Gold Market Commentary for Thursday October 1st, 2020 (www.golddealer.com)

Gold Market Newsletter with Richard Schwary

By Richard Schwary of California Numismatic Investments Inc ……
 

Gold closed up $20.90 at $1,908.40 today in another surprising shift to the upside. 

It would seem that just when the bears think the “end is nigh” gold shifts gears and moves in the opposite direction. Actually, this is how a bull market should act – but “climbing that wall” is never easy, and most likely when it happens all the geniuses that claim their crystal ball is the only accurate one will have to eat a little crow. “Eating crow” is a colloquial idiom, used in some English-speaking countries, that means humiliation by admitting having been proven wrong after taking a strong position. The crow is a carrion-eater that is presumably repulsive to eat in the same way that being proven wrong might be emotionally hard to swallow.

Not saying, just saying.

This past Monday gold closed higher by $15.10 at $1,872.80. Silver closed up $0.51 at $23.53. These moves likely the result of a weaker dollar. The Dollar Index (94.22) moved lower by almost half a point. Helping is the notion that we may have a deal on the promised stimulus package before the election. The price of gold will ultimately depend on the dollar and the common wisdom is that while the buck is enjoying a two-month high – this is temporary. As the US recovers from the pandemic and massive stimulus numbers create inflation and financial imbalance the dollar will weaken supporting higher gold prices. But it is a mistake to oversell gold’s value relative to inflation. I like gold much better as a store of value in case our economic system blows up through government mismanagement. Or worse, through appropriation.

Think that can’t happen here in the good ol’ USA? Think again and look again at the sometimes-rabid political scene developing on our streets.

I’m also thinking it may be time to rethink a “several hundred dollar drop” in the price of gold. As prices move higher volatility turns into strategy but expectation might blur the picture. In early February gold dropped from $1700.00 to $1500.00 – which brought the usual bearish comments claiming the end of the bull market has arrived. Yet prices quickly recovered, as we saw gold consolidate over several months before moving to all-time highs ($2,000.00+).

Anna Golubova (Kitco) notes – Without so many speculators gold’s price should recover, says Commerzbank – The gold market should be able to recover after seeing a $100 drop last week, which was triggered by a rise in the U.S. dollar, according to Commerzbank. “The significant losses were triggered by the rising U.S. dollar, which apparently prompted speculative financial investors to cover net long positions they had previously entered,” writes Commerzbank commodity analyst Carsten Fritsch. However, with the macro environment remaining a positive one for the precious metals and without so many speculators out there anymore, gold price should see a rebound, Fritsch notes. “Now that speculators have withdrawn from the market for the most part, prices should recover again – after all, the environment for precious metals remains positive,” the analyst writes. The above will depend on the U.S. dollar strength running out of steam. “And there are good reasons why this should happen, in our opinion,” Fritsch adds.

Gold opened higher Tuesday as the dollar weakened and some believe Congress is closer to another stimulus package. This upward bias is not enough to suggest the bulls are winning the consolidation argument, but it might indicate some new safe-haven buying ahead of tonight’s debates between Trump and Biden.

Gary Wager (Kitco) believes that because gold held its 100-day moving average a technically positive short-covering rally encouraged the bulls. This is interesting because it suggests that even with the recent negative news concerning gold and silver the bearish commitment remains thin.

This from John Miles (Zaner – Chicago) “On the other hand, it is possible that news of a significant jump in Chinese August gold imports (2nd highest monthly import reading of the year following January’s 54-ton import) has shifted Chinese gold demand from a patently negative influence to a slightly bullish indication. While the overall amount of 30 tons imported is not significant, that import extends the string of imports to three months. It is also likely that a positive trade in Chinese equity markets overnight and news that Chinese home prices this year are now expected to rise faster than was previously expected gives more hope of improved demand ahead.” On the day gold closed up $21.50 at $1,894.30 and silver was higher by $0.92 at $24.45 so the precious metals mood is improving.

Wednesday saw little change in the metals over last night’s contentious debate between Trump and Biden. On the day gold opened higher but traders took short-term profits and it closed down $6.80 at $1,887.50. Silver lost $0.96 at $23.49. While the metals seem to be holding up (ETF numbers are moving higher) this market needs something to create more excitement. Today the Dollar Index was stronger, which is a threat to gold but John Miles (Zaner) thought the first debate favored Biden which might mean that the Democrats will cooperate with additional stimulus before the election favoring gold.

John LaForge (Wells Fargo) views September’s gold drop of $200.00 as a buying opportunity. But here is the problem – gold has been defensive since it topped $2,000.00 in July and began moving sideways between $1,900.00 and $2,000.00. It’s true that the recent dip below $1,900.00 helped the bearish case. But the subsequent short-covering rally suggests that traders are worried about a zero-interest-rate trap and the Fed’s “limitless asset purchase” program (a complicated gimmick that creates paper money out of thin air).

This past Thursday saw gold prices again stronger, confounding the bears and placing everyone on notice – gold and silver should not be counted out even in light of bearish commentary. It would be a planning mistake to assume that just because gold has failed to make new highs that it will make new lows; we are still at the very beginning of what may be a revolutionary change in Federal monetary policy – one that has consequences that may not be appreciated for decades. Today’s strength in gold is a combination of momentum play, a weaker dollar, and the fact that Mnuchin and Pelosi may get the stimulus deal accomplished. The Dollar Index has lost a full point since Monday and while this gradual erosion pushes gold higher you have not seen anything as analysts try to comprehend the magnitude of the still expanding Federal balance sheet.

The key here is waiting on the bigger picture to unfold and noting that in the short term many world currencies suffer from monetary abuse – lose value and in turn support higher gold prices. On the day gold closed higher by $20.90 at $1,908.40 and silver was up $0.76 at $24.25.

Silver closed up $0.76 at $24.25 following gold. 

Platinum closed down $2.80 at $898.20 and palladium closed down $2.30 at $2,328.20.   

This from Zaner (Chicago) – Overnight equity markets were mixed with gains in Russia, Australia, UK, France, Hong Kong, and the US largely offsetting weakness in Spain and Germany. Overnight economic news from Japan showed slightly weaker than expected nonmanufacturing expectations, a weaker than expected Tankan large manufacturing index for the 3rd quarter, as expected soft Swiss consumer price readings, a slight contraction in August Swiss retail sales on a year-over-year basis weaker than expected manufacturing PMI readings from Switzerland, Italy and Germany, better-than-expected French manufacturing PMI and a slight downtick in Italian unemployment for the month of August. The North American session will start out with the September Challenger job cuts survey followed by a weekly reading on initial jobless claims that are expected to have a modest downtick from the previous 870,000 reading. Ongoing jobless claims are forecast to have a modest weekly downtick from the previous 12.580 million reading. August personal income is expected to have a sizable downtick from July’s 0.4% reading while August personal spending is forecast to have a moderate downtick from July’s 1.9% reading. The September Markit US manufacturing PMI and Canadian manufacturing PMI are both expected to have modest upticks from their previous readings. The September ISM manufacturing index is forecast to have a modest uptick from August’s 56.0 reading. August construction spending is expected to have a moderate uptick from July’s 0.1% reading. New York Fed President Williams will speak during morning US trading hours while Fed Governor Bowman will speak during the afternoon. Earnings announcements will include PepsiCo, Constellation Brands, and ConAgra Foods before the Wall Street opening.

Gold and silver prices this morning started out on a positive footing with the slow grind toward a stimulus package likely serving to lift prices back toward this week’s highs. However, the precious metals markets do not appear to have a large amount of bullish buzz in place with the very poor performance in the month of September reminding the bull camp of the continuation of the “downtrend” that began in early August. While both gold and silver ETF’s saw inflows yesterday the magnitude of those inflows was anemic and without a sustained pattern of larger inflows the investor angle is unlikely to be considered a key bullish force in the trade. It was also noted overnight that the Perth Mint September gold sales declined for the first time since June. On the other hand, both gold and silver recently have shown periodic correlation with positive economic data and with positive equity market action and that suggests the markets are currently focused on classic physical demand. Therefore, initial claims data this morning are likely to have a similar impact on gold and silver as will be seen in copper and the equity markets. On the other hand, a surprising reaction from the claims data could be seen this morning as a number indicative of a setback of the re-hiring pace could apply additional pressure to politicians to get a stimulus package in place. Expectations for this morning’s claims data project a minimal decline but that report will be preempted by a much less prestigious Challenger job cuts report which typically lacks estimated figures. While a possible partial disappointment for the bull camp, the White House overnight offered its version of stimulus proposal with a price tag just over $1.5 trillion that figure remains significantly below what the Democrats have been demanding. Fortunately for the bull camp, the US dollar posted another low for the move overnight but that move was not notable. Going forward, we still see the gold trade as entering a very important juncture/transition with the bull camp needing the market to shift its focus from safe-haven to the potential for improved physical demand off a credible positive global recovery environment. Yesterday gold ETF’s saw an inflow of 71,751 ounces while silver ETFs added a very minimal 55,834 ounces but that inflow was the 3rd straight day of inflows. The initial bias is up but not definitive and a major junction is upon us with payrolls and stimulus front and center.

While the palladium market surprised the trade with a higher high and positive action yesterday despite weakness in many other precious metal markets and have fallen back this morning which has dampened bullish sentiment. In retrospect, we think positive Chinese economic data and a general overall improvement in psychology throughout the global marketplace from a smattering of positive data this week is providing fresh speculative buying. On the other hand, palladium prices are approaching resistance from a sideways consolidation pattern on the charts and the bull camp probably needs major upbeat headline news to rally to the $2,400 level. Another potential resistance thickening force is the fact that China is on holiday. With the palladium market showing weakness and the platinum market showing strength yesterday, we suspect that a reversal of long palladium/short platinum spread trades is now in motion and that action looks to benefit platinum again today. In other words, we do not see the rally in platinum as a fundamentally driven rally! However, in a material development from yesterday, platinum ETF holdings increased by a notable 10,914 ounces bringing this year’s net increase in holdings to 13%! In the near term, we see significant resistance at $914.50 and the potential for normal back and fill action down to $873.50 from volatility off Washington and payrolls.

While gold and silver charts this week have shown a modest upward track, we see both markets remaining within the general downtrend pattern started back in early August. However, the bull camp is in control of near-term price action because of improved economic psychology from scheduled data and primarily because of hope for a stimulus package. Unfortunately for the bull camp, we do not detect a building bullish buzz and the anticipation of a stimulus is likely to be a greater force than the optimism seen once the package is agreed-upon. Certainly, a slight downward tilt in the dollar adds to the anemic upward track but without a notable leveling out/decline of infections, a surge in confidence that rapid tests will change the paradigm, or really strong evidence of a successful vaccine, the current rally might be an opportunity for wounded longs to exit and aggressive traders to get short. In the coming 48 hours, we see a continued “buy the rumor” rally with resistance/targeting in December gold at $1898 and similar targeting/resistance in December silver seen at $24.82.

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