Gold Market Commentary for Friday, August 23, 2019 (www.golddealer.com)

Gold Market Newsletter with Richard Schwary

By  Richard Schwary of California Numismatic Investments Inc ……
 

Gold closed up $29.30 today at $1,526.60 in a move that frankly surprised a lot of traders. It was flat in the overnight Hong Kong gold market and looked like it was heading into a quiet weekend when the domestic trade roared as the smoldering China/US trade talks took a decidedly dark turn.

President Trump publicly claiming China has stolen trillions of dollars of our intellectual property and we are better off without them. Now, remember the Chinese will not suffer a public insult so they also came out swinging. With both parties seriously raising the tariff stakes and rhetoric at new all-time highs this trade war is making everyone nervous.

Gold Market China and US

At the same time, Trump is bashing the Federal Reserve claiming incompetency. And they are bashing back – the FOMC lowered rates at its most recent meeting (July 30 and 31) this being expected and the first rate cut since December of 2008.

They could cut rates anytime they wish and they have 3 scheduled meetings remaining on the calendar this year (September 17 – 18, October 29 – 30 or December 10 – 11). Most believe they will lower rates in September and perhaps again in December a quarter point.

Powell’s dialogue Friday was worrisome claiming the FOMC is “carefully watching developments” and “will act as appropriate”. This is sufficiently vague enough to keep traders from shouting “fire in a theater” but everyone now assumes the Fed will do whatever it takes to keep the business cycle in tack which means more cheap money for as long as it takes.

The longer-term implications for gold are obvious and if these parties don’t settle this fine kettle of fish soon we won’t be talking about $1600.00 gold, we could well be making new highs.

So this process has now come out from under the bed and is now very fluid. The interesting part of this new and wild dynamic is that Fed Chief Powell is obliquely blaming Trump’s erratic handling of the economy on the necessity further rate cuts.

Trump has already called Powell out several times so Presidential criticism of the FOMC is not new but this now back and forth battering is turning up the heat on an already escalating situation. And frankly, one that should have been settled long ago behind closed doors. A week ago the quiet and informed talk was that this resolved process could go off the tracks – this is the beginning of what they had in mind.

This from Zaner (Chicago) – “The gold market could see its first weekly decline in four weeks and silver its first in three weeks, and if that happens it could set both markets up for substantial corrections. They are awaiting guidance from the Fed on future rate cuts, and from the modest strength in the dollar overnight, it seems like the trade is not expecting much from Fed Chair Powell’s speech this afternoon. Last week’s COT report showed managed money traders and other specs were holding record net long positions in gold and near-record net longs in silver as of August 13th. The markets have done nothing but consolidate within that day’s range since that date, and open interest has fallen a mere 5,310 contracts in gold (-0.9%) and increased by 1,755 contracts in silver (+0.8%) in that timeframe, so we can surmise that the spec positions are still heavily long. This suggests that there may not be much gas in the tank for additional buying and that the markets are vulnerable to heavy selling if they are disappointed with the Fed results today.

Recent comments from Fed officials have seemed to be preparing the market for a less dovish speech from Fed President Powell on Friday than what may have been hoped for earlier in the week. Kansas City Fed President George said yesterday that it was not the time for accommodation, as the labor market remains strong, and Philadelphia Fed President Harker said that the Fed is pretty much where it needs to be. The G-7 meeting this weekend could set the market up for more volatility on Monday. There was a report yesterday that China has partially lifted restrictions on gold imports, loosening curbs that had stopped 300-500 tonnes from entering the country since May, and this is fundamentally support to the bulls’ case. Recent steady buying by ETFs suggests investment interest in gold is strong, and that could mean the market will be supported on breaks. Holdings in the SPDR Gold Trust and iShares silver increased again yesterday. An uncertain global economic outlook, the threat of currency wars, extreme monetary measures like negative interest rates in Germany and Japan are supportive to gold and silver over the long term, but both markets appear vulnerable to a setback.

Both platinum and palladium were stronger yesterday in the face of a sideways/lower stock market, and that should be encouraging to the bulls. However, palladium could run into trouble if it doesn’t get some supportive news from the auto sector, and both could be vulnerable t heavy selling if the stock market sells off. Look for resistance in December palladium at $1,495 and $1,560 with support $1,454.30 and $1,438. October platinum pushed through minor trendline resistance on Thursday, leaving an upside target at the August 7th high of $873.50, with initial support at $857.20 and then $844.00. The 50-day moving average has crossed above the 200-day, which is a bullish indicator.

Record net long positions held by speculators increase the risk of heavy selling if Powell’s speech is less dovish than the market is expecting. Some of those expectations faded in the wake of the strong economic data this week. Look for support in December gold at $1,500 and $1,488.90, with resistance at $1,546.10. Support for December silver comes in at $16.95 and $16.65, with resistance at $17.50 and 17.625.”

This from Neils Christensen (Kitco) – Structural Market Uncertainty Will Underpin Gold Demand – WGC – The gold market appears to be taking a breather as it holds critical support above $1,500 an ounce. However, market analysts at the World Gold Council (WGC) say that the factors that drove gold prices to a six-year high are not going away anytime soon.

Alistair Hewitt, director of the WGC’s market intelligence group:

At the start of the month, the World Gold Council said that physical gold demand hit its highest level in three years in the second quarter. Demand was driven by continued unprecedented demand from central banks and growing investor appetite for safe-haven assets.

The WGC also noted this month that holdings in global gold-backed exchange-traded products hit a six-year high in July. In a recent interview with Kitco News, Alistair Hewitt, director of the WGC’s market intelligence group, said that financial market uncertainty has become a structure issue and conditions could easily get worse before they get better.

Hewitt hasn’t been far off the mark as global recession fears have picked in August with global bond yields falling sharply. In the U.S., the real yield on 10-year bonds is hovering at two basis points, up only slightly after falling into negative territory last week. Europe continues to see negative bond yields. On Wednesday, for the first time in history, Germany sold a 30-year bond with a negative yield. The total value of global negative yield bonds is now north of $16 trillion.

“Negative bond yields aren’t going to be fading away anytime soon,” he said. “They have underpinned inflows in gold back exchange-traded funds for some time and they are going to remain in place.”

But it’s not just Europe that is facing financial uncertainty. Hewitt said that Brexit concerns continue to dominate the marketplace. The nation faces a hard no-deal exit from the European Union if it is not able to renegotiate the divorce by Oct. 31.

“The political situation, currency concerns will remain on investors’ minds,” he said.

Crossing the Atlantic, Hewitt said that he is not expecting U.S. financial turmoil to end anytime soon with the Fed projected to embark on a new easing cycle. CME FedWatch Tool shows that markets have all but priced in a rate cut next month. Markets also see at least three rate cuts by the end of the year.

“One of the strengths of the gold market this year is that it isn’t reliant on inflows in anyone area. We are seeing inflows from the U.S., U.K. and Germany and the drivers in each of those markets are subtly different.”

Looking at the official gold sector, Hewitt said that there is no reason to expect central bank will stop purchasing gold anytime soon. WGC research noted that nine central banks bought gold in the first half of 2019.

“We’ve seen an incredible year of central bank demand and has been a significant positive factor for me,” he said. “Two years ago the only central banks that bought gold were Russia, Turkey and Kazakhstan and now you have seen just so many more central banks buying gold.” Wednesday, the Russian central bank announced it continued its shopping spree as it bought another 300,000 ounces of gold in July. The latest data from the central bank shows its gold reserves rose 0.4% last month, reaching 71.3 million ounces or 2,218 tonnes. So far this year, Russia has bought a total of 3.4 million ounces of gold.

Silver closed up $0.39 at $17.40.

Platinum closed down $6.80 at $852.50 and palladium closed down $30.70 at $1453.30.

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