Gold Weaker – Perhaps an ADP Reflection
Commentary for Wednesday August 31, 2016 (www.golddealer.com) Gold closed down $5.10 at $1306.90 on the Comex today. This is the lowest close gold has seen since the Brexit vote just over 2 months ago and is probably related to the just released ADP job numbers. Companies added 177,000 positions this month which is just above the Wall Street expectations of 175,000. The number however is just a precursor to Friday’s government employment figures for August. The official Friday release will make the case (either positive or negative) for a coming interest rate hike perhaps in September.
Whether you are bullish or bearish at this stage of the developing gold market most can agree on a few things – the summer time is a traditionally slow period – today’s pricing chart creates no buzz – the American public seems distracted and real physical dealers are back to complaining.
Everyone is worn out and confused about the interest rate fiasco and there is a decided lack of fresh news which might push gold one way or the other. Gone is the excitement created last May as gold moved from $1200.00 to $1360.00 and everyone was looking for a test of $1400.00.
The technical picture is not bad – it is just not that interesting. The latest bullish leg decided to move sideways ($1320.00 – $1360.00) since late June and computer programs pondered whether this was a resting period or was gold tired and safe-haven demand going south? As far as a test of support the 100 Day Moving Average for gold is important ($1297.00) – as long as the market holds above this level we remain range-bound.
While all of this was percolating the Federal Reserve decided to become hawkish on short-term interest rates and that was the coup de grâce – some traders concluded that higher interest rates would guarantee lower gold prices.
But I wonder – and think this conclusion is again premature. Market Slant (Soron K.) brings up a couple of interesting points – Did you know you can’t buy a safe in Germany according to one of his sources? This is one of those goofy observations that can be important but never make the main stream press. The obvious answer to the German dilemma is that they are buying safes willy-nilly because they are worried about something. And he rightly points out that gold’s 100 day moving average ($1297.00) is the key to short-term direction. A close below this number will technically be called a break-down and may portend a test of short term support.
And this from Chuck Butler (Everbank) is interesting – “Well, the first leg is about to drop on the dollar, according to James Rickards, who believes the first leg of the drop in the dollar will come from the G-20 meeting that takes place next week. There is a laundry list of items that the G-20 leaders will want to discuss at this meeting that will take place in Hangzhou, China. And a way to prevent competitive currency devaluation is high on the list of things to talk about, along with discussing ways to improve Global economic growth. And then there’s the little discussion that James Rickards thinks is going to come from this meeting and that China’s announcement that they are no longer going to use the dollar in its basket of currencies it uses to price the renminbi. If they drop that grenade from left field at the G-20 meeting, the dollar would seem to get pummeled, but then these days, who knows?”
Using the dollar as a safe haven is trendy these days – because it works. But under normal fiat currency generation the more fiat the more weakness in the paper – that was how it used to work. And there are plenty of people who still believe that the dollar’s big run is coming to an end.
Actually it would not have blow-up to create a big jump in the price of gold. If you look at the Dollar Index over the past 3 years you will find that it was actually very comfortable at 80.00 in 2013 and 2014 – the big push to higher ground (90.00 +) began in 2015 and continues today (95.99). But this trend which makes gold a heavy trade could easily reverse itself. A reading of 80.00 on the Dollar Index might push the price of gold to new highs as the psychology of the mighty buck reverses itself and people look to get out of paper currency. Actually was this to happen I think most traders would not panic – they would just refocus and claim this was the obvious result of government monetary abuse – someone finally had to pay the piper.
Silver closed up $0.04 at $18.71.
Platinum closed down $3.10 at $1053.50 and palladium closed down $8.25 at $669.95.
This is our usual ETF information – Gold Exchange Traded Funds: Total as of (8-24-16) was 67,995,940. That number this week (8-31-16) was 68,054,567 ounces so over the last week we gained 58,627 ounces of gold. The all-time record high for all gold ETF’s was 85,112,855 ounces in 2013. The record high for Gold ETF’s in 2016 was 68,128,923 and the record low for 2016 was 47,568,082.
All Silver Exchange Traded Funds: Total as of (8-24-16) was 661,778,406. That number this week (8-31-16) was 660,958,210 ounces so over the last week we dropped 820,196 ounces of silver.
All Platinum Exchange Traded Funds: Total as of (8-24-16) was 2,237,676. That number this week (8-31-16) was 2,237,885 ounces so over the last week we gained 209 ounces of platinum.
All Palladium Exchange Traded Funds: Total as of (8-24-16) was 2,112,835. That number this week (8-31-16) was 2,097,519 ounces so over the last week we dropped 15,316 ounces of palladium.
The walk-in cash business and phones remain on the quiet side – summer days. And we are approaching the big Labor Day Weekend – GoldDealer.com will be closed this coming Monday.
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 – 4) (Monday – 4) (Tuesday – 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 generally increasing – it would indicate things are busier – decreasing numbers over a longer period would indicate volume is moving lower.
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