Commentary for Monday, August 27, 2018 (www.golddealer.com)
By Ken Edwards and Richard Schwary of California Numismatic Investments Inc ……
Gold closed up $2.70 at $1209.00 – not a big deal but a kind of “heads up” in that gold continues to hold above $1200.00. Obviously the dollar is in play here – the Dollar Index has been moving sideways between 95.0 and 95.5 for a week and today this channel broke down moving as low as 94.50 most likely because NAFTA talks between the US and Mexico are hopeful.
In a small way this may soften somewhat the “bigger” and more threatening larger picture, between China and the US. It is these larger tariff issues, along with a softer dollar which has supported the price of gold above $1200.00 these past few days.
Today’s price action also had some “buy the dip” feel to it which holds some sway for two reason’s – first the trade will most likely call gold’s close at $1175.00 this month a short term bottom. In other words the $1150.00 line in the sand going back for 2 years is still in place which might change the current bearish dialogue.
No one at this point can say if this latest interest in gold is a “turnaround” point or some interesting bargain hunting. The physical market seems to like the “bounce” in that both our phones and across the counter were busy – sometimes “hot”.
The paper price move higher today could be traders poking around in the dark or a short-covering rally destined to fade as the FOMC raises interest rates.
There is however an important “feel” on display here – gold is no longer being clobbered over the head and forced to stand in the corner. Reuters today claimed that US trade sanctions against Turkey could destabilize the region and push the lira even lower – this did not get any press but it could be a big deal. Traders have completely ignored the geo-political arena and obsessed over higher interest rates – perhaps this dynamic is coming back to a more traditional balance.
Finally consider an old argument – stocks have had a solid run based on high Trump expectations and cheap money. So is the New Wall Street running out of gas?
If things get dicey on the tariff front it will introduce a new inflation scenario and gold as an asset class will once again be out of the dog house. At the beginning of this year some writers were actually pretty bullish on gold’s chances in 2018. Strong FOMC interest rate talk and no push-back on the geopolitical front turned this scenario into a cold shower. As the traditionally slower summer months draw to an end and cheaper prices attract more attention we might see gold finish this year with a nice wake-up call.
We will be closed this coming Monday (September 3rd) for Labor Day. The original idea was posed by a labor union leader in 1882 and was intended to celebrate the achievements of American workers. They are still achieving but I think most would give up the holiday for a bigger piece of the corporate profit picture – to rephrase an old Norm Chomsky thought.
This from Zaner (Chicago) – “In retrospect, the recovery off the August lows would seem to be largely the result of classic technical short covering. However, it is also possible that some of the buying was fresh speculative buying off what could be the beginning of a rotational benefit. In other words, unending trade battles, persistent strength in energy prices at moderately high levels, the prospect of rising rates as well as creeping concerns of a vulnerable overvalued/old equity market might be prompting investors and traders to look to alternatives. In fact some investors with big profits might be set to implement “hedges” against large bond and stock holdings. In a negative development Hong Kong July net gold exports to mainland China were almost half the level seen in June and that negates prior news of positive global gold inflows to Hong Kong. While the press has pointed to rising open interest from the late July low and that open interest level was the lowest since December 12th, the rotation argument would seem to hold some water. As we have indicated already, we think the tariff spiral also creates the potential for the beginning of inflation, as the world’s largest commodity consumer (China) is choosing to purchase critical inputs to their economy at higher levels than necessary to avoid US supplies! We also suggest that significant tariffs across a wide range of goods and services promotes price increases throughout the marketing chain and ultimately to the final consumer. The classic definition of inflation is money chasing money or self-propagating price increases. However, it is probably premature to expect inflation unless it becomes clear that tariff waves/protectionism is going to entrenched long term and become even more severe. On the other hand, the gold market as of August 21st was net spec and fund short and that reading was gathered roughly $37 above the August low, which probably means the net spec and fund short at times was significantly higher last week! It should also be noted that gold violated a significant 2018 downtrend channel resistance line which might turn technical traders bullish. The Commitments of Traders Futures and Options report as of August 21st for Gold showed Non-Commercial and Non-reportable combined traders held a net short position of 12,709 contracts. The silver market is close to being “liquidated” given the decline of 4,941 contracts in the net spec and fund long position in one week especially since the market into the low last week from the report showed an additional decline of $0.25! The Commitments of Traders Futures and Options report as of August 21st for Silver showed Non-Commercial and Non-reportable combined traders held a net long position of only 8,967 contracts. This represents a decrease of 4,941 contracts in the net long position held by these traders.
Like the gold market, the PGM complex markets have become largely “liquidated” with the platinum market actually registering short records in several speculative categories this week. Furthermore, the platinum market into the low last week saw an additional decline from the COT report mark off of $19 which suggests the market might be holding yet another larger record short. The Commitments of Traders Futures and Options report as of August 21st for Platinum showed Non-Commercial and Non-reportable combined traders held a net short position of 3,941 contracts. Given the sharp rise in platinum open interest and the decline in palladium open interest, it would appear as if speculative buyers are utilizing long palladium/short platinum as an “end of trade war” speculation, or because they expect palladium to hold up better than platinum on a more significant economic implosion. While the September palladium contract might climb back above the psychological $950 level (because of the minimal spec and fund long positioning leaves buying capacity in reserve) speculating on the end of the trade conflict would seem to very risky given the recent impressive rally. The Commitments of Traders Futures and Options report as of August 21st for Palladium showed Non-Commercial and Non-reportable combined traders held a net long position of only 334 contracts.”
Silver closed up $0.06 at $14.84.
Platinum closed up $14.80 at $801.20 and palladium closed up $13.30 at $956.90.
The GoldDealer.com Unscientific Activity Scale is a “4” for Monday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Tuesday – 3) (last Wednesday – 4) (last Thursday – 3) (last Friday – 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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