Gold Markets Commentary for Monday, December 18, 2016 (www.golddealer.com)

Gold Market Newsletter with Richard Schwary

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

Gold Markets closed up $7.90 today at $1,262.20. Once again it is surprising that gold pushed into higher ground from the opening – finally seeing resistance at the $1,265.00 level. It is difficult to understand this minor bullish trend we have seen since last week – over the past six trading days gold has managed to be in the green by $17.00.

With the FOMC rate hike in the rear view mirror you would think these gold markets should be more defensive. If higher interest rates were such a big problem for gold markets (as promised) I would think prices would have broken down at $1,250.00 and gold would be testing $1,200.00.

Granted we are approaching end-of-year trading and this higher blip might just be an aberration, but it is getting some attention.

You could make a case that this gold markets firmness is just a mild short covering rally – this market most likely being oversold going into the rate hike. But consider what is happening with the dollar – the Dollar Index today lost a half point moving from 94.00 through 93.42 before catching any traction.

While the index is still strong, we’re looking at monthly lows – even though the FOMC has just raised interest rates. This relative weakness might be the result of a tax bill that did not reduce the deficit; if true, expect further weakness, which will support gold in 2018.

You could also make the case that because the Trump tax bill is going to pass gold is drifting higher because of inflation expectations. The bill in my mind is better than nothing but does not address the huge red ink problem. With ballooning deficits and creeping inflation – gold might be reacting before the fact.

I still would not get too excited over this new found firmness in gold markets prices. Gold still remains overlooked and yet pricing is hanging in there – another plus for 2018.

Enthusiasm for even higher stock prices might also help today’s gold markets. Today’s record prices might turn out to be the proverbial “buy the rumor sell the fact”. Now that we have seen what the tax package contains perhaps the public will not be so enthusiastic – and a little profit taking is never a bad idea. The notion that some redistribution of stock gains into other perhaps undervalued areas might help gold.

At this point it is still too soon to tell how this will shake out. There are many moving parts in this tax package so not-surprisingly not much left over for the working class. Unfortunately the inequity between the corporate super rich and the struggling middle class remains ignored. Also these “new” tax rules have “sunset” clauses meaning they are subject to change depending on which way the wind is blowing.

Finally – even the FOMC remains divided as to future moves. This according to this latest Reuters – Fed’s Kashkari says he voted against rate rise on inflation, yield curve worries – “Minneapolis Federal Reserve Bank President Neel Kashkari said on Monday he voted against the Fed’s decision to raise interest rates last week over worries on weak inflation and a flattening of the yield curve.

Kaskhari has dissented from all three of the U.S. central bank’s decisions to raise interest rates this year and had previously cited inflation as his chief concern.

“Now a new concern is emerging: In response to our rate hikes, the yield curve has flattened significantly, potentially signaling an increasing risk of a recession,” Kashkari said in a statement.

Policymakers voted 7-2 last Wednesday to raise interest rates by a quarter of a percentage point to a range of 1.25 percent to 1.50 percent and pointed to the strength of the U.S. economy and low unemployment for continuing to tighten monetary policy despite tepid inflation.

Kashkari was joined in dissenting by Chicago Fed President Charles Evans, who also cited worries about inflation, which has run below the Fed’s two percent target rate for more than five years. The Fed was entering a “delicate phase” in its tightening cycle, Kashkari said, and raising interest rates in such an environment could hold down wage growth and increase the risk of a contraction in economic activity.

Regarding the yield curve, he said the Fed’s decision to raise interest rates amid low inflation “is likely holding down the long end of the curve by depressing inflation expectations.”

Kashkari is the latest policymaker to fret over the yield curve. In recent weeks both Dallas Fed President Robert Kaplan and St. Louis Fed President James Bullard have said the flattening of the yield curve was a signal that the central bank should proceed slowly. The shallow slope of the yield curve – the spread between 2- and 10-year notes is near the flattest in a decade – and whether it could invert, a signal of a possible economic recession, have triggered doubts in financial markets over the Fed’s rate rise plans.

At a press conference following the rate decision last week Fed Chair Janet Yellen downplayed concerns. “I would say that the current slope is well within its historical range,” she said. “I think there are good reasons to think that the relationship between the slope of the yield curve and the business cycle may have changed.”

This from Zaner (Chicago) – “The bull camp will point out the fact that gold on Friday managed a fresh six day high and at least temporarily climbed back into the bottom of the last 3 1/2 month’s trading range. Even more surprising is the fact that the gold market managed those gains at the end of last week in the face of strength in the dollar and a sharp recovery in US equities. While we are growing tired of mentioning the potential for tax reform, that issue will probably restrain any rallies in gold and silver this week. In other words we doubt the hope for pro-growth policies and a progression away from deflation will be capable of dominating gold and silver sentiment over any strong Dollar action. Fortunately for the bull camp, the Commitments of Traders Futures and Options report as of December 12th for Gold showed Non-Commercial traders were net long 106,586 contracts but that positioning had a decrease of 73,481 contracts with the Non-Commercial and Non-reportable combined traders posting a weekly decrease of 77,639 contracts in the net long position. Therefore, the spec and fund long of only 119,607 contracts is moderated even if it is understated into the highs Friday as the February contract managed a low to high rally after the report of $23. Similarly, the Commitments of Traders Futures and Options report as of December 12th for Silver showed Non-Commercial and Non-reportable combined traders held a net long position of only 24,184 contracts and that represents a decrease of 21,944 contracts in the net long position held by those traders. While the bias seems to favor the bull camp, technically we see the fundamental condition as slightly bearish in silver.”

Silver closed up $0.14 at $16.12.

Platinum closed up $23.80 at $912.30 and palladium closed down $3.35 at $1,025.40.

The walk-in cash trade and phones were on the slow side today.  

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