The Gold Bulls Have an Edge But Momentum is Set to Wane

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OUTSIDE MARKET DEVELOPMENTS: Global equity markets were mixed overnight. The Asian session was relatively quiet, while the European session saw ongoing reaction to ECB comments yesterday regarding the prospect of raising rates. The North American session will start out with a January reading on Canadian manufacturing sales, followed by February industrial production which is forecast to see moderate improvement from January and climb into positive territory. The Conference Board’s February reading on leading indicators is expected to slightly downtick from January’s +0.6% rate. A major private survey on March consumer sentiment is forecast to have a moderate increase from February’s 95.7 reading. Earnings announcements will include Tiffany and Co. before the Wall Street opening.

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GOLD / SILVER: All things considered the gold and silver markets have performed stellar in the wake of this week’s Fed move. Even more surprising is the markets capacity to discount hints of four interest rate hikes this year. However it is once again clear that the action in the US dollar is the primary driving force for metals prices. The precious metals markets also discounted news of a rate hike by the People’s Bank of China in a move that was designed to temper outflows of capital and or support the Chinese currency. However with the gold contract from this week’s low to the high posting a rally of $37 an ounce and the market regaining the $1225 level the risk to fresh longs is on the rise. On the other hand with the June dollar index falling below the parity level overnight it is possible that gold and silver will be able to carve out modest stepwise gains in the early going today. However prospects of an improvement in Industrial Production later this morning might lift the Dollar but that action should be quickly offset by the US conference Board’s leading indicators which are expected to show a slight contraction as that could leave the Dollar trade confused. However March consumer sentiment to be released later this morning is expected to post an improvement and that could save the dollar from finishing the week under pressure. With the April goal contract yesterday falling back to and then rejecting its 50 day moving average it would appear that positive chart signals remain in place to start today. The world’s largest gold ETF saw their holdings decline by 2.37 tonnes on Thursday for its first daily decline since last Friday as their holdings remain nearly 12 tonnes higher on the week.

PLATINUM: While platinum and palladium come into the final trading session of the week well above their recent lows, their recent price action may not give much comfort to the bulls especially with platinum yesterday failing to hold the brunt of its rally. Both PGM metals still ended up with sizable gains this week but they left the session yesterday in a fashion that suggests some form of technical reversal. Reports that an Indian investor has bought more than $2.5 billion in Anglo-American shares may be a positive sign for the PGM sector’s demand outlook. As with the precious metals, however, continued weakness in the Dollar may provide the strongest source of near-term support going into the weekend.

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