Gold Closes Choppy but Remains Interesting

Gold Closes Choppy but Remains Interesting

Commentary for Tuesday, Feb 2, 2016 ( – Gold closed down $0.10 at $1127.30. An interesting trading day even though the close was lackluster – gold did pitch higher and at one time threatened the $1131.00 level – twice – lows of the day were $1123.00. So we are experiencing at least a choppy (trader’s market) which has overhead resistance. Also keep in mind we are above the 50 and 100 DMA and we closed just below the 200 DMA ($1131.00).

Lower crude oil hurts this gold equation and today crude traded from $31.50 through $29.85 – so what – you may say – this range is typical. And you would be right but there is something else going on here and that is mainly psychological. Everyone wants oil weakness to go away – world paper markets, Wall Street and the European Union. It’s really terrible for business – that’s why when prices stabilize everyone says “whoosh – I’m glad that over”. Well it does not look like it will be over soon and this remains a drag on gold.

A push to the downside in oil created another route on Wall Street as the DOW sank 300 points and gold ETF positions have moved higher mainly on the “crisis theory”. But like I have been saying for two weeks the real physical across the counter action remains muted so there is certainly some world safe-haven buying going on and the ETF numbers are moving higher but gold must perform above the $1160.00 through $1180.00 range before anyone will really care.

If oil does stabilize in the $30.00 a barrel range – the world stock markets will stabilize and we are back to watching for the next rate hike. The better informed claim is that the big day will come in September – that is a long way away in today’s quantitative easing market.

And such a long reach will support the price of gold along the way. Still with all the free money floating around the world it’s hard to believe we will not continue to develop the notion that gold is now fairly priced and represents “value” relative to fiat paper or even stocks in corporations which do pay dividends but may be overvalued.

I think 2016 will turn out to be another waiting game for gold but this time around the sentiment is defiantly improving in gold’s favor. The general public began to throw in the towel around January of 2013 when gold failed to hold $1600.00 and that feeling has been a steady “negative” for the gold bullion business ever since – perhaps we are all ready to throw that notion overboard as perhaps subdued optimism creeps into the trading picture.

Silver closed down $0.06 at $14.27 in another day of quiet trading.

While silver bullion remains cheap it’s difficult to get excited for three reasons – first the public seems to need more and more incentive to step up even though this market is trading at a substantial discount to hold highs. Second, even though the world mints are producing and selling record numbers of new silver bullion products there is a disconnect in the usual “buzz” – when was the last time you heard anything spectacular about buying silver bullion? And finally silver’s moving averages are discouraging – the 50 DMA ($14.09) the 100 DMA ($14.62) and the 200 DMA ($15.13). We are closing above the 50 DMA but the 100 and 200 DMA look like a stretch. Stay tuned however – this market is either “on” or “off” – there does not seem to be much in the middle these days.

Platinum closed down $14.00 at $854.00 and palladium closed down $8.00 at $493.00. Platinum is trading for $273.00 less than gold. There is much less physical platinum available than gold and virtually no large stores of platinum to threaten the market.

The moving averages in platinum might also be worth looking at if you are waiting for lower prices. The 50 DMA ($856.00) – the 100 DMA ($903.00) and the 200 DMA ($980.00) we have dipped below the 50 – the 100 and 200 DMA also present problems. The flip side of the coin may be that we are at the low end of the longer turn trading range and a value play has already developed considering the firmness in gold – so look for a quick turnaround especially if the world financial machine responds to continued quantitative easing programs.

This from Keris Alison (the Street) – Stocks Fight Back Against Crude's Dead Weight – Crude oil started February with another selloff, but this time, the stock market didn't follow suit. At least, not altogether

While crude's 6% slide dragged down energy stocks, mild gains elsewhere helped ease the impact. The S&P 500 slipped 0.04%, rebounding from a steep decline earlier in the day, the Dow Jones Industrial Average fell 0.1%, and the Nasdaq gained 0.14%.

The day's performance buoyed investors' hopes after the worst January since the financial crisis.

"With the technical backdrop improving after the mid-January plunge, bulls should welcome what we are seeing with respect to sentiment among equity-only option buyers," said Todd Salamone, a senior vice president at Schaeffer's Investment Research. "The panic selling of mid-January is over, signaling a change in sentiment from extreme fear that could be supportive of stocks in the weeks ahead."

Though the S&P 500 may have found its bottom around 1,800, that doesn't necessarily signal a big rebound. The S&P 500 is currently trading at 1,939 and it could stay range-bound for the remainder of the year.

"At most, we could justify 10% above [our value floor of 1,850] over the course of the year," Phil Davis, trader and founder of PSW Investments, told TheStreet. "That's assuming China doesn't blow up, Japan doesn't implode, the U.K. stays in the euro. There are a lot of little factors that could tilt things badly."

Weaker data from China exacerbated worries over demand for crude oil on Monday. China's factory activity fell to a three-year low, dropping further into contraction territory for its sixth straight month. West Texas Intermediate crude oil fell 6% to $31.62 a barrel. Prices have fallen 16% since the beginning of the year.

Disappointing U.S. construction spending in December pointed to even weaker economic growth in the fourth quarter. Spending in the U.S. rose 0.1% to $1.17 trillion at the end of last year, one-sixth the pace economists had expected.

The disappointing read pulls likely fourth-quarter GDP growth to just 0.5%, according to BNP Paribas analysts. The Bureau of Economic Analysis had pegged fourth-quarter GDP growth at 0.7% in its first estimate, released last week.

Manufacturing in the U.S. continued to contract for a fourth straight month, with the ISM Manufacturing Index reaching 48.2 in January, compared with an expected increase to 48.3. Any level below 50 is considered contraction, while a reading higher than that signals expansion.

Meanwhile, consumer spending was flat in December even as personal income rose. Consumers have benefited from lower gas prices in the past few months, a boon that economists had hoped would fuel increased consumer spending.

The report is "an indication that U.S. households are rebuilding a formidable precautionary savings war chest that could cushion spending in the event of a downturn," explained Millan Mulraine, deputy chief U.S. macro strategist at TD Securities. "Households are continuing to stock away their labor and energy windfall income, which should provide a favorable platform for sustaining personal spending in the event of a downturn."

The walk-in cash business was on the slow side and so were the phones – believe it or not the public does not seem too interested that gold has moved up by about $70.00 in the last month. Their losses in stocks may be getting all the attention and problems in China have always been a disconnect in the states.

The Unscientific Activity Scale is a “ 3” for Tuesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Wednesday – 3) (last Thursday – 4) (last Friday – 4) (Monday – 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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