Commentary for Friday, December 6, 2019 (www.golddealer.com)

Gold Market Newsletter with Richard Schwary

By Richard Schwary of California Numismatic Investments Inc ……
 

Gold closed down a Grinch-like $17.80 today at $1,459.10. So which way do you think this market is heading in the short term? Americans, by and large, are “all in” or “all out”, so to speak. If gold is moving higher most believe that higher prices will continue. If prices are moving lower the opposite is true.

But what about a market which moves sideways for a long period of time?

In this case I believe the US trade just gets bored and looks for something more interesting. Since early November gold has been non-committal – not too hot and not too cold. Wavering from day to day on the usual – trade talk, FOMC talk, safe-haven talk, dollar talk, recession talk, ETF talk – Poland and Slovakia gold repatriation talk, Brexit talk, and central bank buying talk.

For all that hot air the price of gold has moved up and down in a tight trading range which has been basically flat – between $1455.00 and $1472.00 with one attempt at $1480.00 (which ran out of steam). So, todays “big-drop” fits into a well-established 6-month pricing pattern.

At the same time the Dollar Index trading around 97.80 has been generally lower but not all over the place. The reason it moved higher today is simply because the job’s number came in screaming – a big plus for the Republicans and the monetary hawks.

This might suggest that the FOMC will not lower interest rates next year. Even though they have suggested they could lower interest rates twice in 2020 if the US goes into recession.

So how much should the gold bulls worry about today’s weakness?

It sure makes for a good conversation and it does wake up trading, but does it change the technical picture? The short-answer is not really – this drop looks more like an extension of a trend line which has been drifting toward $1,450.00 since August of this year.

So that’s the semi-bad news as far as buzz is concerned. Not long ago we considered how much altitude gold would have to lose before safe-haven demand would come back into play. So, remember that our shiny friend has solid support between $1,400.00 and $1,450.00. And I still like $1,435.00 for value players looking at the long term.

As far as the notion that today’s drop signals the end of interest rate reduction because the job’s number overperformed – well, good luck on that one. Literally yesterday everyone was thinking recession and lower interest rates and today everything is now hunky-dory? Be a bit more pessimistic and protect yourself with gold and silver bullion as prices move lower. My guess is that 2020 will present many surprises but very cheap metals won’t be one of them.

This from Zaner (Chicago) – “Global equity markets overnight were all higher with gains of typically.5%. Apparently China has indicated that they will waive import tariffs on some soybean and pork shipments from the US but one could make the argument that China needs to lower food inflation because of the African swine fever disaster and therefore the offering isn’t exactly a difficult undertaking for China. Overnight economic news included softer than expected Japanese cash earnings and weak household spending figures for the month of October. In fact household spending which has been a major problem for Japan for decades posted a decline of 5.1% in October. Furthermore Japanese coincident and leading economic index readings both came in softer than expected and weaker than the prior month. From Germany industrial production figures also came in significantly weaker than expected for the month of October. From the UK Halifax house prices in November came in stronger than expected and Italy posted a retail sales decline of 0.2% in October. The North American session will start out with a highlight for global markets, the November US employment situation report. November non-farm payrolls are expected to come in around 175,000 to 185,000 which compares to October’s 128,000 reading. November unemployment is forecast to hold steady at 3.6% while November average hourly earnings are expected to hold steady at a 3.0% year-over-year rate. November Canadian unemployment is forecast to hold steady at a 5.5% rate with a modest increase in their net employment. October wholesale trade is forecast to hold steady with September’s 0.2% reading. A private survey of December consumer sentiment is expected to have a minimal uptick from November’s 96.8 reading. October consumer credit is forecast to have a moderate increase from September’s $9.5 billion reading.

A number of developments make us concerned for the bull camp in gold today with the most prominent obviously coming from what appears to be a slight concession by China to reduce tariffs on certain commodity imports. However the gold market is also facing the prospect of a positive nonfarm payroll reading from the US which is expected to show a fairly healthy increase and even a slightly lower than expectations reading should lead to economic confidence. Yet another negative for gold comes from what appears to be a contradictory headline to recent news flow with Indian government connected sources suggesting gold imports in November might have declined by 19% versus year ago levels. However the November imports were still markedly larger than the imports seen in September and October and the trade has not been as intensely focused on physical demand as it has been on the prospect of safe haven demand. Clearly US data yesterday tamped down economic uncertainty, and given that Thursday’s data was heavily jobs related data that could mean positive jobs data today might unleash a wave of selling in gold and silver. Traders might consider the purchase of near-to-expiration, just out of the money January gold puts.

Some might argue that the palladium market has lost momentum with this morning’s high basically forging a triple high around $1848.50. However despite a lack of tight correlation with the ebb and flow of US/Chinese trade negotiations, we see the slight falling of tensions between the US and China (China will reduce some tariffs on Ag products) as supportive of the bull case. Certainly the bull camp needs a more pronounced risk on vibe from equities and perhaps a distinctly positive US nonfarm payroll reading to launch prices sharply into new all-time high ground this morning. While the market saw conflicting analyst projections for palladium prices next year earlier in the week UBS has provided some background on its bullish view toward palladium prices this morning. UBS expects palladium consumption next year to overcome supply for the ninth straight year and they expect prices to climb “another 9.5% and exceed $2,000”! As in other bullish palladium papers over the last year, the primary underlying fundamental argument remains higher emissions standards in Europe and China. Therefore we see a little bit of choppy action early today but solid support at $1824 should hold and the path of least resistance should remain up. Not surprisingly the platinum market continues to languish with prices flopping around both sides of $900 in a sign that the market simply lacks a definitive controlling theme. Apparently demand for diesel vehicles is expected to remain steady and with platinum’s net spec and fund long positioning burdensome, the market probably doesn’t have significant buying fuel on the sidelines. However we see support in January platinum today at $892.80.”

Silver closed down $0.46 at $16.48.

Platinum closed down $1.70 at $896.80 and palladium closed down $5.00 at $1,844.20. 

 

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