Commentary for Friday, May 22, 2020 (www.golddealer.com)

Gold Market Newsletter with Richard Schwary

By  Richard Schwary of California Numismatic Investments Inc ……
 

 Gold closed up $14.10 today at $1,734.60. A reminder that we will be closed this Monday for Memorial Day. 

Gold was higher in overnight Hong Kong trading but sold off in London. The domestic open was higher as gold moved through $1,738.00 and then turned sideways moving between $1,730.00 and $1,738.00. It was no surprise that with the trouble in Hong Kong gold bounced higher after Thursday’s weakness. Even though the dollar remained strong as the index moved from 99.4 through 99.81 and crude oil pushed through 33.00 a barrel. So gold is experiencing crosswinds as the upbeat “opening” US mood which might suggest lower safe-haven demand contends with the new Chinese crackdown over the political situation in Hong Kong.

This past Monday was the poster child example of why these markets remain unsettled. News was released that indicates the results of a new vaccine by Moderna is promising on humans. US stocks soared and gold which was holding the $1,760.00 level nicely dropped by $30.00 before trading closed. At the same time the Dollar Index moved from 100.5 through 99.5 which should have supported the metals but provided little cushion and made traders uneasy. At the same time crude oil which approached near zero just a month ago trended above $30.00 a barrel.

Tuesday and Wednesday provided the usual upward bias but gold seemed sluggish, still pushing into the $1,750.00 range with support around $1,740.00. On the close Wednesday gold was up $49.00 this past month and $474.50 this past year. So, profit taking should be expected but with Germany using negative interest rates (and President Trump suggesting a similar tactic) I think most traders expect higher prices in the short to medium term with expected volatility.

Not surprisingly gold sold off Thursday on the New York open – steep drop, as we moved from $1,740.00 through $1,715.00 before a covering round moved prices back to a reasonable $1,720.50 close. The drop was likely prompted by improving US consumer sentiment as states open for business and follow through profit taking was the snow ball. This typically American optimism in the middle of this pandemic stems from a basic mistrust of government which has been around since we dressed up as Indians and dumped that tea into Boston harbor. We want to show some fight even as the possibility of a virus vaccine is still more of a promise than a reality. Good show America – but let us remember to wear those gloves and masks.

This from Reuters (Friday) – “Gold gained on Friday as intensifying U.S.-China tensions compounded fears of a slow recovery in a global economy already reeling from the coronavirus pandemic.

“China’s aggressive stance on Hong Kong security could exacerbate already tense relations (with U.S.) and a possible confrontation between U.S. warships and Iranian freighters headed for Venezuela are key concerns heading into the long weekend, prompting investor buying,” said Tai Wong, head of base and precious metals derivatives trading at BMO.

U.S.-China friction came to the fore again over the source of the coronavirus and escalated further with China’s proposal to impose security laws on Hong Kong, drawing flak from Washington. The tensions compounded fears of a slower global economic recovery, pressuring equity markets but supporting the U.S. dollar, also considered a safe haven.

This from Zaner (Chicago) – “Global equity markets overnight were all lower with declines reaching as high as 4.2% in the Hang Seng. Prices were likely catching up to the US losses on Thursday but political uncertainty from signs of increased Chinese security presence in Hong Kong and deterioration of global economic sentiment all week long has provided plenty of selling impetus overnight in equities and commodities. Economic information overnight showed a significant contraction in UK retail sales (-18.1%) for the month of April, and anemic Japanese national CPI readings. The North American session will not feature any US economic numbers, and will be highlighted by March Canadian retail sales which are expected to have a sizable downtick from February’s 0.3% reading. Earnings announcements will include Deere before the Wall Street opening.

With China showing signs of cracking down hard on Hong Kong with new security forces and Hong Kong citizens organizing mass protests, it would appear as if that crisis has come back to a boil. In fact the Hong Kong stock market declined by 4.2% overnight and equities throughout the rest of the world were under pressure which in turn has provided a fresh safe haven bid for both gold and silver. The gains in gold and silver in the face of declines in palladium, platinum, copper and crude oil suggest a measure of safe haven speculation is indeed in place early today. Gold and silver should draft additional support from 20th straight increase in gold ETF holdings, with the silver ETF holdings exploding higher by 12.1 million ounces bringing this year’s net purchases up to a very significant 111.7 million ounces! Adding to the recent increase in bullish press coverage for silver, overnight the market was presented with a silver price forecast of $20.00 an ounce and talk of silver’s historic rally of 489% through the subprime crisis which put silver prices in the vicinity of $50. The press also continues to point out silver’s relative cheapness to gold and the likelihood that silver will benefit more than gold from Chinese fiscal infrastructure spending. However the gold market while showing expanded two-sided corrective action this week, remains in favor with spread action pointing to growing interest in longer dated contracts over upfront contracts. In fact June gold overnight touched and rejected a 2 1/2 month old uptrend channel support line at $1722.50 and would appear to be poised to finish the week on a strong note. While the silver charts look little vulnerable into the last trading session of the week, there would appear to be some measure of solid support at $17.125 with volumes seemingly picking up on DIPs this week.

With PGM markets negatively diverging with gold and silver early this morning, copper, crude oil and equities trading lower it is clear that industrial demand fears are in play. Clearly seeing China abandoned GDP targets, renewed Chinese domestic tensions in Hong Kong and spillover from yesterday’s unnerving US claims readings threatens the demand outlook for PGM’s from the auto sector. With the June palladium contract early today flirting with even number support at $2,000 and a failure seen with a further decline below $1984.60 traders should expect a measure of volatility today. In retrospect trading volume in palladium this week was the highest since the middle of March and that could increase the chance that $2,000 is a zone where some bargain-hunting buying will step in and support prices. The platinum market has also fallen back to critical support early and made a fresh 4 day low overnight in a fashion that leaves the charts vulnerable. Also like palladium, trading volume in platinum has surged this week increasing the potential of some bargain-hunting buying support this morning around the $850 level. The platinum market is clearly undermined by the deterioration in global sentiment from equities and the Hong Kong situation, but prices might also be seeing some pressure from a Citi 2020 platinum price target of $788 which is roughly $100 below the current market. In conclusion the bias in the PGM markets is pointing down to start but further significant gains in gold could revitalize both markets late in the day today.

As indicated already, there would appear to be a measure of divergence in the precious metals markets this morning with gold definitively stronger, silver minimally higher, palladium under significant pressure and platinum waffling around both sides of unchanged. Therefore the gold market looks to be the feature of the day with the market rejecting yesterday’s low at $1715.30 and respecting a 2 1/2 month old uptrend channel support line at $1721.20. In the event of significant trade barbs between the US and China or significant losses in equities, gold could retest $1750 today. Silver on the other hand has critical support at $17.125 and might have little in the way of resistance until $17.75 in the event that gold provides significant positive leadership.”

Silver closed up $0.32 at $17.66. Still plenty of action here and still a sleeper in my opinion.

Platinum closed up $19.80 at $881.70 and palladium closed down $85.20 at $1971.80. 

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