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Gold Leading Precious Metals Prices Higher

Wednesday, April 19, 2017

Today's Spotlight Market

One potential way that some traders look for clues as to the strength of the global economy is to compare the performance of Gold versus some of the more industrial of the precious metals, such as Platinum. The theory here is that during times of strong global growth, the demand for industrial commodities such as platinum will rise, while a commodity such as Gold, which has taken on the reputation as a "safe haven" asset will see demand lag. Conversely, during times of uncertainty, the demand for Gold should rise versus that for industrial commodities. For the past 12 months we have seen the price of Gold trade above that of Platinum in a range from a 150.00 Gold premium on the downside to nearly a 350.00 Gold premium on the upside. As of this writing we are seeing Gold trade near the upper boundary of the previous 12-month price range trading at a 313.50 premium to Platinum. This does tend to suggest that there is some "fear" in the market as investors and traders are moving funds into Gold at the expense of Platinum.

Fundamentals

Market participants are taking action regarding their concerns for the potential of political turmoil in many parts of the globe buy moving some assets towards so called "safe havens" such as the Precious Metals complex and in particular into Gold. The lead month June Gold futures are trading near the 1300.00 price level for the first time since November with upcoming elections in France, saber rattling on the Korean Peninsula and most recently a call by British Prime Minister Theresa May for snap elections is lending support for Gold. In addition to political concerns, we are seeing weakness once again in the value of the U.S. Dollar against a basket of major currencies, with the Cash US Dollar Index (DXY) once again trading below 100.00 and at its lowest levels so far in the month of April. A weaker Dollar is generally viewed as bullish for commodities including Gold. In addition, U.S. interest rates on the long end of the curve continue to decline from recent highs which add another bullish factor that is helping to support Gold prices. With the 1300.00 price level appearing to be some significant psychological resistance, a successful test of this price level could propel prices up towards the next major chart resistance areas between 1350.00 and 1375.00 especially if trend following commodity funds add to existing long positions should prices close above the 1300.00 price level. A look at the most recent Commitment of Trader's report shows that nearly 16,000 new net-long positions in Gold were added by non-commercial traders, during the reporting period ending April 11. This brings the net-position of large speculators and funds to just over 177,131 contracts. Ironically, smaller traders were cutting back on their long positions in Gold during the same time frame so it appears that the smaller trader and investor is still not convinced that the recent Gold price rally is sustainable.

Technical Notes

Looking at the daily chart for June Gold futures we notice that prices have rallied over $170 per ounce since a major low was made back in December of last year just above the 1100.00 price level. Prices are now trading above both the 20 and 200-day moving averages (MA) and it appears that the short-term 20-day MA is preparing to cross above the long-term 200-day MA. This cross over should it occur would generally be viewed as a bullish technical signal, which could spur fresh buying by trend following systems traders. We should note that the 14-day RSI has moved into overbought territory with a current reading of 72.8. So if psychological resistance at 1300.00 holds in the near-term, we could see some long-liquidation selling occur as weak Gold bulls liquidate long positions on a failure of a breakout above 1300.00. While 1300.00 remains strong resistance for the June futures, we see chart support at the March 10 low of 1198.00.

Mike Zarembski, Senior Commodity Analyst