December (¼ point). All of this weighs on the price of gold but everyone is already on board relative to higher rates so gold is holding its own.

Last week gold lost $32.00 and silver lost $1.20 primarily over tough talk from the Federal Reserve. Today we were flat in overnight Hong Kong and London – the domestic trade sold off on the open and moved to $1,207.00 – turned around just as quickly and touched $1,214.00 before settling on the close ($1,213.20).

Someone took advantage of cheaper prices and bought this market – not that this is some sort of epiphany but it shows that even with the negative interest rate story hanging over gold’s head the short paper market will be careful.

I think it’s fair to say that the “trend” for gold remains weak, again because of these interest rate hikes but this picture is not near all bearish. Consider the one-year price chart and you will see what I mean. We have moved from $1,350.00 to $1,150.00 but since last December have struggled to hold a range between $1,200.00 and $1,300.00. Today everyone is watching the $1,200.00 support line wondering if gold will break lower – we have touched that line four times since January of this year and each time bounced higher if the FOMC had a dovish moment.

Will we eventually break down at $1,200.00 and test support at $1,150.00? Maybe – but this is a qualified “maybe” in that I now consider this market (long term) cheap and we should see resumed bargain hunting in this region as traders continue to ponder interest rates.

This from Zaner (Chicago):

“The strong US non-farm payrolls report on Friday appeared to be enough to quash ideas of Fed hesitancy regarding their tightening stance, and that probably serves to keep the environment bearish for the metals markets. In the report, June nonfarm payrolls jumped 222,000 vs +175,000 expected and even with some disappointment that average hourly earnings did not increase, traders are back to thinking that the Fed would probably stick with its original plans to raise interest rates one or two more times this year. With the ECB also turning hawkish towards rates, about the only thing that could turn the metals around at this point would be some sort of troubling global “event” that could bring back flight-to-quality buyers. While gold has recently seen some fundamental support from Indian gold demand (India imported 521 tonnes of gold from January through June, versus only 510 tonnes for January-December 2016) physical demand expectations are hardly enough in the current market to offset fears of higher rates and a stronger Dollar. Similarly the silver market doesn’t seem to be overly interested in forecasts that peg Indian 2017 silver imports to reach 900 tonnes versus a 5-year annual average import of 709 tonnes. However, Indian Silver imports for the first 6 months of 2017 have reached only 3,050 tonnes versus 3,546 for all of 2016. However the gold market might be nearing a technical low given that the Commitments of Traders Futures and Options reports on Friday showed a decrease of 41,476 contracts in the non-commercial long positioning. In fact Non-Commercial and non-reportable traders combined held a net long position of only 105,265 contracts for a weekly decrease of 46,604 contracts and that is the smallest net long this group has held since February 2016. Furthermore given the slide after the report mark off the spec and fund long reading is likely even lower, but there is probably room for further long liquidation. When the market put it its last major low in November/December 2015, the net long had fallen to only 15,769. For silver, the COT report showed non-commercial traders net long 25,564 contracts, for a decrease of 9,537 contracts on the week. Non-commercial and non-reportable traders combined held a net long position of 39,539 contracts for a decrease of 10,988. The last time the net long has been this low was in early 2015. In the end there could be addition liquidation ahead, but the markets could be getting close to a “liquidated” level.”

Silver closed up $0.20 at $15.63.

Platinum closed down $2.20 at $901.90 and palladium closed up $6.10 at $837.35.

This from Anna Golubova (Kitco):

“Saxo Bank Bullish On Gold”

In Q3, Sees $1,325 As Year-End Range – In its Q3 outlook, Danish Saxo Bank maintained a “bullish” outlook for gold, adding that the U.S. Federal Reserve might be too optimistic on rate hikes, while the stock market could face a long-overdue correction.

“We maintain a bullish outlook for gold in the belief that the risk to the US economy is currently skewed to the downside,” said Ole Hansen, head of commodity strategy at Saxo Bank. “This has the potential of leaving the US Federal Open Market Committee too optimistic on rate hikes, something the bond market is already signaling through a flatter yield curve as longer-dated bonds remain in demand.”

Saxo Bank’s positive outlook comes as gold is bouncing off a four-month low with August gold futures last trading at $1,212.20 an ounce, up 0.21% on the day.

Gold demand will remain supported amid geopolitical risks as well as rising concerns over U.S. President Donald Trump’s ability to carry out his promised growth-friendly reforms, Hansen said in the Q3 report titled ‘Tapping the Brakes’.

In order for gold prices to breach the key $1,300 level, traders will need to see additional stock market weakness, he said.

“A long-overdue stock market correction could be the missing link that gold needs to break resistance at $1,300/oz. The sector will receive increased scrutiny, not least following comments about ‘rich’ asset prices made by the Fed chair at the recent ECB Forum on central banking,” according to Hansen.

Saxo Bank added that it is maintaining its $1,325 level as the end-of-year forecast, with the risk on the upside. “A break above $1,300/oz is likely to attract renewed interest from momentum and macro funds,” the outlook said.

Inflation projections, as seen through 10-year breakevens, will play a key role during the third quarter. “Expectations have dropped to a seven-month low and while this may be seen as gold-negative, it also reduces the need for higher rates thereby ensuring that real yields – a key driver for gold – remain subdued,” Hansen noted.

Gold serves as a hedge to diversify against elevated stocks and rising economic policy uncertainty. And its demand is not subsiding, the report specified.

“Investment demand for exchange-traded products has been rising steadily throughout the year . . . Hedge funds were strong buyers of gold in early June as the prospect of breaking the downtrend since 2011 grew,” Hansen explained.

The incentive to sell gold is very limited in light of the weakening U.S. dollar and a lingering tough quarter for the stock market, head of commodity strategy added. FOMC’s growth expectations are potentially on the optimistic side and could provide some support for gold as interest rates might not need to rise as much as has been outlined by the Fed.

Chief economist and CIO at Saxo Bank, Steen Jakobsen, also highlighted in the outlook that the American and Chinese growths are simultaneously slowing down.

Jakobsen warned: “Brace yourself because Q3 could be very interesting, as reality meets perception. The perception is that things are good, the reality is that things are gradually deteriorating back to what we’ve seen throughout this financial crisis. The reason is lack of productivity.”

The GoldDealer.com Unscientific Activity Scale is a “4” for Monday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Tuesday- closed) (last Wednesday – 2) (last Thursday – 3) (last Friday – 6).

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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