Commentary for Wednesday, January 31, 2018 (www.golddealer.com)
By Ken Edwards and Richard Schwary of California Numismatic Investments Inc ……
Gold closed up $3.60 today at $1,339.00 – not bad – we did sell off a bit on the close after reaching above $1,344.00 on the day but this was probably the result of “nothing new” in the most recent FOMC minutes. Gold was firm today because the dollar is still left-footed – the bigger question being – why is the Dollar Index moving lower? It moved down from 89.23 in early trading reaching a low of 88.91 before catching traction. This may be the result of Janet Yellen exiting the FOMC and the governors having mixed feelings about higher interest rates. Some of these folks are hesitant – a few think the economy is heating up and 3 or 4 hikes are in order.
So what gives with a weaker dollar? Actually it may be just a shifting attitude regarding the new chief Jerome Powell – appointed by Trump and sold as a carbon copy of Yellen. If that were true the dollar would still be holding steady around 92.00. It remains to be seen what tract Powell will take – my feeling is that “steady” as she goes makes sense.
Traders however might sense a real change in the wind – perhaps Powell (remember the Trump connection) turns into a dove. This keeps the cheap money spouts wide open – the dollar will continue to fade and gold will continue to benefit.
The dollar has to also compete with the European Central Bank and others in the currency game. It’s clear the US is growing economically – this factor is already factored into the DOW but what is good for the goose is good for the gander as my Mom was fond of saying.
The Europeans are enjoying better productivity and world stock markets offer something the DOW does not – they are cheaper and they might offer unrealized growth potential.
So this weird dynamic – a semi-aggressive FOMC pushes the dollar lower. The euro is growing in strength and traders suspect Powell will not push interest rates higher. Also add a point I’ve made before – the Dollar Index is abnormally high – has been since early 2014.
From 2008 through the end of 2013 a more realistic number was something around 80.00. We have been jamming now for 4 years and this weaker dollar is simply the result of cyclical dynamics.
Whichever the case expect gold pricing to remain firm as long as the dollar continues to find a level which is compatible with domestic politics and European economic growth.
So the metals edged higher today after 3 days of decline – pullbacks are healthy after the recent better than $120.00 upside move since Dec 12. Today’s modest gain places us about $23.00 away from new recent highs.
Trump’s State of the Union address pointed out recent accomplishments – more significant he indicated his desire to spending whopping amounts of money on military, infrastructure and the wall. Perhaps justified but nobody ever wants to talk about how to pay for all that development. This spending on top of the recent tax cut might challenge monetary stability and open the way for further gains in the price of gold.
This from Zaner (Chicago) – “While the dollar failed to show definitive action in the wake of the State of the Union address it has weakened overnight and has given the gold and silver trade a positive track to start the Wednesday morning trade. The March dollar index has managed a three day low early today but probably needs to fall below 88.56 in order to give gold and silver an additional lift. It is possible that BOJ comments dampening speculation of an early unwinding of their stimulus efforts is being seen as a positive to gold and other physical commodities this morning. While gold hasn’t definitively benefited from classic safe haven issues recently the President did rekindle the North Korean uncertainty again by warning of the nuclear missile threat. An issue that might hold gold back today is news that AngloGold output increased despite disappointing earnings. In another minor supply-side development Centamin reported that there gold production exceeded guidance for 2017. However we doubt the gold market will be impacted by the physical supply-side news items over the last 24 hours as the focus of the market will turn increasingly toward the Friday morning nonfarm payroll report but that focus will obviously be temporarily diverted early this afternoon for the FOMC meeting decision, statement and press conference. We doubt that gold and silver will react to weekly mortgage application data but a significant slide in Chicago PMI could be just the ticket to throw the dollar down to last week’s lows and boost gold back above the $1350 level again. However the report inspired weakness in the dollar could be cut short quickly by the US pending home sales reports which are expected to be up minimally. Total gold derivative holdings have continued to slide back from the recent high of 56.3 million ounces while silver derivative holdings have also continued to fall back from their mid-January peak that in turn was the highest stocks level since September 2017.”
Silver closed up $0.19 at $17.20.
Platinum closed up $3.90 at $1,001.30 and palladium closed down $28.90 at $1,027.50.
The GoldDealer.com Unscientific Activity Scale is a “3” for Wednesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 4) (last Friday – 3) (Monday – 4) (Tuesday – 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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