Commentary for Monday, June 2, 2014 – Gold closed down $1.90 at $1243.70 in subdued trading which was only slightly weaker in the overnight Hong Kong market and recovered in London and the domestic finish. Still down is down and this makes for the 6th day in a row gold has moved lower. This still feels like the short players may be tired and there has not been any fresh news which might attract trader’s attention.
Recently gold has been pressured by the successful withdrawal of Russian troops from the Ukrainian border and a successful Ukrainian election.
The dollar has also been stronger on expectations that the European Central Bank will yet again loosen monetary policy pushing the euro lower.
Today’s ISM Manufacturing Index (53.20) was a surprise drop relative to expectations (55.7) – still above the benchmark 50.0 level – so growth but still slugging it out. There is a school of thought here that the US will eventually end up in the same boat as Europe – slow growth and short jobs. And this could modify the plans the Federal Reserve has for tapering but I think this unlikely.
Jim Wyckoff (Kitco) is excellent in his technical analysis so here are his latest thoughts – Technically, August gold futures bears have the firm near-term technical advantage. A 10-week-old downtrend line is in place on the daily bar chart. However, the market is short-term oversold and due for at least an upside corrective bounce very soon. The gold bulls’ next upside near-term price breakout objective is to produce a close above solid technical resistance at $1,268.50. Bears’ next near-term downside breakout price objective is closing prices below solid technical support at $1,220.00. First resistance is seen at the overnight high of $1,251.00 and then at Friday’s high of $1,260.60. First support is seen at the overnight low of $1,241.10 and then at $1,235.00. July silver futures bears have the solid overall near-term technical advantage after prices Friday hit a contract low. Silver bulls’ next upside price breakout objective is closing prices above solid technical resistance at last week’s high of $19.50 an ounce. The next downside price breakout objective for the bears is closing prices below solid technical support at $18.00. First resistance is seen at $19.00 and then at $19.155. Next support is seen at the contract low of $18.615 and then at $18.50.
So is gold weak because stocks are strong? I think this is a big factor but not necessarily a long term worry. Stocks are strong not just because US companies are doing better but also because money in general is cheap and cheap money leads to stock acquisition by publicly traded companies. In other words a US company with plenty of cash reserves might decide to buy their own shares. This idea of cheap money also creates less obvious bubbles which might support gold in the longer term.
And the sluggishness of the European recovery might lead to a totalitarian class struggle according to the latest from Dr. Doom. I usually discount this kind of talk but read the article and it does make perfect sense when a working world is turned upside down with government oversight and intervention.
Or take the price of oil relative to the claim that the US is moving toward self-sufficiency with new technology. This is truer today than say 5 years ago but if you look at the 5 year crude price chart you will see that oil has slowly moved higher with virtually no reversal – from less than $75.00 per barrel to more than $100.00 per barrel with no apparent change in our inflationary outlook. How long can this last without paying the fiddler and in doing so supporting the price of gold?
The US Dollar Index has been relatively steady at around 80.00 from 2011 through 2014 which seems counterintuitive considering our quantitative easing program unless you feel there is no connection between the amount of money we print and the strength of the dollar. This situation must at some point come back to create trouble.
The walk-in cash trade today was on the slow side but the phones were active. Silver has dropped about $0.75 in the past 6 sessions so today’s close ($18.71) brings out the bargain hunters. I appreciate that trading commentary on silver has been negative lately but the paper price of silver and the physical market are many times out of sync. Any price in the mid to low $18.00 range will create instant action as far as the cash trade is concerned. Keep it there long and you will soon run into shortages.
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