Commentary for Tuesday, May 9, 2017 (www.golddealer.com)
By Ken Edwards and Richard Schwary of California Numismatic Investments Inc ……
Gold closed down $11.00 at $1,216.10 as momentum selling returns and the price of gold makes new recent lows. The domestic market broke down on the open and we did not catch much of a bid until we saw the $1,217.00 level. The negative trading mood is encouraged by a stronger dollar – obviously reacting to the upcoming rate hike. The Dollar Index firmed on Friday and trended higher both Monday and today – moving from 98.50 to 99.60.
At the same time crude oil remains vulnerable. Oil bounced off the $44.00 level Friday into the $46.00 range probably because the Saudis and the Russians claim production restraint will continue into 2018 but no one believes it – crude oil has been in a general price decline for five years ($80.00) – new production methods and competition place the price floor around $40.00. A weaker oil market encourages gold bears.
So a stronger dollar and cheaper oil continue to push the price of gold lower. Jim Wycoff (Kitco) writes about the latest UBS release – it sees growing physical demand in India and China supporting the price of gold at $1,200.00. Actually this has been my position for some time but with one caveat – the lack of physical demand across our counter has me worried. I’m surprised the public has not bought this most recent drop. I could also make the case that they have not sold it either. Which is not typical – normally we should see more selling here – but really there has not been much real action one way or the other.
So what’s going on? Well, first of all this sudden drop has caught everyone by surprise – even though most knew that the coming interest rate rise would not be good for gold. Yes – it won’t be good for gold but at the same time it will not be the end of the world.
What you are seeing is the shaking out process by which gold adjusts itself to the coming event. By the time the Fed raises interest rates this summer the downside will have played itself out.
Of course no one knows the exact pricing but technically there are two scenarios.
The first is the UBS position – gold will be supported by physical demand around $1,200.00.
The second scenario is that sentiment is so negative and the dollar so strong that this $1200.00 support which has been in place since the beginning of this year will not hold and gold will be vulnerable to old lows ($1,130.00) which we saw in December of 2016.
Don’t be too concerned with either scenario – in the longer term current prices will seem cheap as real price threats return to haunt all the fiat currencies.
If you are still reading you likely fall into one of two categories – an experienced player looking for a bargain or a newbie curious about what is going on with the price of gold. In either case the American buyer is still interested but patiently waiting.
Because we haven’t seen much in the way of selling I think the capitulation crowd has already left the theater and folks who bought at higher levels are on the sidelines. All of this might lead to the conclusion that the potential “selling pool” is getting much smaller.
For now a stronger dollar, weaker oil and the momentum trade is pushing the price of gold lower but keep in mind we are approaching what is generally recognized as a solid “bottom” meaning it won’t be too long before the “value” trade returns.
This from Zaner (Chicago) – “The world’s largest gold ETF saw their holdings fall by 1.19 tonnes on Monday and reached their lowest level since April 18th. An important development overnight was seen from a story highlighting a significant jump in Indian gold imports for March relative to year ago levels but the year ago figures were artificially low due to the Indian de-monetization scheme. Lastly news that the top 10 global gold producers posted a significant decline in output last year might be supportive especially since the reduction in output last year was partially the result of sustainable issues such as declining capital expenditures and investment outflows.”
Silver closed down $0.19 at $16.07. While cheaper gold prices have not created much of a stir – cheaper silver prices have brought back bargain hunters especially in Monster Boxes.
Platinum closed down $18.70 at $900.90 and palladium closed down $11.95 at $793.60.
The cash walk-in and phone trade was typical of yesterday – quiet.
The GoldDealer.com Unscientific Activity Scale is a “4” for Tuesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Wednesday – 3) (last Thursday – 4) (last Friday – 5) (Monday – 4).
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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