Gold Market Commentary for Friday, March 13, 2020 (www.golddealer.com)
By Richard Schwary of California Numismatic Investments Inc ……
Gold closed down $73.60 Friday at $1,515.70 as investors continue to liquidate. The close last Monday was $1,674.50 so its been a tough week for our shiny friend losing $158.80. We saw a mild bounce in stock prices after yesterday’s deluge, but this market too continues to suffer from liquidation as the world worries about the evolving virus picture.
Unfortunately, today’s gold drop ($73.60) was larger than Thursday’s ($52.00) indicating that liquidation is still the theme. Obviously physical demand remains weak, but folks are engaged and watching prices closely. Yesterday’s close of $1,589.30 saw light bargain hunting as traders tried to figure out how close the market was to that “give up” or capitulation stage in which basically all sellers have sold.
Too soon to tell at this point, but we were swamped yesterday and today – virtually all buyers. A lot will have to do with the public’s psychological mood which will be shaped by how successful the White House is in getting out useful information.
President Donald J. Trump will likely declare a national emergency and if the news is really bad it’s better to get all the cards on the table now. But if there is (as I suspect) a moderate side to this story (how many recover for example) this insight will calm markets.
Yesterday, of course was the beginning of the big surprise. Thursday gold was steady in Hong Kong and London around $1,640.00 but fell out of bed on the New York open as our domestic stock market was locked limit down in a wave of selling, reacting to coronavirus fears.
At this point most folks are asking why gold is in such steep decline at a time when logically safe haven buying should be pushing prices higher?
There are several reasons. First, an old trading adage comes to mind – “Sometimes you sell what you want and sometimes to sell what you can.” Gold is liquid under all circumstances, so my bet is that folks are selling the metals because they need fast cash to cover leveraged positions.
Second, curiously the dollar is moving higher. The Dollar Index has moved from recent lows around 96.00 through 98.50 meaning it is attracting a great deal of safe haven demand.
The “bigger picture” plus just added in support of the precious metals comes from Reuters. They now claim that rate options are implying a 26% probability that the key federal funds rate will go below zero by the end of December. Some commentators think the FOMC is already behind the learning curve and should announce massive stimulus ASAP.
As interest rates go down the cost of holding gold becomes more appealing and the inflationary consequences of negative rates encourage gold ownership. Finally, regardless of price holding gold to balance financial portfolios remains a tried and true financial principle.
I still would not call this a panic market but let me repeat that the line between “fear” and “panic” is a thin-one. Still, even the “panic scenario” rarely plays well for long, most investors get on their feet and keep moving just because that is how the human DNA is programmed.
For those who visit us in person we are taking a few precautions which makes sense. Sadly, you will find we no longer offer coffee, water, fruit or chocolates. Obviously for health reasons – and we offer in place sanitary wipes and hand sanitizer before and after you enter the building.
We will also be limiting the number of people in the building – no crowds downstairs. And we ask that if you have a number of people in your group please have them wait in the car – it will keep things simpler and healthier for other visitors and our staff.
Kurt and Augie sanitize the doors, counters tops and rest rooms many times during the working day. And of course, we ask that if you are sick or not feeling well please use the phone to conduct business – we ship for free and as always, your satisfaction is guaranteed.
Finally, it is in everyone’s best interest to take precautions but not to overreact – we have seen many volatile markets in our 40 years of business and I’m happy to say the Lord always provides. You will see this advice everywhere now, but it really is a core jewel of investment wisdom. When everyone is selling – consider taking advantage of lower prices.
This from Zaner (Chicago) – “Global equity markets overnight were mixed with a sprinkling of markets in Asia following through on the downside while the rest of the world showed gains from 2% to as much as 4% in Australia. Overnight economic news included foreign direct investment in China (year to date) declined by 8.6% versus year ago levels, Japanese Tertiary industry index for January which came in softer than expectations and as expected price measures from both Germany and France. However price measures in Spain for the month of February came in softer than expected. The North American session will start out with the February import price index which is expected to have a moderate uptick from the previous 0.3% reading while the February export price index is forecast to have a modest downtick from the previous 0.5% reading. A private survey on March consumer sentiment is expected to have a sizable downtick from the previous 101.0 reading.
With the gold market showing significant liquidation pressure this week in the face of what should have been a historical safe haven influx of money and the market failing to bounce this morning in the face of a recovery in equities, it is clear that gold continues to suffer fears of cratering physical demand. It is also likely that investors liquidated gold to meet equity margin calls or to simply raise cash levels. In fact with the Fed rekindling quantitative easing, China stepping up with another stimulus plan and the virus situations in Italy and the US far from over, the bull camp has to be thoroughly disheartened. In retrospect record high gold ETF holdings and a record spec and fund long position in gold futures/options (as of February 25th) obviously set the stage for the massive liquidation this week. It is also possible that central banks moved to build liquidity through the sale of gold holdings but that potential has not been confirmed yet. In the end gold remains committed to a deflationary condition with severe global recession expectations lumping gold and silver into classic physical commodity market status. In short, the gold market remains vulnerable with the strongest argument for the bull camp the potential for a solid consolidation low support level at the $1550 level on the charts. Over the long run traders should not discount the potential for a historical inflationary flare as nearly every central bank, the IMF and dozens of governments have moved to provide liquidity, stimulus and rapid expansion of money supply. While one would expect some form of technical bounce from a 5 day high to low slide of $154, we suspect a small measure of the selling this week was fresh short sales and therefore short covering buying should be very modest. Very solid resistance is seen at $1601 in April gold. Silver on the other hand does not appear to have found solid support on its charts yet despite a four-week slide of $3.30! Logical support of May silver is seen down at $15.29 and then at even numbers of $15.
Like the gold market, the palladium market appears to have temporarily exhausted itself with yesterday’s historic $664 trading range. In fact over the last three weeks the palladium market has declined by $1240 and the market has likely built a moderate “net spec and fund short”. We see some technical value at the $1800 level in June Palladium today but that level is not overly impressive. On the other hand it is likely that physical/industrial demand for palladium will take a significant hit at the same time that the rumored Russian physical fund holdings were likely pushed back into the market this week. In fact there was some bad news about Chinese demand on Thursday, as the China Passenger Car Association cut its estimate for auto sales for a second time, reporting sales of only 310,000 vehicles last month, down almost 80% from the year before, and the China Association of Automobile Manufactures showed a 285,000-vehicle decline in production, down roughly 80%. This bodes poorly for auto-catalyst consumption, especially with the virus spreading to other areas around the globe. Therefore unless the Russians decide to rebuild (bald speculation on our part) the palladium market could be left without a major buying contingent. Adding into the punctured long interest in the PGM markets is the fact that South African platinum producer equity shares yesterday declined by the most ever which indicates a rupture of the PGM bull market status from yet another market component. For the platinum bulls there was the report this week of a breakthrough in developing catalytic converters that would include a partial substitution of platinum for palladium. The platinum market appears to have found some fundamental/technical value at the $750 level but finding a solid bottom in platinum is problematic as the net spec and fund long in the last report was still lofty at 38,628 contracts. However since the last COT report the platinum market has declined by $182 and therefore the net spec and fund long is probably back down to the lowest level since the middle of last year.
While there is a chance of a low at $1550 in April gold it is extremely difficult to discount the prospects of further global deflationary selling as the economic damage of the virus extends and sustains into the future. Furthermore there is the potential for a longer-term weekly chart reversal from the 2018/2020 bull market in the event April gold closes below $1576.30 today. As indicated already the gold market was record overbought in futures, record long ETF holdings and central banks had been building reserves for 2 years and it would now appear as if the overall fundamental case has shifted negative. However a component of the market thinks gold will manage to “bounce” if the virus panic shows signs of moderating, as that could temporarily halt deflationary selling. As indicated already in May silver we see little in the way of solid support until $15.29.
Silver closed down $1.50 at $14.46. We are beginning to sell a lot of silver bullion at these lower prices so I think the wash-out number is close.
Platinum closed down $37.90 at $743.00 and palladium closed down a whopping $405.80 at $1,539.20 reacting to most likely the news that a new type of catalyst combination is in the making and car sales are expected to plummet as the world seriously consider recession
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