Commentary for Monday, September 18, 2017 (www.golddealer.com)

Gold Market Newsletter with Richard Schwary

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

Gold closed down $14.10 at $1,306.30 today. Gold markets broke down in the overnight Hong Kong and London markets and continued weak on the domestic side. Everyone was watching the important $1,320.00 line in the sand which seemed like it wanted to hold up all last week – supported by the usual geopolitical events. And this morning the Dollar Index was surprisingly steady around 92.00 – pretty flat – you would expect for gold to break down at $1,320.00 the dollar would be getting stronger.

The “getting stronger” part would normally be the result of rumors that the Federal Open Market Committee (FOMC) was again turning hawkish. Keep in mind they meet this week Tuesday and Wednesday – notes to be released and discussed by the boss herself Janet Yellen after market close on Wednesday.

gold markets - Silver, Gold and Platinum EaglesBut no one expects the FOMC to raise rates this time around and it is possible that they will even pass in December – that is why the dollar remains flat.

So what’s up with this latest swoop to lower pricing? Might be that traders believe the FOMC will release information about their balance sheet this week – I’m told that lowering this number is the same as a de-facto rate hike.

And they have claimed for months that they would lighten up that $4.1 trillion dollar charge card balance beginning in September – but if this was the case why the delayed reaction?

This weakness could be a combination of several factors – profit taking – lack of upside progress, gold could not get its act together above $1,330.00 last week – and a general defusing of world tension regarding North Korea – for what reason I cannot guess – this situation is escalating in my mind.

So where are we now? The same place we have been for some time – the price of gold has been stuck between $1,290.00 and $1,350.00 for more than a month. Today’s line in the sand should be around $1,290.00 – if gold breaks down here it would portend lower prices. But frankly I don’t know anyone that would short this market – even with the current weakness.

If it holds we will look for new base building. Keep in mind that gold has trended generally higher since December of last year. Technically prices were happy in that the market showed strength at least four times to the upside – the last push taking us to $1,350.00 before settling lower.

On each occasion traders bought weakness – even the ETF funds showed steady gains so this was not simply a paper speculation over Trump. The North Korean threat is real – the FOMC most likely will not raise rates anytime soon – this by their own admission. Granted stocks on both sides of the pond are attracting spec money but this is encouraged because the price of borrowing remains cheap.

So in the end I could approach this latest weakness with interest – the big question this year has always been whether traders will again buy weakness. Let’s wait and see – this week after all has a number of wild cards – Trump and the UN – Korea – the FOMC.

This from Zaner (Chicago) – “December gold was lower overnight as equity markets probed to new highs and a general risk-on mood continued. The action in the gold market over the past week suggests that the bull camp simply lacks control and that either a very significant “event” involving North Korea or some other event that triggers massive declines in the dollar would be needed to throw off the unfolding September downtrend.

With the latest COT report showing gold holding a spec and fund net long of 290,000, the market is overbought and vulnerable to long liquidation. (That figure is probably overstated due to the slide in prices since the data was collected.) The spike to a new high for the move last week was accompanied by a downside breakout in the dollar, which suggests that the focus of the gold market remains primarily on the US currency.

Apparently the currency trade is disappointed in the pace of recovery in the US economy and the lack of a near term rate hike potential, as the overall path of least resistance in the dollar is down. We would expect this to cushion gold and silver on a further slide.

The trade does not appear to expect much comment about a December rate hike to come out of this week’s FOMC meeting, but there talk that the “rollout” of the $4.5 trillion balance sheet could be mentioned. That rollout is another, indirect form of tightening.

It does seem that the silver market is holding together better than gold, but it too remains technically vulnerable with a spec and fund net long COT reading of 85,099. Unfortunately for the bull camp, upcoming US data is expected to be mixed, and that could keep the Dollar from breaking out to the downside. There is the issue of the latest North Korean missile launch, which could provide some cushion to prices.

Gold derivative holdings have settled into a downward pattern, which suggests investors have indeed lost their appetite for gold since the September peak in prices. The Dollar seems close to a downside breakout point, and there were positive Indian pre-festival gold demand stories over the weekend, but the gold market’s inability to rally off a missile launch suggests the direction of least resistance is down.

The next possible rallying point would be if the FOMC meeting offered a dovish surprise. The Commitments of Traders Futures and Options report for gold showed that as of September 12th, non-commercial traders were net long 274,420 contracts, an increase of 9,499 contracts on the week. Non-commercial and nonreportable traders combined held a net long position of 291,623 contracts, an increase of 11,061. For silver, non-commercial traders were net long 73,953 contracts, an increase of 11,530 on the week. Non-commercial and nonreportable traders combined held a net long position of 85,099 contracts, an increase of 8,616.

Silver closed down $0.54 at $17.07. This was a surprise to me considering the interest we had across the counter at higher levels.

Platinum closed down $10.70 at $960.30 and palladium closed up $7.55 at $934.95.  

The walk-in cash trade was busy today both buying and selling but nothing really large.

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 – 4) (last Wednesday – 3) (last Thursday – 3) (last Friday – 4).

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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