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CNI Newsletter: Gold – Pensive and Steady

Gold Commentary for Friday, September 24, 2021 (www.golddealer.com)

Gold Market Newsletter with Richard Schwary

By  Richard Schwary of California Numismatic Investments Inc ……

Gold closed up $2.00 at $1,749.70 and silver closed down $0.25 at $22.39. While gold had both a turbulent and tough week psychologically – some short covering going into the weekend was welcomed. It’s puzzling that renewed worries of an Evergrande bankruptcy firmed up the dollar but did not bring gold safe-haven demand into focus. This might suggest that current bearish sentiment is already getting tired, but it is too soon for that much optimism. It won’t be long before traders are again wringing their hands over the next FOMC meeting. Last Friday gold closed at $1,749.40 / silver at $22.30 – on the week gold closed up $0.30 and silver closed up $0.09. Hard to believe that both markets are virtually unchanged on the week considering all the ruckus.

The good news is that delivery on 2021 US Gold and Silver Eagles is getting better (still not “normal” but improving). And we are finally receiving early .9999 fine silver round orders. The bad news is that “any new orders” are still 2 to 4 weeks coming from the manufacturer. My guess, however, is that delays will continue to shorten.

Should you decide to use our Delayed Delivery Program please talk with your service rep and understand how this program works. It is handy if you want to lock in the price “now” and insist on new product – but is not for everyone. Just like us – you must pay upfront to “lock in” prices and you can’t “change” your mind. So, unless God has blessed you with patience, please ask your rep for other options and thank you for your understanding.

On Monday gold presented another typically complex picture, but one that is very much highlighting the true value of real money. Considering the number of bears in the forest on Friday no one would have expected a swift and rising gold opening today. As worries grow over the solvency of Evergrande – a massive Chinese property development company. There were rumors of Evergrande financial troubles last week, but traders were so focused on the bearish implications of possible “tapering” in the upcoming FOMC meeting held tomorrow and Wednesday that this potential debacle flew under the radar. I believe the People’s Bank of China (the equivalent of our Federal Reserve) would step in to save the day but at this point that remains unclear. What is real is the rising fear factor as Asian stocks tanked. This, of course, leads to the inevitable talk of “falling dominos” in the region but this too in overstated.

Gold and the dollar both moved higher. This might sound counterintuitive, but the dollar is another primary choice is times of uncertainty. The recent drop in gold prices also helped our shiny friend but with Powell’s speech due on Thursday this strength surprise may be short-lived unless the Fed turns dovish, and China does not step in to stop this financial breach.

What makes this pop in gold prices attractive is not so much the actual number on the day which was modest. This kind of action serves to remind everyone that physical gold serves a very important purpose in this new age of high fiat currency finance. Gold bullion continues to have value when things go wrong and represents the ultimate value when things go very wrong.

So regardless of what side of the street you are on today it pays to include gold as a financial anchor. And in doing so remember Robert Burns poem “To a Mouse” (1786) – “The best-laid schemes o’ mice an’ men gang aft a-gley [go often astray].” On the day gold closed up $12.40 at $1,761.80  and silver closed down $0.14 at $22.16.

Grant on Gold (Zaner/Chicago) – 1. Gold added to last week’s sharp losses in overseas trading on Monday, setting a five-week low at $1,742.28 before corrective forces emerged. 2. Silver extended to the downside to start the week, establishing a 10-month low of $22.03. 3. Platinum tumbled to a 10-month low near $900 on Monday and it seems like September will end up being the fifth consecutive lower monthly close. 4. Palladium tumbled to a 15-month low as the market increasingly anticipates auto-sector disruptions to extend into next year.

Gold on Tuesday opened choppily but quickly pushed higher even though the Dollar Index seems to have stabilized. The rebound in overseas stocks might suggest the Evergrande fallout will be limited. The FOMC is meeting today, and Chief Powell will speak tomorrow. Higher gold prices today suggest continued safe-haven buying.

Zaner (Chicago) – “Obviously, the potential for a financial contagion inside China, ongoing infection issues in China, significant global equity market declines and the potential for Chinese stimulus provides the gold bulls with plenty of ammunition. The bull camp this morning should garner some confidence from news that Swiss Gold exports jumped significantly in August with sales to India jumping by 93% to 70.3 tons from July! In retrospect, the gains in the gold market to start the trading week were especially impressive when one considers the magnitude of the strength in the US dollar. However, the Dollar has now corrected sharply from a 4-day rally and a decline below the first retracement point of the recent swing higher is seen down at 93.00. Therefore, a December Dollar Index slide below 93.00 could result in an acceleration of buying.”

I would still consider the possible Evergrande bond default a new bullish development supporting gold. The Chinese markets are coming back from holiday, the Covid D variant is dangerous, and it now looks like China will step in with stimulus if Evergrande fails.

Still gold remains under pressure because traders believe that the FOMC will develop a hawkish tilt between now and the end of the year. This hawkish inclination is not news, gold has been struggling under this bearish news for months.

And while gold pricing is down about $20.00 this month and $140.00 this year our shiny friend is holding up considering the numbers of bears in the woods these days. An optimist might suggest current gold prices have already factored in mild QE modification.

In the short term, the current FOMC meeting has nothing to lose by dragging its feet. They are not worried about inflation and the world is even considering deflation. I’m also sure the Fed watched Monday’s sell-off in Asian stocks over the Evergrande mess… and considered its possible impact on Wall Street. Not to overstate this possible default but it makes good sense for them to remain cautious at what might turn into a precarious financial turn in the road.

They have time to tap the brakes before the end of the year. And Powell’s Wednesday speech will give them plenty of opportunities to once again dance around this question. For now, the bulls have regained some technical edge but to keep this fledgling uptrend in place safe-haven demand must continue higher or the dollar will have to move lower. On the day gold closed up $14.20 at $1,776.00 and silver closed up $0.41 at $22.57.

On Wednesday gold opened choppy and waiting for Fed Chief’s Powell’s comments about the last two days of meetings and discussions. It is very quiet out there considering all the speculation about what Powell might to say this afternoon. But the Dollar Index (93.17) has moved steadily higher since last Thursday suggesting the expected news will be hawkish. Most of the governors now favor modification of quantitative easing. But this sentiment was in place at last month’s meeting and while Powell did not disagree, he suggested that there was more work to be done and the Fed would remain accommodative.

The problem with this dialogue is that traders, knowing that eventually the Fed will do something only need a few hints to run with the QE ball. This might be a mistake because the Fed could lay out some sort of timetable but continue to remain vague. Zaner (Chicago) notes this morning that the Bank of China has increased liquidity (a plus for gold) and the recent inflation dialogue may be turning into a combination of inflation/deflation (a negative for gold).

If you are looking for something outside the box, the gold market could yawn over Powell’s wisdom today. This would present the typical “buy the rumor, sell the news” advice from sage Wall Street traders. The potential blowout to the downside never happens, and gold continues to hold a reasonable yet choppy price range. While the rest of the world decides to wait on possible outcomes from new variant infections or further fallout from the Evergrande problem.

What did the Fed do? The FOMC left interest rates and bond-buying unchanged which accounted for today’s tepid closing numbers. Fed Chair Powell’s upbeat economic remarks however pushed the dollar higher creating pressure in the aftermarket and the gold price lost $10.00 from yesterday’s close ($1,776.000. MarketWatch – “Powell’s says Fed officials are eyeing a gradual tapering plan ending “around” middle of next year”. And in a “have your cake and eat it too” moment Powell also says supply bottlenecks pose upside risks to inflation. So, there is enough this time around to give each side (the hawks and the doves) a piece of the cake. I believe the trade will continue to expect an increasingly hawkish FOMC but wait until next month to see if this supposed shift has actually shifted – if you get my meaning. On the day gold closed up $0.70 at $1,776.70 and silver closed up $0.30 at $22.87.

Two observations about silver and platinum worth thinking about in the meantime. While the silver bullion market is moving lower most likely because traders believe the Covid D variant will impact its industrial application it remains impossible to keep bullion products on the shelves. There is a growing rumor among dealers who believe lower prices and not near enough physical product for immediate delivery will push premiums even higher. This has to be one of the goofiest anomalies I have seen in 40 years of trading physical metals. And what’s up with the big jump in platinum prices yesterday. This may relate to a CNN news report yesterday making the case that platinum is now too cheap and will recover nicely once this current business cycle further develops as the pandemic recedes and the auto industry refocuses.

Silver Markets, Gold markets, Platinum Markets

On Thursday gold opened firm but quickly sold off, testing session lows in early trading. The genesis of this dip reflects yesterday’s aftermarket weakness. And perhaps increased uncertainty as the perception of a slowing US economy grows, although the numbers paint a balanced yet mixed picture. Gold seemed to ignore the half-point swing in the Dollar Index, so my bet is traders have decided the last three days of FOMC pondering was hawkish even though the Fed once again stood pat, buying more decision time.

Today’s gold trade also looks like a modified bear raid, as the short paper tries to push the envelope looking to see if support holds keeping in mind that we saw a recent $1,730.00 bottom in early August. It’s also disappointing that gold created no traction in the most recent inflation numbers which are obviously higher than Fed’s target.

I would not read too much bearishness into the most recent trading pattern and hawkish FOMC inclination. Obviously, gold’s fledgling uptrend is out the window today, but I still suspect a longer consolidation pattern is in the cards. It is also worth mentioning that when bearish sentiment is at its height – most sellers have already sold. And the sudden jump in European interest rates will likely stop the bullish dollar trend in place since early September.

From a practical standpoint we still cannot keep immediate delivery products on the shelves – so hard-core gold and silver buyers always embrace cheaper prices. You will likely see further volatility, but I would not be surprised to see the dips become smaller and smaller. On the day gold closed down $29.00 at $1,747.70 and silver closed down $0.23 at $22.64.

Gold Friday opened mildly higher but quickly pushed to session lows as the Dollar Index moved above 93.00 most likely on the news that Evergrande will likely file bankruptcy. What is surprising is that gold failed to rally on the news, further evidence that the bulls have taken a vacation. Zaner (Chicago) – “However, a Bloomberg article overnight hit the nail on the head on the action in the gold market recently by suggesting the market’s overreaction to bearish drivers reveals weak underlying sentiment. An issue capable of supporting gold next week is this weekend’s German election where it is possible to see another “lurch to left” as that is already resulting in money leaving Germany for Switzerland especially if some of that money decides to seek the safety of gold. At least in the early going today a minor limiting force for gold is seen from a slight upside extension in US treasury yields after yesterday’s large jump. While the technical picture has shifted against the bull camp with the rally early in the day yesterday forged on very low trading volume and a decline in open interest the market has managed to attract buyers in numbers early today. In conclusion, both fundamental and technical signals favor the bear camp, but the Evergrande situation should support gold through the close today as buyers expect weekend fireworks in China.”

So, it’s apparent that gold still struggles going into this weekend. But I’m still not overly bearish for a number of reasons. First, the physical demand for US Gold Eagles and other traditional gold bullion coins is solid.

Second, $1,750.00 support for gold this past six months has held up four times – so traders will soon be talking about an oversold gold market. Especially since the Fed has not actually made any changes to its quantitative easing program. There are some traders who believe the FOMC tapering conversation will run out of gas and they will be forced to “put up or shut”. But I disagree. They have milked this conversation for six months to their advantage and there is no reason they cannot continue this approach well into next year. This leads to a bullish theory that has been around for some time – but is worth considering. There are some credible sources who believe that once the FOMC begins tapering gold prices will actually move higher not lower.

Finally, keep this contrarian investment theory in mind. When everyone is bearish there are no more sellers – they have already sold. This then turns into a prime opportunity for hard-line gold and silver bulls – keeping in mind there are still trillions of dollars floating around out there looking for the next big opportunity.

On the day gold closed up $2.00 at $1,749.70 and silver closed down $0.25 at $22.39. Platinum closed down $16.30 at $980.90 and palladium closed down $20.70 at $1,951.10.

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