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The Path of Least Resistance for Gold Remains Down Today

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OUTSIDE MARKET DEVELOPMENTS: Global markets were able to regain a positive tone with the exceptions to that rule Chinese and Japanese markets. Chinese data released overnight included a government think tank forecast of 4th GDP growth at 6.6% which was just a touch lower than the official Chinese government prediction. It does appear as if the concern toward Deutsche Bank has moderated as the concern has raised some cash with a sale and it also seems as if the Bundesbank has promised to support the Bank in the event of short term capital issues. The European session brought out several weak to unchanged reports with Italian & German Consumer Confidence dipping slightly and French Consumer confidence coming in unchanged. The North American session will start out with August durable goods which are forecast to see a notable decline from July’s +4.4% reading and drop into negative territory. There will be plenty of Fed commentary for the market to digest, which will be highlighted by Fed Chair Yellen’s testimony in front of the House Financial Services committee. In addition, Minneapolis Fed President Kashkari and St. Louis Fed President Bullard will speak during morning US trading hours while Chicago Fed President Evans, Cleveland Fed President Mester and KC Fed President George will speak during afternoon trading hours.

gold-bars-595GOLD / SILVER: The gold market fell sharply on Tuesday and saw that noted weakness in the face of a single issue (Deutsche Bank fears) that should have sparked buying interest. In fact, given the size of Deutsche Bank and the possible knock-on impact to other financial entities in the event of a failure we would have expected a moderate amount of money to flow toward gold instead of away from gold. Perhaps the market was mostly focused on renewed strength in the Dollar which has continued overnight. However, the gold market has seen fresh chart damage again overnight with a lower low for the move and it also saw the world’s largest gold ETF holdings fall by 2.08 tonnes on Tuesday. However, the decline in gold holdings was the first decline since September 20th. Silver derivative holdings rose by 294,926 ounces on Tuesday afternoon. Reports overnight that gold production in Ghana in the first half of 2016 rose by nearly 39% from year ago levels is a fresh negative that should be embraced by the bear camp especially when one acknowledges that output to be nearly 2 million ounces. From a technical perspective, December gold carved out a fresh lower low overnight and therefore the charts clearly lean bearish again today. In the near term, we can’t argue against an extension of the downside thrust especially if the Dollar manages a further rise in today’s action.

PLATINUM: The PGM complex also saw fresh chart damage yesterday and that leaves the bear camp in control today. The PGM complex might be expected to see some minor spillover pressure from gold weakness today but that action is partially countervailed by upbeat long term PGM demand views from a mining expert overnight and from less fear of a mini-financial crisis spawned by Deutsche Bank. In a modestly positive development yesterday afternoon, the South African NUM has apparently started a strike at Impala, and that combined with SocGen raising its price targets for platinum and palladium on Tuesday it is possible that the PGM markets will be able to stand up to outside market liquidation pressures. On the other hand, the path of least resistance in the PGM space is pointing downward to start.

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