Bullion Market: Gold – Bruised but Still Engaged

Gold Commentary for Friday, August 14, 2020 (www.golddealer.com)

Gold Market Newsletter with Richard Schwary

By  Richard Schwary of California Numismatic Investments Inc ……

Gold closed down $19.70 today at $1,937.00. It finished last Friday at $2,020.20 so on the week it has lost $83.20 in the worst round of turbulence we have seen in almost two decades. A market that just the week before had credible commentary claiming $4,000.00 was right around the corner. So to say the bullish trade got too crowed might be one of the great understatements of this amazing bull run.

Gold opened last Monday higher – pushing to $2,050.00 before closing on the day up $14.30 at $2,024.40. Silver outperformed closing up $1.72 at $30.25, a seven-year high. So, both metals pushed back from Friday’s down day proving again that paper traders and physical buyers are willing to buy weakness, the traditional plus sign everyone looks for as the metals move into uncharted territory.

The next big gold challenge for the bulls will be to reach and establish a new trading range above $2,100.00. More conservative players will look for settling, perhaps something on both sides of $2,100.00, but this market still has plenty of buzz for the usual reasons. Real tension between the United States and China, continued ETF accumulation, safe-haven buying, and cheap money that could last for a decade. The negatives: China and India’s physical demand remains on the sidelines even though both are making economic comebacks. The reasoning may be that both have traditionally pulled back when pricing pushed to new highs.

Tuesday saw the predictable bazooka blast – as the Russians claim a working virus vaccine the precious metals were up to its waist in red ink. This was not unforeseen – commentators suspected that solving the virus problem would equal lower metals. But this news was not embraced by everyone – there is skepticism because of the source. Still, let’s be humanitarian and hope for the best. Our own best guess was a vaccine before the end of the year so assessing the price of gold and silver now makes sense and brings this market into focus. The basic rule being that the higher the prices the more possible volatility. On the day gold closed down $91.80 at $1,932.30, its worst day since June of 2013. Silver finished the day down $3.21 at $26.04, the largest daily decline since October of 2008. Surprisingly, the technical guys don’t see this as any big deal, an exit stampede created because gold failed to make new highs on Monday. So, we are seeing a consolidation driven by profit-taking in an overheated market which moved wildly higher in the short term. Once this blow off settles uptrends will likely resume but the fact that gold broke down at $1,950.00 is a further threat. We are now punching around in the dark looking for support as stocks and the dollar attract attention. Stay tuned this week is pivotal.

Gold opened wishy-washy Wednesday (a new technical term), in that it just could not decide what exactly happened the day before – traders could not decide whether to bargain hunt or wait for the other shoe to fall so on the day gold closed up an unimpressive $2.30 at $1,934.90. That was the good news, the aftermarket continued lower down almost $20.00 with gold holding above the important $1,900.00 level but the market is still in confusion. Some believe this freefall signals the end of the bull market. That line should be ignored – the drop was certainly the end of this current bull leg but all this market needs is time to get organized and realize that nothing much has changed. Everyone and their brother are printing worthless paper money at a rate unheard of human history. And whether a vaccine is presented anytime soon the amount of money owed will not disappear. It could take decades just to get started on payback and that assumes there is a willingness to make hard decisions, which is rarely the case. Just follow the old tried and true practice – buy weakness over the longer term. Worried about the drop – great you should be, but just wait until things stabilize and buy for the longer term. Whether you believe it or not this settling is good for the longer term, it will blow out all the weak hands.

Gold pricing for Thursday? Well what do you know? Traders bought the dip with gold closing up $21.80 at $1,956.70 and silver saw a significant jump – up $1.73 on the day at $27.69.

The Dollar Index weakened – moving back to 93.00 helping move prices higher. We are seeing some minor selling across our counter but nothing big and most incoming calls are folks looking to buy – sometimes for the first time. It’s too soon to say if we are out of the woods but the technical guys claim this fall created no real chart damage. The questions you should have in mind are two. Does this bounce signal a reliable floor? If so, will the consolidation be short or long? I’m encouraged short term but that should not be your focus. Inflation is beginning to move higher. This scenario allows the Fed to work on its monstrous debt using cheaper dollars. Wherever these markets settle do not miss the opportunity – the metals are on sale. When both gold and silver make new highs, it will not be “how much money” but “who has product” which counts.

The Friday close was interesting and gives everyone a weekend to catch their breath. The best I can say is that we got through a rough week, yet one that may become more typical as this bull market continues to develop. Gold held steady on both sides of $1,950.00 in early trading but pushed lower later in the day closing down $19.70 at $1,937.00 but pushing higher in the aftermarket about $7.00 so traders are still feeling their way around. Silver remained volatile down $1.62 at $26.07. It’s psychologically important that gold holds the $1,900.00 bounce we saw earlier in the week. This past month the Dollar Index has taken a nosedive moving from 96.00 through 93.00 but it now appears steady at this lower number – a negative for gold. Today’s trade in both gold and silver was weaker and we are still looking for consolidation which will energize this market and reestablish confidence. I would be very satisfied with quiet next week.

Silver closed this Friday down $1.62 at $26.07.

Platinum closed down $23.70 at $954.40 and palladium closed down $73.00 at $2,140.40.  

This from Zaner (Chicago) – “After finding mild early support, global markets have taken a negative shift coming into this morning’s action. July Chinese industrial production posted a 4.8% year-over-year rate which was lower than expected while July Chinese retail sales showed a -1.1% year-over-year reading which was lower than forecast. Asian shares finished with mixed results as gains in the Shanghai Composite were balanced against a pullback in the South Korean Kospi index. French CPI and a second-quarter reading for Eurozone GDP were both in-line with trade forecasts. European shares are generally under pressure early in the day and were led to the downside by the French CAC-40 and the UK FTSE-100. The North American session will start out with July retail sales which are expected to have a sizable downtick from June’s 7.5% reading. Second-quarter readings for non-farm productivity and unit labor costs are forecast to have moderate upticks from their first-quarter readings. June Canadian manufacturing sales are expected to have a sizable uptick from May’s 10.7% reading. July’s industrial production is forecast to have a moderate downtick from June’s 5.4% reading, while July capacity utilization is expected to have a modest uptick from June’s 68.6% reading. June business inventories are forecast to have a moderate uptick from May’s -2.3% reading. A private survey of August consumer sentiment is expected to have a modest downtick from the previous 72.5 reading. Dallas Fed President Kaplan will speak during morning US trading hours.

Gold and silver were moderately lower overnight, but they stayed inside Thursday’s ranges. Chinese retail sales and industrial output data were disappointing, especially retail sales, which fell 1.1% in July versus expectations for a 0.1% increase. This indicates that China’s recovery is moving in fits and starts, but could be blamed on torrential rains and flooding in that have plagued southern China since June as much as the pandemic. Gold and silver “rejected” their lows on Wednesday and followed through with further gains on Thursday in a manner that suggests they are ready to consolidate and possibly make a run at the recent highs. Prior to this week’s selloff, they had gained astronomical heights but had become heavily overbought, so it wasn’t a shock to see a steep selloff on some optimistic news about a Russian vaccine, which remains in question. The jobless claims data on Thursday marked improvement over recent weeks, falling below 1 million for the first time the pandemic began, but there is still a long road ahead. Fed policymakers warned that the recovery will be slow until the virus is contained. This points to an extended loose monetary policy that should be bullish for gold and silver. Exchange-traded gold holdings fell 45,183 ounces in the last trading session but silver holdings increased by 8.12 million. Probably the most pressing negative possibility for gold would be the confirmation that a vaccine was imminent, but that could take some time. December silver has rejected this week’s selloff in a more dramatic way than gold, having already retraced 67% of its decline off the August 7 highs. The meeting between US and Chinese trade negotiators to review the Phase One trade deal this weekend could provide some additional fireworks if the talks do not go well.

One bright spot from the Chinese economic data overnight was a 12.3% surge in auto sales, which follows an 8.2% decline in June. The palladium market didn’t seem to react, as it responded by trending weaker overnight. Like gold and silver, palladium seems to have found some support at this week’s lows, but the bounce has been far less robust than in those other markets. December palladium is consolidating in a range between $2,411.40 and $2,090, with trendline resistance coming in at $2,339 and support at $2,132.3 on Friday. October platinum is also finding support, and a series of higher highs and higher lows indicate the uptrend off the March low is intact. Look for support at $930.10, with resistance at $995.20 and $1,000.

The sharp decline this week in gold and silver may have been enough of a correction to clean out weak longs and allow for an attempt at the recent highs. At this point, December silver appears to be in a better position to attack those highs than December gold. Be aware of the possibility of heavy volatility, especially with the US/China trade meetings on Saturday, which may encourage some traders to exit ahead of the weekend. Look for resistance in December gold at $1,981.70 and $2,007.10. A break below $1,874.20 would put $1,842.60 as the next downside target. The next upside target in December silver could be $28.59, with support at $25.55 and $25.03.”


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