Gold Market Commentary for Friday, March 6, 2020 (www.golddealer.com)
By Richard Schwary of California Numismatic Investments Inc ……
Gold closed up $4.40 at $1,670.80 today. We closed at $1592.30 last Monday so on the week it finished up $78.50 in another wild market ride. These past 30 days the volatility repeats moving from $1,560.00 through $1,660.00 and quickly dropping back to the most current support level ($1,580.00).
And then just as suddenly moving toward old recent highs – reacting to the surprise FOMC cut in interest rates Tuesday. Crazy for paper traders and confusing for the physical trade – but should have been expected given it’s now clear the coronavirus is spreading.
So where to on the short term? Gold has made now two serious attempts at $1,700.00 this past month so the trade would not be surprised to see this upward trend continue. But even if this volatility settled down the level of uncertainty in the world and now the US is high enough to ensure the precious metals remain firm.
But there is sometimes a fine line between uncertainty and panic – gold bullion could quickly turn from a safe momentum bet into a “must have” personal protection asset.
I’m happy to say I have never seen a “panic” metals situation in my lifetime. But could this worldwide health menace turn into something more ominous? Like I have said before – if history is any guide – probably not. And the US already has a strong economy bolstered by cheap money and enormous resources to whether the storm. But it is worrisome none the less.
So, during this high confusion time look at dollar strength for clues in the tea leaves. The Dollar Index this past three months has traded between 96.00 and 100.00. Initially – spreading virus information pushed the dollar higher – it acted like and was a safe-haven for investors.
But as the virus spread it began to change our benign worldview into one closer to home and the dollar faltered. The index moved from 100.00 through 96.00, lows not seen since January of 2020. This battlefield might now be in our backyard – California for example declaring an emergency. I appreciate this allows our state to get emergency Federal money to fight this menace – but the announcement was unnerving.
It might sound funny to say but even with this latest surge in gold prices the bulls are not an overwhelming favorite. They do hold an edge – momentum is solid, the latest ETF holdings support higher demand and stocks might yet become unhinged.
But this market is changing from moment to moment and I can’t believe that given the urgency of this matter it would take a year to announce the promise of an effective vaccine.
For now, watch the 96.00 support in the Dollar Index. You would have to go back to January of 2018 to see lower numbers around 90.00. Obviously if the index breaks down gold would move higher. Surprising, US bullion buyers are still not showing much interest – no big sellers either which figures. But no whale buyers – which is puzzling, maybe I’m overreacting?
This from Zaner (Chicago) – “Global markets are starting out Friday with a decisively negative tone. News reports of the continued spread of coronavirus to many nations are fueling a risk-off mood. The major Asian stock indices posted heavy losses, led by the Japanese Nikkei. The Shanghai Composite posted its first negative result of the week. The latest readings for German factory orders and Italian retail sales came in above forecasts, but that provided little benefit to risk sentiment. European shares were posting early losses, led to the downside by the German DAX and French CAC-40. The North American session will start out with what is normally a highlight for global markets, the monthly Employment Situation report. The report is expected to show February non-farm payrolls at 175,000 to 180,000 versus January’s 225,000 reading. February unemployment is forecast to hold steady at 3.6%, while average hourly earnings are expected to have a minimal downtick from January’s 3.1% year-over-year rate. February Canadian unemployment is forecast to have a minimal uptick from January’s 5.5% reading with a modest increase in net employment. The January US international trade balance is expected to show a moderate decline from December’s $48.9 billion deficit. January Canadian international merchandise trade is expected to show a modest increase from December’s deficit. January US wholesale trade is expected to hold steady with December’s -0.2% reading. The February Canadian Ivey PMI is forecast to have a moderate decline from its January reading. A busy day for Fed speakers will include Cleveland Fed President Mester, Chicago Fed President Evans and St. Louis Fed President Bullard during morning US trading hours, and New York Fed President Williams, Boston Fed President Rosengren and Kansas City Fed President George will speak during the afternoon.
With another push lower in stocks overnight and 10-year note rates falling to 0.77%, gold looks poised to test last week’s 7 year highs today. The path of least resistance remains up in gold, with silver likely to follow but at a slightly slower pace. Unless there is a psychological turning point, it would appear to be extremely difficult to head off a broadening sweep of global economic slowing. Some gold traders have suggested that central banks are nearly out of ammunition, and that has kicked-in buying of key safe-haven markets like gold, Treasuries, Swiss and the yen. Some of the buying is being given added credence by growing talk of the potential for negative US Treasury yields. Furthermore, some analysts are ratcheting up the potential for another US 25 basis-point cut in the March 18 FOMC meeting! In short, we expect the safe haven markets to continue to rise in sync, with April gold likely to test and crack the $1,700 level ahead of the weekend, as traders look to get long for the anticipated spread of the virus and deterioration in the global economy from two days of market closure. To halt the upward bias, it would probably requires news of a vaccine (even though it would be many months before implementation), a detectable slowing of the spread in Italy, Korea and the US, or a blockbuster US nonfarm payroll report. However, the trade might simply discount the payroll reading for February as “old.” Even if the US economy entered the brunt of the virus crisis with a strong labor market, there is no end to the crisis in sight. China will release January-February combined trade data on Saturday, which could shed some light on how severely virus has affected economic activity so far. One short-term limit to a gold rally would be if a collapse in equities forced traders to sell their gold holdings to cover margin calls. That seemed to happened last week.
Palladium appears to have slipped back into its “like gold” standing with its recovery yesterday and follow-through buying overnight. However, traders should continue to fear aggressive industrial demand destruction, which could go a long way towards offsetting investment/speculative/safe haven demand. Nonetheless, global uncertainty levels are high enough that sellers of palladium will likely see increased risk today as money seeks out safe haven harbors against what could be a serious deterioration in global conditions over the weekend. Critical support in June Palladium is seen at $2,356, with uptrend channel support at $2,344.40 and little in the way of resistance until $2,610. Platinum also seems to be generating some safe haven interest today, as a major risk-off event appears to be unfolding. However, traders should also beware of potential demand destruction if the economic worries are sustained.
While conditions should remain highly fluid and volatility should expand dramatically across the precious metals markets, the bull camp should feel confident heading into the last trading session of the week. We expect a wave of buying as traders get in position for a continuation or worsening of the virus story ahead over the weekend. While we might be overstating the bull case, the main threat to the bull camp might be the lack of a quick, decisive and upward thrust in prices. The near term upside target in April gold is seen at $1,700 and then up at $1,739. Another measuring target from the 2020 consolidation zone another is seen up at $1,765. As long as the April gold contract holds above $1,630, we think the trend will remain up.
Silver closed down $0.13 at $17.21.
Platinum closed up $30.70 at $895.30 and palladium closed down $30.20 at $2,456.90. The physical rhodium market is, as usual all over the place, but continues in liquidation.
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