Gold Commentary for Thursday, December 7, 2016 (www.golddealer.com)

Gold Market Newsletter with Richard Schwary

By Ken Edwards and Richard Schwary of California Numismatic Investments Inc ……
Gold closed down $13.00 today at $1,249.80. The best you can say about today’s weakness is that we are simply seeing the continuation of a technical breakdown which said goodbye to the important $1,270.00 support line. It is not like the market has just caved – we were down $7.10 last week and it was not the number per se that was disappointing – it was the fact that gold threatened $1,300.00 but once again failed to hold this higher ground.

I think traders were still considering higher numbers earlier this week with gold holding the $1,270.00 line but Tuesday the bears had their way closing at $1,261.60. At that point the damage was done – a tepid short-covering rally Wednesday set up the psychological short-term “give up” we are seeing today.

The dollar these past five trading days has helped but is not the primary mover in my mind. The Dollar Index has moved from 93.00 through 93.60 stronger yes but not so strong as to change the pricing dynamic dramatically. I think what we are seeing is a combination of a strong dollar – anticipating higher interest rates and a technical correction based on failed expectation.

At this point traders will watch carefully the $1,250.00 and $1,220.00 support levels. Today’s close ($1,249.80) is below gold’s 50 Day Moving Average ($1,280.00) – below its 100 Day Moving Average ($1,287.00) and below its 200 Day Moving Average ($1,267.00) – a continued open door to the bearish technical paper traders.

gold markets

This latest weakness is (to some degree) computer driven and supported by the holiday season. Sure we have talked about that upcoming FOMC rate hike but this was also discounted as commentators questioned whether the FOMC was really going to raise rates. Early this week the Bank of Canada did not “raise” perhaps supporting this dovish notion.

A sensible reason behind this weakness is that the gold trade has embraced not only a small hike which is right around the corner but perhaps further increases into 2018. Unfortunately this is part and parcel of gold’s “all or nothing” mentality – for some reason traders ignore comments from Yellen herself claiming that higher interest rates will take a very long time to accomplish.

Any real physical buying will stop the route quickly and some bargain hunting will no-doubt help along the way but for now gold is left to find its footing. It’s amazing that Trump’s recognition of Jerusalem as the capital of Israel has not created even a blip on gold’s radar. This “decision” is a very big deal with consequences guarantying more trouble in the Middle East.

Still with all the negative fanfare gold has traded between $1,150.00 and $1,350.00 this year and is now around $1250.00 which is more stable than most assume. The big thing to keep in mind is that while it remains defensive – gold is still very capable of making new highs from these current levels with little provocation.

This from Zaner (Chicago) – “While the gold market held up impressively yesterday in the face of a number of bearish developments (optimism toward tax reform, slight gains in the dollar & soft wage growth) the market has caved in this morning and violated a series of support points in a fashion that would seem to target $1,250.

While the strength in the dollar this morning isn’t overly significant the residue from stagflation predictions from former Fed Chairman Alan Greenspan yesterday casts a cloud over the precious metals complex. An issue that could lend some support to gold in the coming 24 hours is the US acknowledgment of the movement of the Israeli capital to Jerusalem from Tel Aviv, as that has sparked widespread disdain in the Arab world which in turn raises uncertainty.

While we have frequently mentioned the lofty net spec and fund long positioning in gold that factor remains in play as a force that could easily facilitate further downside work on the charts. However recent scheduled data from the US suggests that upcoming jobs-related information could point to anemic growth and in turn that could delay the rate hike potential next week and could be cause for renewed weakness in the dollar.

Another issue that could provide minimal support once the current slide has exhausted itself is reports from South Africa of a decline in October gold production of nearly 1%. Unfortunately Chinese gold reserves at the end of November did not change and total gold derivative holdings have generally declined this week.

With the market failing at a critical pivot point of $1,259.30 and the next logical target/support seen at $1,250 the bull camp should have a lot of confidence into the US data window. However traders might see a bounce in gold if US employment related data from Challenger Layoff’s & initial claims. While the March silver contract appeared to find some value around the $16.00 level, the silver market should remain under pressure because of downside action in gold. The next downside target in March silver is seen down at $15.81.”

Silver closed down $0.15 at $15.72.

Platinum closed down $8.30 at $893.60 and palladium up $14.75 at $1,016.30.  

This is our usual Thursday Chicago Mercantile Exchange report covering the last 5 trading days – so we are looking at the trading volume numbers for the “December” Gold contract: Thursday 11/30 (377095) – Friday 12/1 (366359) – Monday 12/4 (365093) – Tuesday 12/5 (363639) – Wednesday 12/6 (358052) and the trading volume numbers for the “December” Silver contract: Thursday 11/30 (148230) – Friday 12/1 (151412) – Monday 12/4 (151156) – Tuesday 12/5 (154051) – Wednesday 12/6 (155640).

The walk-in cash trade and phones were steady today – moderate selling dominates.  

The GoldDealer.com Unscientific Activity Scale is a “4” for Thursday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Friday – 4) (Monday – 3) (Tuesday – 4) (Wednesday – 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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