Gold Continues Higher on a Weaker Dollar

Gold Continues Higher on a Weaker Dollar

Commentary for Thursday Feb 4, 2016 ( – Gold closed up $11.00 at $1155.30 on the Comex today in what appears to be a momentum push to higher ground supported by a weaker dollar. The Dollar Index closed yesterday at 97.30 and traded between 96.26 and 97.47 today – we are now around 96.53. This is significant, in the past three days the dollar has lost almost 3% of its value.

Today’s trading range was consistent – we moved higher from the beginning of trading and pushed toward the $1160.00 range which is well above the big 200 DMA ($1131.00). But note the sell off at these lofty levels – this is a great trader’s market but long-term holders should be cautious there will be profit taking rounds on the way to the office.

So I guess I’m looking a gift horse in the mouth relative to gold these days, after all we are moving higher in a less than ideal financial environment. Virtually no inflation (still), higher interest rates and a stable US banking system. Jim Wycoff’s commentary yesterday mentioned there was a rumor that some European banks might be in trouble, which is interesting.

You can make a case that since the first of the year a potential real slowdown in China has created trouble for world markets and this downturn has given Wall Street the flu and created physical demand in the form of safe-haven buying.

Our ETF totals posted yesterday show a gain in the exchange traded funds this week of 709,859 ounces – that’s not exactly chicken feed. The all-time record ETF high was seen in 2013 at 85,112,855 ounces. And today that number looks more like 49,871,605 ounces so the public has been a seller for 3 years – the big question now is whether that trend is about to reverse itself.

On the other hand our domestic gold market has failed to develop any buzz and worse we have purchased several whale-like positions in gold bullion way north of a million dollars each. On the silver front we have seen little in the way of very large buyers and virtually no large sellers. This price updraft has generating interest – the public is asking more questions and the website hits have increased 15% but everyone is still kicking the tires.

A more interesting question might be – does our domestic physical market really matter? Actually it does not but it does provide a kind of surrogate function. It’s kind of like a plane, you don’t want to hear anything that does not look right – so when prices are moving higher (like now, we are at 3.5 month highs) I want to walk downstairs and see a line of people. The buying or selling mix is not important but without soldiers standing in line I wonder if the world markets are just caught up in another “up” round in a range-bound market – which will eventually move lower as the fundamentals play out.

A look at gold’s 6 month chart will put all this in perspective – for now the bulls are in control and we have put in a short-term bottom in the $1060.00 range – that’s good. We have moved steadily from $1060.00 into the $1120.00 / $1140.00 range and shown the ability to hold these figures – that’s also good. We are trading above the important and longer term $1120.00 number which we saw in August of 2015 – that is also good.

But we are now in the killer overhead range of between $1120.00 and $1180.00. This will require gold to rewrite the current playbook. Let’s be hopeful but not get carried away in the moment – it took gold years to unwind into the $1050.00 range and without a big game changer (inflation – banking crisis – fill in the blank) it will take some time to restore its ultimate safe-haven status to those who have abandoned ship for the fiat paper parade.

Silver closed up $0.11 at $14.83. Across the counter action continues to slow – there is still interest but no buzz.

Platinum closed up $25.00 at $904.00 and palladium was unchanged at $516.00.

This is our usual Thursday Chicago Mercantile Exchange report covering the last 5 trading days – so we are looking at the trading volume numbers for the “April” Gold contract: Thursday 1/28 (257,860) – Friday 1/29 (261,834) – Monday 2/01 (267,790) – Tuesday 2/02 (269,012) – Wednesday 2/03 (276,338).

We have introduced silver to our CME rundown – so we are looking at the trading volume numbers for the “April” Silver contract: Thursday 1/28 (107,193) – Friday 1/29 (107,319) – Monday 2/01 (104,561) – Tuesday 2/02 (102,251) – Wednesday 2/03 (105,519).

The walk-in cash business came to life today, for a short time. The phones were hit or miss most of the day but our Activity Scale (7) moved higher – this does not indicate increased traffic but does point to a rather large group of gold sellers.

The Unscientific Activity Scale is a “ 7” for Thursday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Friday – 4) (Monday – 3) (Tuesday – 3) (Wednesday – 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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