Gold Consolidating As Stocks Soar

July 12th, 2016 by

Gold prices are seeing further downside this morning, as a risk-on attitude continues in global markets. Japanese Prime Minister Abe has promised a stimulus tsunami to snap the economy out of 20 years of stagnation. On the other side of the world, Theresa May is set to become Prime Minister of the United Kingdom tomorrow, as current PM David Cameron resigns.

To complete the trifecta, last Friday’s spectacular non-farm payrolls report is still adding fuel to risk-on sentiment.

Today’s technical numbers for gold show support at $1,340 and $1,335. Resistance sits at $1,350 and $1,354.

Gold futures were down for the third day of trading Monday, while silver futures rose. August futures dropped $1.80 to settle at $1,356.60 an ounce, and September silver futures gained a big 20 cents to close back above $20 an ounce, at $20.30. This is the highest close for silver futures since August 2014.

Reports indicated that gold ETFs took in almost nine tons of gold just on Friday last week, in spite of the much-stronger than expected non-farm payrolls report.

On the subject of precious metal futures, net speculative longs in gold on the COMEX rose to an all-time high, gaining 4.5% for the week ending July 5. Net gold longs have risen 67% in five weeks. Gross longs on gold futures have risen 85% during the same time period. Silver longs are also at record highs.

Spot gold closed Monday at $1,354.60, for a loss of $10.80. Spot silver grabbed a penny to close at $20.26.

By ukhomeoffice [CC BY 2.0 ], via Wikimedia Commons

Investors poured back into equities yesterday, as the post-Brexit beatdown faded. Markets in Europe, as well as the pound sterling, are rallying over the end of uncertainty in British leadership. This rebound is curious, since the economic pitfalls of Brexit are still front and center.

May, who campaigned on the “Remain” side of the Brexit referendum, has repeatedly pledged to carry out the will of the people. Commenting on the subject, she said “Brexit means Brexit… No attempts to remain inside the EU, no attempts to rejoin it through the back door, no second referendum.” Parliament refused to take up the subject of a second referendum, put forward by a petition that was signed by over 4 million people.

Investors’ eyes have now turned to the Bank of England, which is expected to cut interest rates at its Thursday policy meeting to counteract the economic shocks already hitting the UK due to Brexit.

japanThe yen tumbled as news that former Federal Reserve Chairman Ben Bernanke met with Japanese Prime Minister Shinzo Abe to advise him on how better to run the nation’s stimulus programs. Bank of Japan chief Kuroda will have something that Bernanke never had during his tenure: a government willing to match fiscal stimulus to the central bank’s monetary stimulus.

In the US, the S&P 500 finally reached a new record high Monday by 6-1/2 points, after trying for more than a year. The Dow Jones Industrial Average had its best close in 13 months, while the Nasdaq also gained.

Goldman Sach analysts noted Monday that the fact that bonds and gold have been rising at the same time as stocks is a sign that low bond yields are forcing retirement funds and other defensive investors into stocks.

Speaking of bonds, Treasury yields jumped yesterday for the largest single-day rise in almost two months. The flight into equities and the Treasury Department’s upcoming auctions of $56 billion in new debt has yields rising from record lows.

oil glutOil futures are still being crushed between the anvil of oversupply and the hammer of falling demand. WTI and Brent contracts both ended at 2-month lows, as OPEC output was reported to hit highs last seen in August 2008. Total OPEC output for June rose by 300,000 barrels a day, despite disruptions to Canadian, Libyan, and Nigerian operations.

Oil lost more than 7% for the week last week, and lost more than 1% extra on Monday.

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product