Gold Market Commentary for Wednesday, March 21, 2016 (www.golddealer.com)

Gold Market Newsletter with Richard Schwary

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

Gold closed up $9.60 at $1,320.70 today before the FOMC announcement. Even with the prediction of higher interest rates gold remained firm all day – the range being from $1,310.00 through $1,327.00. Now consider that yesterday’s close ($1,311.10) was the lowest seen this year.

So gold was surprisingly firm in early trading before the decision on interest rates and continued strong in the aftermarket pushing higher by another $10.00.

As expected the Federal Open Market Committee (FOMC) raised the discount rate ¼ of a point – the target now being 1.50% to 1.75% and they said the economic outlook has “strengthened in recent months” a traditional bearish comment to gold traders.

But we are dealing with a new FOMC boss – Jerome Powell and traders seem interested in how this might change the interest rate dynamic. It won’t – in my opinion he struck a nice middle of the road posture – hawkish yes but sticking with the general notion that three rate hikes this year looked like the right number. And any conclusions are a bit premature – it seems like traders think this guy is just a straight shooter – no nonsense – clear in his meaning. This has to be good for market clarity at least.

Just what will happen is anyone’s guess but it’s clear that this Fed will not get behind the inflation curve so expect higher rates down the line unless economic growth stalls.

What remains to be seen is whether gold will fade in the face of modestly higher interest rates. If you are an optimist there is at least some symmetry as to what the Fed has in mind and more importantly this has taken some of the indecision off the table.

Trying to decipher how this rate hike will influence gold is impossible. Normally higher interest rates will eventually push gold prices lower. But we are very far from “normal” and while the fed is not worried about inflation per say they are afraid of getting behind the curve.

In the end today’s action might just be classic theory – traders sold this market before the FOMC release (thus my comment on gold’s recent yearly low yesterday) because they thought higher interest rates would push gold prices lower. After the FOMC finally decided to pull the trigger, traders waited for further downside and when nothing happened they covered their short positions in the aftermarket.

Just a theory, folks – you will have to see how this latest FOMC plays out these next few trading days but at this point at least consider that higher interest rates over the longer term might not pose as much a threat to the price of gold as some believe.

While this theory is in the minority it might become a classic outcome – as the price of gold points to fiscal sanity and offers protection in the coming years.

As far as real-world experience is concerned, ask yourself: did the public buy or sell on this big news? Actually they did neither – not much of a reaction in the physical world today one way or the other, which is another interesting point to ponder over your morning coffee.

This from Zaner (Chicago) – “The gold market was higher overnight, as it continued to consolidate ahead of the FOMC meeting results this afternoon. There are broad based expectations that the Fed will raise rates by 0.25%, but the trade will be parsing Chairman Powell’s post meeting conference for clues about future rate hikes. Analysts will also be interested in the Fed’s “dot plot” to see if there has been any movement in opinion about whether there should be 3 or 4 hikes this year. US lawmakers hope to pass a $1.3 trillion budget bill by Friday to avoid a government shutdown. Reports that the US and South Korea are set to resume military exercises next month could put some strain on the projected talks between the US and North Korea over denuclearization. Both of these factors are potentially supportive for gold. We expect to see more choppy and two sided trade ahead of the FOMC meeting results. Recent strong US economic data may have been enough to move the “dot plot” towards more rate hikes this year, and we would not be surprised to see a selloff in the wake of the meeting. Silver also recovered overnight after pushing into lower territory on Tuesday, with the May contract trading to its lowest level since December 15th.

The PGM sector is facing headwinds from trade tensions between the US and Asian nations. The Trump Administration is expected to unveil $60 billion in new tariffs on Chinese imports, targeting tech, telecommunications and intellectual property. China sells very few vehicles in the US, but Japanese and Korean manufacturers accounted for more than 45% of the 17.25 million cars and light trucks sold in the US last year, so increased trade friction could have a significant impact on auto catalyst demand.

The conclusion of the FOMC meeting this afternoon could spark a steep selloff in gold and silver if the overall tone is hawkish towards rates. On the other hand, there seem to be enough factors that could lend support, with uncertainty over the US budget, trade wars and Facebook’s troubles, so that may limit the duration of the selloff. Support in April gold comes in at $1,303.60, and a break below there would project to $1,291.50. Look for resistance at $1,323. A series of lower lows and lower highs has May silver in a downtrend. Look for round-number support at $16.00 and then $15.70, with resistance at $16.41. The next downside target for April platinum comes in at $938.40, with resistance at $960.30. Resistance for June palladium comes in at $1,002.10, with support at $957.00.”

Silver closed up $0.23 at $16.36.

Platinum closed up $5.60 at $949.10 and palladium closed up $10.55 at $990.20.

This is our usual ETF information – All Gold Exchange Traded Funds: Total as of (3/13/18) was 68,461,473.  That number this week (3/20/18) was 69,170,664 ounces so over the last week we gained 709,191 ounces of gold.

The all-time record high for all gold ETFs was 85,112,855 ounces in 2013. The record high for Gold ETFs in 2018 was 69,180,980 and the record low for 2018 was 68,169,590.

All Silver Exchange Traded Funds: Total as of (3/13/18) was 646,509,949.  That number this week (3/20/18) was 651,526,053 ounces so over the last week we gained 5,016,104 ounces of silver.

All Platinum Exchange Traded Funds: Total as of Total as of (3/13/18) was 2,419,068.  That number this week (3/20/18) was 2,415,949 ounces so over the last week we dropped 3,119 ounces of platinum.

All Palladium Exchange Traded Funds: Total as of (3/13/18) was 1,142,162.  That number this week (3/20/18) was 1,142,122 ounces so over the last week we dropped 40 ounces of palladium.

The GoldDealer.com Unscientific Activity Scale is a “2” for Wednesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 3) (last Friday – 3) (Monday – 3) (Tuesday – 3). 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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