Commentary for Saturday, June 12, 2019 (www.golddealer.com)

Gold Market Newsletter with Richard Schwary

By Richard Schwary of California Numismatic Investments Inc ……
 

 Gold closed down $16.80 at $1,877.40 and silver closed up $0.11 at $28.13. Last week’s volatility in both gold and silver has been replaced with tight trading ranges this week. Most likely because the trading conversation has been split over the shorter-term direction. The possibility of the Fed “tapering” seems to be losing steam. Yet pandemic news, while upbeat, may present a mixed bag supporting gold with new variants affecting China, India, and now the UK. The physical market remains active and yet gold pricing has turned flat since mid-May trading between $1,880.00 and $1900.00. So, bargain hunters are still in place. Year over year gold is higher by $150.00. Last Friday gold closed at $1,889.80 / silver at $27.88 – on the week gold lost $12.40 and silver is up $0.25. 

The good news is that delivery on 2021 US Gold and Silver Eagles is getting better (still not “normal” but improving). And we are finally receiving early .9999 fine silver round orders. The bad news is that “any new orders” are still four to eight weeks coming from the manufacturer. My guess, however, is that delays will soon shorten. 

Should you decide to use our Delayed Delivery Program please talk with your service rep and understand how this program works. It is handy if you want to lock in the price “now” and insist on new product – but is not for everyone. Just like us – you must pay upfront to “lock in” prices and you can’t “change” your mind. So, unless God has blessed you with patience, please ask your rep for other options and thank you for your understanding.

This past Monday gold opened quietly with a slight downward drift, but traders eventually bought the weakness, and it finished the first day of the week in the green. This most likely because the Dollar Index came off Friday’s highs (90.5) and is now trading considerably lower (89.2). Reuters claims gold is listless because investors are waiting on inflation data this week and perhaps a clearer picture as to what the Fed intends to do with interest rates.

Treasury Secretary Yellen said over the weekend that Biden should push forward on his now $4 trillion dollar infrastructure bill even if it does produce inflation. China has increased its gold reserves by 7.5% month over month and increased its reserves 10% this past year.

Still, the fear of both rising interest rates and Treasury yields may cap significant gains in the metals until the inflation picture comes into focus. For now, we have the classic standoff between the Federal Reserve and the financial community.

The Fed has done a good job at balancing monstrous pandemic spending considering the world’s economic system has never been so exposed. But there are many cross-currents with the present situation. Can the Fed unwind without creating a turbulent stock market? Has federal largess created more permanent dependency? Is the inflation genie already out of the bottle?

Gold Market Report Commentary by Richard Schwary - GoldDealers.com

At the center of this discussion is the possibility of FOMC “tapering”. Meaning when will they begin to turn the financial spigot off? “Keep in mind, that the Federal Reserve chairman indicated that they would begin to discuss tapering after “several” robust gains in non-farm payroll readings. Therefore, the Fed discussions of tapering are pushed further into the future, and gold and silver should see one less headwind”. (Zaner)

There is something to the argument that gold at $1900.00 has developed an affordability perception. But this is only because the inflation argument has not sufficiently developed. If inflation continues down its current path this pricing issue will go out the window. Gold still holds a sold nine-week uptrend but needs to develop fresh buzz to push above $1900.00. Today gold closed up $7.00 at $1896.80 and silver closed up $0.12 at $28.00. Sleepy but interesting.        

On Tuesday gold flirted with $1900.00 in the European trade, but domestically it was choppy and pensive. First, pushing towards $1905.00 – then selling off to $1885.00 before a modest recovery and finishing slightly in the red for the day. This looks like the paper trade is testing both sides of the aisle for weakness or strength. Reuters notes – look for a focus on US inflation data, the ECB policy meet on Thursday and SPDR Gold Trust ETF holding falling by 0.6%.

The Dollar Index holding above 90.00 contributes to this jitteriness – although the index is flattening out. On the other hand, Treasury yields are slipping which of helps the bullish gold scenario because it hints that the paper trade believes the Fed will not soon taper. “It’s a tug of war between bulls and bears (for gold) at the 1,900 level,” Phillip Streible, chief market strategist at Blue Line Futures in Chicago, said, noting that declining bond yields are the “best” near-term tailwind, while the strengthening dollar and equities are headwinds.”

“A development that might provide support to gold was seen from the London Bullion Market Association overnight with their analysis indicating that gold vault holdings reached a value of $580.1 billion, with silver’s vault holdings rising for the 9th straight month to 36,440. An additional underpin for gold and silver prices is seen from a rising chorus of inflationary projections with both Chinese and US monthly inflation readings to be released directly ahead and many indicate that is the driving force behind the increase in physical gold holdings as measured by the London bullion exchange.” (Zaner)

I think no one wants to really argue with gold’s positive technical picture but at the same time, these higher levels present a solid deck of overhead resistance. So, both the bullish and bearish trade are searching for fresh news which might offer confirmation of their views. On the day gold closed down $4.60 at $1892.20 and silver closed down $0.28 at $27.72.         

The gold pricing for Wednesday drifted lower in the European trade but pushed back into the green domestically as traders bought the dip. Still, the numbers do not impress considering that the Dollar Index has again dipped below 90.00 and Treasury yields are at monthly lows. There could be some buzz created over Thursday’s European Bank meeting as everyone will be listening for “inflation talk” and anticipating monetary policy adjustment – if any.

“Apparently, a lack of definitive direction from the dollar has allowed currency-related selling of gold and silver, but it is also possible that a 12% gain in Indian gold prices in terms of the rupee is discouraging gold demand in India. As a consequence, Indian gold prices have traded at a discount to world pricing, which is not surprising considering that India remains under significant lockdown due to its ongoing infection problem.” (Zaner)

I think traders respect this market but without a significant change in the bullish or bearish scenario will look for tight trading ranges. Challenges of higher numbers have been met with liquidation selling. Still, any real weakness attracts bargain hunters. The reason this dynamic is so difficult to shake is because each side makes a reasonable short-term argument.

At the same time, the Fed’s colossal spending spree may foreshadow real problems. While the “Armageddon Line” has not been adopted by most, a few credible sources believe current spending is so dangerous it could seriously alter or destroy our financial landscape over the next decade.

I am not a big fan of this dark scenario if you consider the economics and growth of Wall Street and e-commerce during the pandemic. We will likely walk away from this pandemic bruised yet encouraged. But this dark scenario has enough followers to keep the bullish gold core unified and expecting problems – facts or not. Most of these good people are fundamentally suspicious of government intervention in the extreme. So for now, let us keep our sails trimmed, hope for a good outcome, and prepare for at least some economic disruption. This has always been my favorite “middle ground” scenario when you are not quite sure who is telling the truth. Gold on the day closed up $1.00 at $1893.20 and silver closed up $0.27 at $27.99. 

Gold trading on Thursday revisited a favorite theme. The overnight foreign market dipped (1870.00) and the domestic market bought the weakness pushing prices back into the green. The European Central Bank (ECB) kept its monetary policy unchanged which figures – they are in the same spot as the US and the Consumer Price Index rose 0.6% in May. “The key takeaway (from the inflation data) is that this market is firmly believing that the U.S. Federal Reserve is not going to change stance anytime soon and the (accommodative policy) playbook for gold remains,” said Edward Moya, senior market analyst at OANDA. Some pricing pressures remain for gold, but ultimately the belief that “runaway” inflation, which could trigger a Fed policy tightening, is unlikely and that should keep gold supported, Moya said, adding that the Fed’s policy meeting next week could act as a near-term catalyst to push gold prices higher. (Reuters).

Weekly jobless claims dropped to their lowest level in 15 months as the pandemic winds down. What will happen to gold pricing next depends on how you see this recovery. If you believe that rising inflation numbers are “transitory” – meaning they are tied to economic recovery, the idea of runaway inflation supporting higher gold prices is not in your playbook. On the other hand – if you believe massive monetary expansion has created “systemic” or rising inflation which will not go away and come to plague our financial system buying the metals makes sense.

The Dollar Index remains steady around 90.00 today. One in five global central banks plan to purchase gold this year and gold ETF holdings increased yesterday. (Zaner)

I expect that bearish sentiment is not widespread because of gold’s recent technical picture. But sentiment is lagging in typical “what have you done for me lately” fashion. And safe-haven demand, while steady is not “crazy” in typically slow summer months. This makes sense if you consider that trading ranges are getting closer which tends to produce a sleepy kind of trade. Platinum is now trading at an $800.00 discount to gold. The new (2021) Perth Mint platinum Kangaroos won’t last long – talk with Alex about availability. On the day gold closed up $1.00 at $1,894.20 and silver closed up $0.03 at $28.02.  

Gold pushed slightly above $1,900.00 in overnight Hong Kong trading but saw profit-taking in the London trade and continued lower in the domestic trade Friday. These profit-taking rounds have become familiar as our shiny friend struggles with numbers above $1,900.00. Today’s lower prices were a reaction to a rising dollar. The Dollar Index moved less than 90.00 to 90.50 in a matter of hours. I think the consensus at this point is that the trade is getting comfortable with the idea that inflation is transitory. This position is short-sided, but the trade points to the fact that gold ignored both yesterday’s CPI inflation number (the largest jump in more than a decade) and the continued weakness in Treasury yields (1.44%).

This argument over the nature of “inflation” has been the dominant theme this week and it’s likely this discussion will continue to waver between two realities. This past month the Dollar Index has touched 90.5 on two occasions and sold off both times. So, my bet is that next week we may see some softening in the dollar with would support gold. But unless the index breaks down again at 90.00 it is likely that any short-term rallies will be met with bearish selling.

Yesterday both gold and silver ETF’s saw positive inflows. A shift in these numbers may further undermine bullish sentiment. But keep in mind significant crosswinds continue to threaten both sides of the metal’s argument. Russian gold production is lagging but South African production is extraordinarily strong. At the same time consider that the pace of US growth continues to disappoint. This makes a powerful case for more Fed support and underpins gold pricing.

Still, we may be in for a quiet summer unless everyone begins to worry about rising inflation. On the day gold closed down $16.80 at $1877.40 and silver closed up $0.11 at $28.13.                                        

Platinum closed up $5.10 at $1,149.90  and palladium closed up $3.00 at $2,777.70. 
 

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