Commentary for Friday, August 7, 2020 (www.golddealer.com)
By Richard Schwary of California Numismatic Investments Inc ……
Gold closed down $41.40 today at $2,010.10. It finished this time last week at $1,962.80 so on the week we have finished $47.30 higher but today’s aftermarket was up a surprising $20.00 or half of the day’s loss. I think what is on everyone’s mind is a simple question. At this point in this powerful bull market does good news mean lower gold prices. Even I don’t believe that one and at one time I did. There are just too many moving parts pushing gold to new highs.
Gold opened last Monday choppy but firm as relations between the US and China continue to deteriorate and the Dollar Index firms considerably – since last Friday moving from 92.5 through 94.00. Like I said rumors of the dollar’s demise have been greatly exaggerated. It is weakening but there is no chance it will be replaced. Gold closed up a modest $3.20 on the day at $1,966.00 and added another $10.00 in the aftermarket.
I’m still looking for consolidation on both sides of $2,000.00 as Bank of America and RBC Capital Markets look for $3,000.00 gold over the next 18 months. Our shiny friend is watching the train wreck between the Democrats and Republicans over unemployment benefits and growing coronavirus uncertainty.
MarketWatch – “Indeed, coronavirus infections in the U.S. reached a record in July, with more than 1.9 million new cases. The U.S. has nearly 4.7 million confirmed COVID-19 cases and about 155,000 deaths, while the global tally for infections stands at more than 18 million and almost 690,000 deaths, according to data compiled by Johns Hopkins University.” The bigger picture of virtually zero interest rates continues to be bullish and will likely support gold prices for the next decade.
Last Tuesday prices surged again closing up $35.20 at $2,001.20, and another $20.00 in the aftermarket, reinforcing gold’s technicals. John Miles (Zaner) notes “Not surprisingly, gold ETF’s last Friday saw 26th straight day of additions with 41,381 ounces flowing in and bringing the year to date net purchases up to 25 million ounces. While net holdings of gold by ETF’s are up 30% this year, investment holdings in gold ETFs have not surpassed the August-2019 high which to us suggests that investors have plenty of buying capacity in reserve.”
Gold pricing for Wednesday was again strong, reacting to the same set of bullish reasons for higher prices like fear of inflation, continued safe-haven buying, political confusion, and financial uncertainty and what is really happening with virus spread. I think there is also a reawakening in the US public that gold and silver bullion might be a good financial idea because these uncertainties are growing. Folks who under normal circumstances would not consider the metals are opening new accounts – and fresh money always moves the needle. On the day gold finished up $29.90 at $2031.10, off its highs but solid. The Dollar Index is seeing some support around 92.00 but on the month looks dismal moving from 97.00 through 92.00. That’s a big deal in supporting higher prices but keep in mind that a revelation or a working and distributed virus vaccine could settle these markets quickly. Product in both gold and silver bullion remains in short supply and does not stay on our shelves for long. Hard to say how long this bull will rage.
This last Thursday gold pushed as high as $2,070.00 before experiencing mild profit-taking and finishing on the day up $20.40 at $2,051.50. Silver outperformed – up an amazing $1.51 at $28.39 which is totally confusing considering this is the 4th straight day of silver ETF outflows. Paper traders see more upside even through this past month gold has pushed into the green a whopping $250.00. Talk of $3,000.00 or $4,000.00 is common these days, which might suggest a bit of caution is worthwhile. Old-timers understand that large upside runs can turn into downside swoons, but my guess is cheaper prices would be bought with enthusiasm. The public is aggressively buying both gold and silver bullion as uncertainty continues to rise and talk of negative interest rates is gathering steam. I think negative rates in the US are unlikely, but should this case develop the outcome would be extremely bullish for all the precious metals. MarketWatch claims there is nearly a 40% chance of a vaccine being broadly available by the first quarter of 2021 so do not discount gold and silver price volatility.
Friday gold opened lower, which is not surprising and is good for the market. What gold needs right now is to cool off and refocus. There are fundamental trends in place and responsible for higher numbers which could easily reverse taking away this round of bullish steam. So, what created this small loss in enthusiasm? Look at the Dollar Index – on Wednesday of this week it was looking at 92.00 and today it will close around 93.5. Remember what I said about the dollar – soothsayers have predicted its collapse since the early 1970’s and it is still the last resort in troubled times. Look for a resumption of gradually lower numbers in the index – this will push the metals higher. Down days like this present everyone with a needed reality check. Will the public buy the dip? This classic test will provide clues as to whether gold will continue to push higher or is now transitioning and consolidating reinforcing this higher base.
Silver closed this Friday down $0.86 at $27.53.
Platinum closed down $44.50 at $965.10 and palladium closed down $79.20 at $2172.60.
This from Zaner (Chicago) – “Global equity markets overnight were all lower (breaking a 4-day win streak) with declines generally less than 1%. Economic news released overnight included Chinese imports and exports for July which were all better than expectations at-the-same time that the Chinese trade surplus for July jumped sharply. From Japan coincident and leading economic indicators were better than expected while exports from Germany came in stronger than expected and nearly doubled the prior month’s gain. Germany also saw a stronger than expected industrial production reading and a slightly softer than expected import figure for the month of June. Also released overnight were French exports and exports which came in stronger than the prior month, and the French nonfarm payroll reading for the 2nd quarter which declined by less than expected. The last international data point of note was a UK Halifax house price report which showed a stronger increase in prices than was seen in the prior month. The North American will start with July non-farm payrolls which are forecast to come in between 1.5 and 2.0 million which compares to June’s 4.8 million reading. July unemployment is expected to have a moderate downtick from June’s 11.1% reading, while July average hourly earnings are forecast to have a moderate downtick from June’s 5.0% year-over-year rate. July Canadian unemployment is expected to have a sizable downtick from June’s 12.3% rate along with a sizable net change in employment. June wholesale trade is forecast to have a modest decline from May’s -1.2% reading. The July Canadian Ivey PMI is expected to have a modest downtick from June’s 58.2 reading. June consumer credit is forecast to have a large uptick from May’s $18 billion decline.
While gold and silver made new highs for the move (a new record high for gold) overnight both markets fell back from those spike highs enough to dent enthusiasm in the bull camp to start today. Nonetheless, investment into gold continues with ETF’s garnering inflows for the 30th straight day (longest streak since early 2019), with silver seeing a return of investment with a large 6.59 million ounce inflow. Clearly, gold and silver are somewhat off balance because of a noted recovery bounce in the dollar and perhaps because of very favorable Chinese and German export data. Keep in mind that Chinese gold demand plummeted along with the rest of the world’s physical gold demand during the great virus shutdown and given the ongoing signs of economic recovery in China it is likely that gold demand is beginning to recover there. However Chinese gold reserves were reportedly unchanged at the end of July overnight which is not surprising considering that China has been utilizing its financial tools to prop up their economy. In retrospect, it did appear as if the news of an impasse in the negotiations for the latest US aid package provided gold and silver with additive lift yesterday and with Congressional recess looming ahead, negotiations today should be quite intense and unless Congress has decided to avoid “governing” again. On the other hand, it is not a given that an agreement would derail gold and silver, as that could help the US economy avoid severe slowing and deflationary pressures on commodities. With global gold mining companies beginning to show significant earnings gains from the historic rise in prices that should create additional bullish sentiment headlines toward all gold-related instruments but continued all-time record highs in futures are capable of attracting a steady stream of buying on their own accord. Going forward, traders should be aware of wild gold and silver price behavior around major tops and bottoms as the markets have shown incendiary daily movements around key junctions. In other words, this week’s major gains could be followed by more extreme gains which could ultimately indicate a blow-off top is nearing. However, we don’t think the run in gold and run its course and we certainly don’t think the silver rally has culminated but traders might keep a close watch on daily gold and silver ETF inflows as a dramatic jump in those inflows over a week or so could be a sign that small investors are coming to the market in numbers and that is usually a late bull market development.
With a slight two-sided chop in gold and silver early today, softer global equity market action, and a higher US dollar it is not surprising to see palladium under pressure and seemingly pointed in a downward direction. Seeing the palladium market tract lower following a series of very favorable German and Chinese trade readings highlights the market’s lack of focus on classic physical commodity demand fundamentals. In another slightly discouraging development, palladium ETF holdings increased by a very insignificant amount of 154 ounces yesterday and they remain 19% below year-ago levels in a sign that investors remain uninterested or ignorant of their existence. Near-term downside targeting is seen at $2,192.20 with a closer in support/pivot point seen early on at $2,157. In the platinum market, the charts are generally constructive even though yesterday’s low was taken out early today as the market did manage a fresh higher high overnight. Although not a significant inflow, platinum ETFs did see purchases of 22,042 ounces yesterday and holdings increased to 3.4% above year-ago levels. Like palladium, the platinum market has not shown notable benefits of signs of strengthening in the global economy from German and Chinese trade data overnight. We see key support to start today at the overnight low of $983.20 with a failure to hold that level targeting $962.
While we see the path of least resistance pointing up in gold and silver today, it is clear that the markets are starting out with an indecisive two-sided chop. In retrospect, both markets have forged significant gains and are short-term overbought and perhaps in need of some temporary corrective balancing. On the other hand, the list of bullish fundamentals remains squarely in place with the markets temporarily turning their focus toward the state of the US jobs situation early today. Yesterday the gold and silver markets saw a negative reaction to favorable claims data, with gold falling $9 in the 15 minutes after the claims data. Unfortunately, expectations for today’s US nonfarm payroll reading are all over the board and the economy is in such a state of flux that the number is likely to be millions off expectations. A logical corrective buy point for gold is seen down at $2025.40 with the next upside measuring objective seen up at $2136. In the September silver contract, a normal retracement of the late July early August explosion is seen down at $27.10 but given the silver markets propensity to exhibit significant volatility this week a further 50% retracement point could temporarily be touched down at $26.20.”
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