Commentary for Tuesday, February 24, 2020 (www.golddealer.com)

Gold Market Newsletter with Richard Schwary

By Richard Schwary of California Numismatic Investments Inc ……
 

Gold closed up $$27.80 today at $1,672.40! So, we are at seven-year highs, while the Dollar Index is moving towards 100 so both gold and the dollar are now seeing solid safe-haven buying. It is a bit perplexing however that as gold is making yearly highs the stock market remains stable.

The big plus for gold now is that it has broken out of the back and forth trough between $1,200 and $1,400 in place since 2013 and while there was some commentary last December claiming that gold would challenge $1,600 in 2020 this latest strength is surprising to even the bull sector.

Of course, no-one could have foreseen the coronavirus epidemic, which first shut down China and worse is now moving into other countries. Trump slammed our door when this mess started and was criticized for overreacting even though Russia shut down their border. So, I hope he gets recognition for being in front of this catastrophe and not simply reacting after the fact.

For now, the technical bull’s rule – but keep in mind there is a lot of headwind between $1,600 and $1,800. This formidable overhead pricing shelve has been in place since 2012 which might suggest that bigger swings in price, will develop as virus news ebbs and flows.

If this epidemic continues to spread and China cannot get on her feet and back to work, it makes sense that gold and the dollar will remain strong as the world looks for financial safety.

Keep an eye on stocks – if Wall Street holds up all-time highs in gold may have to wait until inflation becomes a problem or world debt finally rocks everyone’s financial boat.

But if the stock market gets unstable because of the China shutdown – hold on to your hat for even US gold bullion demand could turn hot overnight.

Gold bullion, gold prices and gold markets

Still I would not anticipate any large correction in gold. Fear always moves the gold needle and there are too many other options which suggest increased safe haven buying worldwide.

I talked to a customer who has been doing business with us since the early 1980s and asked him what he thought of gold’s latest push to higher ground. Believe it or not he was not excited.

I said with gold up $60 this past month and $300 this past year how can you not be impressed? His reasoning was typical of a real believer – “this system is broken and sooner or later there must be a reckoning”. Yet even with this core belief he will wait for a pull-back in prices before adding to his holdings.

This kind of detachment takes the conviction of a real precious metal veteran. While the US market is still not lining up in our parking lot, I would suggest for those still on the fence that waiting for this bull market to cool down might be a mistake. I would not want to be “all-in” at the moment because the virus panic remains uncertain – but I would buy this market in smaller units – unless you believe gold is trying to tell us something.

This from Zaner (Chicago) – “Overnight global equity markets were lower with the exception of the Shanghai markets. It is likely that the Chinese are providing support for their equity markets. Economic information released to today included a much weaker than expected Australian bank services PMI, softer than expected Japanese CPI and manufacturing PMI and French manufacturing PMI readings which came in softer than expected. However it should be noted that French services PMI and the composite PMI readings were better-than-expected. German manufacturing PMI was better-than-expected while there services PMI was weaker than expected. From the euro zone overall there manufacturing, services and composite PMI readings for February all came in better than expected. On the negative side of the ledger UK services PMI was a touch weaker than expected and Spain saw a clean sweep of weak data from all the various CPI breakdown readings. Finally overall European consumer price readings simply matched expectations and generally remain in contractionary territory. The North American session will start out with December Canadian retail sales which are expected to have a sizable downtick from November’s 0.9% reading. The February Markit “flash” US manufacturing PMI is forecast to have a modest downtick from the previous 51.9 reading. January existing home sales are expected to have a modest downtick from December’s 5.54 million reading. Dallas Fed President Kaplan, Atlanta Fed President Bostic and Fed Governor Brainard will speak during morning US trading hours while Fed Vice Chair Clarida and Cleveland Fed President Mester will speak during the afternoon. Earnings announcement will include Deere and Magna International before the Wall Street opening.

The gold market has caught a significant lift from chatter that it is in the midst of a rotational benefit from other instruments. In fact yesterday some fund managers indicating that stocks were overvalued and some allocation to gold should be made. Overnight the bull camp added in speculation of rate cuts and excessive stimulation in China as reasons to pile into gold. The investment quality gold storyline was given a further boost overnight by news yesterday that Swiss monthly exports of gold into Hong Kong jumped considerably despite the turmoil in that economic zone. Obviously one of the most dominating forces lifting gold and silver prices today is the news that the Chinese virus count showed an uptick overnight. With reports of potential virus spread in the capital city of Beijing some traders are moving into gold under the premise that China will now have a more serious problem outside the initial quarantine areas. Certainly safe haven buying off the ongoing potential for an instant spike in anxiety from the coronavirus continues, but that influence is magnified by the idea that China will throw everything it has to save growth. Apparently the gold market is interpreting vice Fed chairman comments yesterday into ideas that the Fed could cut rates before the end of the year. Adding further into the upward track in gold is the 22nd straight day of inflow into gold ETF’s bringing this year’s inflow to 2.5 million ounces. Even the silver market is beginning to get lift with the March contract seemingly on a path to retest the January high up at $18.89. In the end we assume that the breakout/extension in gold and silver prices this week is going to create a follow-through wave of buying. The next upside target in gold is seen from $1660.

Surprisingly the palladium market has stalled after making a minimal upward thrust early. Perhaps news that Chinese auto sales dropped to 5000 from 60,000 in the most recent readings has finally given some substance to the idea that the coronavirus could hit future purchases of PGM’s for auto catalyst. While the palladium market has not responded instantly to the aggressive upside extension in the gold market a sudden resumption of the bull track can’t be ruled out in the event the flow to precious metals becomes a stampede as indicated in a Bloomberg story this morning. Certainly options volatility is registering significant bullish sentiment, but the last net spec and fund long in palladium was only 5,622 contracts or roughly 25,000 contracts below its all-time high posted back in April, 2013. Therefore the bull camp will rightly suggest more buying from futures is available and will come in with many traders willing to bet that this year’s deficit will result in a tighter palladium market than was seen in 2013. We see critical support in the March palladium contract at $2571.20 which is where the market closed in the 2 prior trading sessions. Given the stellar action in palladium over the last year and given the very strong action in gold this week we suggest traders remain guardedly bullish toward the palladium market in hopes of a typical sharp recovery. Not surprisingly the platinum market has faltered from this week’s early high and is showing some potential to hold above support at $975. While the platinum market looks vulnerable on its charts and has had trouble coming into consistent favor, we suspect platinum will receive enough spillover interest from gold to climb back toward 1000.

As indicated already, the path of least resistance is pointing up in the precious metals markets with the trade stoked by fresh Chinese health/economic concerns. While it would seem to us that the bull case for precious metals is becoming more dependent on a definitive extension of the virus problem, the arrival of investment inflow is a really powerful influence!”

Silver closed up $0.35 at $18.87.

Platinum closed down $-2.70 at $969.00 and palladium closed down $-84.10 at $2,543.20.

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