Commentary for Friday, April 21, 2017 (www.golddealer.com)
By Ken Edwards and Richard Schwary of California Numismatic Investments Inc ……
Gold closed up $5.30 at $1,289.10 and once again holds its ground. So where are we going into the weekend? I think traders are cautious but not ambivalent – on the short term gold is in the green for the month and year but not by much. The bigger gains have only been seen since early January of this year so today’s trade has to deal with a bigger question. Should paper traders hold current positions and wait to see what develops on the short term or simply cash in their winnings and move to the side because political outcomes in Europe are keeping people nervous and Trump’s gunboat diplomacy really does have a hard edge. And [Friday’s] terrorist attack in France again frames the sometimes desperate times in which we live.
I think the answer to this question is why gold continues to get traction at the higher end of its current trading range. The world remains tense but not crazy and this is enough to convince the paper traders that shorting gold over the weekend might be a bad idea.
The problems with this position is that the conclusion is not enough to drive markets higher on the shorter term but folks are much more bullish about gold bullion than they were in late 2016. The most recent Bloomberg headline is worth thinking about “Is $1,400 Gold the New $1,300?”
It’s always a good idea to keep gold’s moving averages in mind – the 50 DMA ($1,245.00) – the 100 DMA ($1,212.00) and the 200 DMA ($1,253.00). We are trading above the 200 DMA so this might encourage the profit taking scenario – but not until Europe settles down.
And remember in this thinking that the price of crude oil is also important. The price of crude oil these past five days has continued weak. We have moved from $53.00 to $49.00 – it’s difficult and probably wrong to make a case for or against gold using these numbers but it’s important to note that the price of oil has been steady around $56.00 since last November so recent weakness might suggest undercurrents which simply have not been recognized at yet.
All in all I’m surprised that this market is as mellow as it is considering the level of world tensions. Someone across the counter sold a large position of kilo gold bars today and in the process asked me which way the market was heading. My reply was that I suspect prices will stay rather flat but not for long – expect volatility. Which way on the short term is impossible to say but on the longer term we are heading higher – there are just too many unknowns and more importantly safe-haven buying is waking up to a new world reality.
There is also another interesting point about this trade – all but one kilo was sold in less than three hours so the larger two-way trade in gold remains pretty consistent.
We continue to get mixed economic signals this morning – for example home sales are hot – reaching the best numbers we have seen this past decade. But manufacturing numbers are lack luster – perhaps even losing momentum.
This from Neils Christensen (Kitco) – Gold Ignores Soft Flash Manufacturing And Service Sector Data – “Gold prices remain relatively unchanged on the day following a weaker-than-expected reading in preliminary U.S. manufacturing and service data.
Friday, research firm IHS Markit, said that its flash Purchasing Managers Index for April, fell modestly to a reading of 52.8, down from March final reading of 53.3. Economists were expecting to see a modest rise, with consensus forecasts calling for a reading of 53.9.
At the same time the firm’s service sector PMI showed a reading of 52.5 following March’s reading of 52.8. Economists were expecting the index to rise to 53.7.
The report noted that private sector growth has eased to its lowest level in seven months.
Gold prices were hovering around unchanged on the day and have remained at that level in initial reaction to the data; June Comex gold futures last traded at $1,284.40 an ounce.
According to IHS economists the data points to moderate growth in the second quarter; however momentum could pick up as sentiment in U.S. remains strong.
“The PMI data suggest the US economy lost further momentum at the start of the second quarter. The surveys are signalling a GDP growth rate of 1.1% after 1.7% in the first quarter,” Chris Williamson, chief business economist at IHS Markit. “The survey responses indicate that some froth has come off the economy since the post-election bounce seen at the end of last year. However, with inflows of new business picking up slightly in April and business optimism about the year ahead also brightening, there’s good reason to believe that growth could revive again in coming months.”
Silver closed down $0.16 at $17.86.
Platinum closed down $3.60 at 977.60 and palladium closed down $12.15 at $790.75. This is interesting – we are beginning to see people selling palladium bullion and buying platinum bullion – the usual trade is gold bullion for platinum bullion.
So what is gold’s direction next week? This is what the GoldDealer.com employees think: 7 believe gold will be higher next week – 3 think gold will be lower and 1 thinks it will be unchanged.
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: 25 people thought the price of gold would increase next week 60 believe the price of gold will decrease next week and 15 think gold prices will remain the same.
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 – 3) (Wednesday – 4) (Thursday – 4).
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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