Commentary for Monday, May 4, 2015 ( www.golddealer.com) – Gold closed up $12.30 today on the Comex at $1186.80 and was good for a few bucks more in the aftermarket. The store also saw strong Asian interest today and the gold Exchange Traded Funds moved higher.
My Friday’s assessment of gold being oversold was correct as Monday’s gold market popped to the upside as short traders covered their paper positions. Gold was quiet overnight in both Hong Kong and London so this new short-covering rally began in early domestic trading. The Japanese market is closed today.
According to Reuters the Manufacturing ISM Report while still above 50 is trending lower suggesting a still sluggish economy. US Construction Spending was also disappointing, moving lower from a November high.
These numbers do not support the Federal Reserve’s more optimistic position and create further doubt about a possible rate hike this summer.
Most economists expect a small (perhaps a quarter point) rise in interest rates sometime this year and this has been a major obstacle for higher gold prices but we believe by the time this happens it will already have been factored into the price of gold.
Early this morning the Dollar Index sold off, reaching a low of 95.04 which might have helped support this short-covering rally, but it has since reversed itself and is now 95.35, about midpoint in its daily trading range.
Also note that some believe the stock market is overbought making recent all-time highs. Any sell-off at these levels will also support the price of gold. And recent economic data suggests China’s growth is slowing and the Bank of China will move to stimulate – this may also have encouraged gold traders this morning.
Silver closed up $0.30 at $16.41.
Platinum closed up $20.00 at $1150.00 and palladium was higher by $9.00 at $783.00.
So what’s in store for gold this week? I think the general consensus at least for now remains neutral to negative. You can get a few clues from gold’s 60 day price chart in that parameters are fairly consistent. We have seen a sell off from $1210.00 bouncing off the $1150.00 level and recovering into the $1180.00 through $1210.00 range.
The most recent FOMC incantations have been hawkish and some expect a small interest rate hike (0.025%) by summer. This will limit any upside in gold but will not be the big slam bang some are predicting as far as a break below current support lines at $1140.00.
So a negative as far as the FOMC is concerned and adding to uncertainty is dollar strength. The Dollar Index as we have pointed out trends around 80.00 over the past few years but this last year we have seen a big surge to the upside, topping around 100.00 but unable to break to the upside at least for now.
I think the dollar should weaken and support gold because a strong dollar is not in the best interest of the US or its manufacturing capability. US multinationals get murdered with a strong dollar and they hold great lobbying mojo so both our government and our industrial complex need and want a weak dollar. And like I said last week the technical picture for the Dollar Index looks like it wants to break down. But it could only be resting – so this trap has to be included in your thinking.
Obviously if the Dollar Index reverses and begins to move lower the chances are good that gold will hold its current Maginot Line ($1140.00). So in my mind dollar strength holds more sway than a small interest rate increase.
For clues look to any economic news this week which might indicate that the economy is doing just fine. Last Friday, for example the Institute of Supply Management (ISM) came in above 50.00 which would indicate manufacturing is growing. A reading of less than 50.00 might point to a slowing and so encourage the Federal Reserve not to raise interest rates.
The latest Reuters report suggests a directionless market – stocks being flat but vulnerable to a sell-off – suggesting that the job’s report coming this Friday may disappoint.
This would support the notion that a Federal Reserve move to raise interest rates may still be on hold. And the latest sell-off in gold may be overdone. This kind of weak price action and then recovery has been typical of late.
The broader picture however is that the US economy is improving but not yet what everyone expected especially after the huge amount of money the government threw at the problem.
And to get into the efficacy of such fiat money production does the average person no good at determining which way the price of gold might head on the short term. So let’s postulate that things are getting better and this also clouds the picture for gold on the short term.
So in the short term expect more of the same for gold – flat to lower prices but pretty much range-bound and the continued testing of the $1140.00 support.
If you are looking for something a little more positive consider the latest from Kira Brecht (Kitco) – She quotes the long standing stock admonition “Sell in May and Go Away” meaning that those holding stocks generally expect lower prices in the month of May. This supposed sell-off in stocks might support the physical gold market.
But like everything else relating to gold these days perhaps a better expectation centers around the word “volatility”. With so many possible outcomes relative to price direction one thing is for sure – expect volatility and you can’t possibly go wrong.
Finally keep your eye on gold’s 50 day Moving Average ($1191.00) – today’s close ($1186.80) is moving in the right direction meaning if gold closes at or above important average, it is a good sign this downward momentum is subsiding. For now however the bears are still in charge and we are looking at a great deal of overhead resistance around $1200.00.
The walk-in cash trade and phones were active in early trading but lost some steam in the afternoon. Still the volume numbers were solid scoring a 6 on the Activity Scale.
The GoldDealer.com Unscientific Activity Scale is a “ 6” for Monday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Tuesday – 5) (last Wednesday – 4) (last Thursday – 4) (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 generally increasing – it would indicate things are busier – decreasing numbers over a longer period would indicate volume is moving lower.
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