The trading week heads for the finish line and gold and silver continue to trade in a well-defined range as they react to the influences other markets exert. This morning’s headline of surprisingly weak U.S. economic data, as witnessed by a fall in retail sales and factory orders, has equity investors looking for the exit sign as the Dow Jones average is down over 400 points. With another sharp fall in the NASDAQ, it is now down over 10 percent in the first two weeks of January. The yield on the U.S. ten year bond, which was expected to rise on the back of Fed tightening, has done nothing but fall the past few weeks as the yield is struggling to hold above two percent. As expected, traders and investors alike are seeking “safe haven” as gold and silver have “come off the ropes” this morning and are up sharply in early U.S. trading as silver has once again broken above $14.00. Crude oil continues to weigh heavily as it has fallen below $30.00 with many commentators calling for the sharp decline to continue. Data released by the World Gold Council and Bank for International Settlements shows that Central Banks continued to be a net buyer of gold through the end of the year with China and Russia being the featured buyers. Make sure you have your seat belt on today, as I get ready to hit the send button silver has dropped sharply and is back at $13.95. Today could be a roller coaster ride for many of the markets.
This morning finds geopolitical events continue to dominate the headlines. Following on the heels of the losses in the Chinese stock market, tensions are at heightened levels in the middle east as Saudi Arabia and Iran have suspended diplomatic ties. This morning brings news that North Korea is claiming they have successfully tested a hydrogen bomb. The market reactions have been a global sell-off in equities while gold has benefited from those seeking a “safe haven”. While physical demand has been a bit disappointing to begin the new year, this morning’s news has propelled gold above resistance at $1,085.00 with additional gains likely to heat up our corner of the market. Silver continues to lag behind gold as witnessed by the gold / silver ratio which is moving towards 78.00. Platinum and especially palladium are taking it on the chin this morning as they follow crude oil which has fallen below $35.00 this morning and is down over three percent.
Recent U.S. economic data has been mixed with manufacturing and home sales missing economic forecasts while this morning’s ADP payroll report came in better than expected for December. Lastly, Fed Vice Chairman Fisher, in his first interview since the rate hike last month, indicated the FOMC is likely to raise rates four times this year. With all the uncertainty in the world, I would expect gold to continue benefiting from its safe haven appeal. If gold continues to probe higher, resistance can be expected at $1,111.50 which is the 100 day moving average. A continuation of USD strength and falling crude oil likely sends gold back towards $1,050.00.
Following the volatility associated with last week’s U.S. rate hike, precious metals participants are left to ponder what comes next. In the remaining two shortened trading weeks of 2015, it would appear that the combination of physical demand and speculative short positions being covered are likely to keep our market steady with gold trading between $1,050.00 and $1,085.00 as volume and liquidity decrease by the day. As we begin to focus on 2016, all eyes and the headline story will be how often does the Fed raise interest rates and what will the impact be on all global markets. Early speculation is that the FOMC will raise rates by 100 basis points in 2016. This will be accomplished by four quarterly hikes of 25 basis points. If this turns out to be true, gold and company could be on the defensive for much of the year. If on the other hand, the Fed hikes less than 4 times and especially if there is no hike in the first quarter, I would look for our market to record gains for the first time in a few years in 2016.
This will be the last full week of trading in 2015 and it will be highlighted by the FOMC interest rate decision that comes on Wednesday. While it appears the first U.S. interest rate hike in over 9 years is coming this week it is news that is likely priced into all markets. Therefore, it will be the tone of Chair Yellen’s comments (dovish or hawkish) that will dictate the reaction of all global markets. Given the FOMC’s focus on being data driven, I expect the comments to follow the rate decision to be dovish. The sharp decline in oil prices (no inflation) and signs of weak consumer spending as witnessed by last week’s retail sales figures will make it very difficult (in my opinion) for additional rate hikes to follow anytime soon.
In early trading today gold and silver are being pressured by yet another drop in crude oil prices along with a marginally stronger USD. Platinum and palladium are higher but off the day’s best levels as reported physical buying out of China may have caused a few of the “shorts” to cover positions and lock in profits. In the short term, look for gold support from the mid $1,060.00’s through the mid $1,050.00’s. A break below could see a run at $1,025.00. Resistance at the moment looks formidable above $1,080.00. Silver may be the catalyst for what gold does in the coming days. While it continues to “feel” vulnerable and a look at $13.25 appears to be in the cards, a move back up towards $14.40 on the back of physical demand and short covering would not be a shock.
Precious metals have fought their way off the ropes the past few days as it was beginning to feel like the knockout punch was coming. A less aggressive stimulus package put forth by the European Central Bank yesterday caused the Euro to rally over 3 percent versus the USD which in turn brought broad based buying to our market. This morning’s U.S. Non-Farm payroll report came in close to consensus estimates of 200,000 as the U.S. economy generated 211,000 new jobs in November. The unemployment rate held steady at 5.00 percent which remains a 7 ½ year low. This would appear to be the last bit of positive data the FOMC needed to see before raising rates later this month. The big question that will linger over all markets early in 2016 will be when will the second rate hike come and what will the impact be on all markets. The expected hike to come this month now appears to be “priced in”.
As we continue to see, investors of all sizes continue to be attracted to our market on the dips. U.S. Mint data shows they sold 97,000 ounces of gold in November which was a huge increase of 185 percent from Octobers results. Silver Eagle sales posted a strong gain in November as well with 2015 sales of silver Eagles setting a new record at 44.67 million ounces.
As I finish today’s commentary, gold is leading the charge higher as physical demand is robust and shorts are covering. We are now at the top of the resistance band and testing $1,085.00.
Precious metals prices were under pressure while the U.S. market was enjoying the Thanksgiving holiday as the USD continued to strengthen, having broken through the 1.06 level verse the Euro. On the back of this, gold moved lower and took a run at $1,050.00 on the way to recording a low of $1,053.00. Physical demand seems to have offset the selling pressure for the moment and this morning finds gold back above $1,060.00 while silver continues to trade above $14.00. As we enter the homestretch for 2015, gold and company continue to feel vulnerable. As the USD continues to strengthen, long term long positions continue to be liquidated as witnessed by recent CFTC and ETF data. In addition, speculative short sellers continue to pressure our market despite increased physical demand. On the downside, gold should find support from $1,050.00 through $1,025.00 but a break below this band could see gold prices beginning with a “9” in a hurry. On the upside, there are signs of base metals prices stabilizing as Chinese producers are cutting production, while there is talk that the government is looking to increase their strategic stockpile of aluminum and perhaps other metals. A year-end rally in base metals would certainly add support to our market. A break above stiff resistance in gold from $1,070.00 through $1,085.00 could see us re-visiting $1,125.00 through $1,140.00
As the U.S. market prepares for a four day holiday weekend, we continue to look for signs on where the market is headed in December and beyond. Supporting the market we have increased physical demand as buyers are attracted by the lower price points, especially on silver. In addition, we have investors looking for “safe haven” assets in the wake of terrorist actions and rising geo-political tension. On the flip side, we have an environment where U.S. interest rates are expected to begin a gradual rise next month and if the “hawks” on the FOMC have their way additional increases will take place in 2016. This will continue to strengthen the USD which will further pressure our market and most commodities. Regardless of the markets direction, I expect silver to outperform gold. Keep an eye on the gold silver ratio which has been hovering around 76 in recent days. In the short term, I am looking for a short covering rally to begin if we can get the market to trade above the 10 day averages in gold and silver which are at $1,077.25 and $14.21.
The U.S. Mint announced this week that 2015 one ounce gold Eagles are sold out and the last allocation for 2015 silver Eagles will take place on December 14. The U.S. Mint will not begin taking orders from the Authorized Purchasers for 2016 dated coins until January 11, 2016. This is likely to exert upward pressure on the premiums of the most popular bullion coins. I suggest you call our trading desk daily to make sure you have the current premium and shipping schedule as we approach the busy holiday season.
Despite an early rally attempt on Friday, gold and company closed on the defensive as the USD continued to strengthen throughout the day. Fueled by growing speculation of a hike in U.S. interest rates, we also have comments from European Central Bank President Draghi that they are ready to act quickly in an effort to further support their economy. This translates to a scenario where the USD continues to strengthen and thus the continued pressure on precious metals and most commodities. Central Bank decision time is rapidly approaching as the ECB meeting is scheduled for December 3 and the FOMC meeting takes place on December 15 and 16.
According to recent IMF data, central banks continue to aggressively buy gold on the dips which has been the pattern for the past 3 plus years. In October, The Russian Federation purchased over 18 metric tonnes, China purchased just under 15 metric tonnes and Kazakhstan added just under 3 tonnes. Perhaps the continued purchases and diversification by many of the world’s central banks are telling us all that physical precious metals belong in every large and small investment portfolio.
This morning finds our market under pressure but off the lows as crude oil trades below $40.00 and as concern mounts that rising global inventories can see crude drop another 10 percent. As volume and liquidity exit the market in front of the Thanksgiving day holiday in the U.S., we may be poised for a short covering rally in gold and silver but resistance will be stiff above $1,085.00 and $14.40.
Precious metals, with gold in the driver’s seat, had a brief rally Sunday night into early Monday morning as “safe haven” buying was not sustained. As trading on Monday progressed, gold and company gave back the gains as market participants gravitated to the USD, bond market and equities. By the close, gold and silver were back at $1083.00 and $14.25 as they continue to be drawn towards those levels.
This morning finds all four precious metals on the defensive in early trading and still feeling vulnerable to lower levels. With gold continuing to show strong resistance on any rally attempt, witness the post Paris tragedy high at $1,092.00, it is beginning to feel like a test of $1,055.00 – $1,050.00 is where we are heading. Silver which continues to trade above $14.00 on the back of increasing physical demand could see another wave of “short sellers” hit the market if $14.00 is breached. I would expect physical buyers to step up to the plate and look for $13.75 – $13.50 to hold which could lead to a short covering rally for both gold and silver.
Keep a close eye on crude oil this week as it may be the catalyst for the next move in our market. If crude holds $40.00 and moves back towards $45.00, it could bring a short covering rally to our market. A break below $40.00 in crude will likely empower the shorts to continue pressuring our market.
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Precious metals had a choppy day yesterday as the market kept reacting to hawkish and dovish comments by members of the FOMC. In the end prices remained close to unchanged at the closing bell. As the week draws to a close precious metals continue to feel the pressure of the strong USD as it appears increasingly likely that a rate hike is coming in December. All markets are now reacting to the looming rate hike and this is adding further pressure to our market. Crude oil like gold is being weighed down by the stronger USD and an increase in global inventory levels. This morning finds crude down another two percent and trading below $41.00 per barrel with many commentators calling for a drop into the mid $30.00’s. Add to this the huge fall in platinum, palladium and base metal prices this week and it is difficult to see gold and silver doing anything other than probing lower despite the uptick in demand we have all seen this week. As has been the case for the past few years buyers often wait on the sidelines and then enter the market on the dips. This trend continued in the third quarter of 2015 as the World Gold Council reported that global demand for gold rose by 8 percent when compared to the third quarter of 2014.