March ructions deter bullion banks from gold futures

photo of three poured gold bullion bars“Big bullion banks including HSBC have pulled back from trading gold futures after disruption in the market that flared up in the coronavirus crisis.”

USAGOLD note: An interesting look at what happened back in March when COVID-19 disrupted the flow of bullion in the gold market and affected settlement on the COMEX. Some bullion banks were caught short forcing them to take a major mark to market loss when premiums bolted higher. Delivery first notice day, by the way, was yesterday (5/28/2020), so we will see in time whether or not a similar event to March is in progress on the June contract.

 

Henry Sanderson/5-27-2020

David – http://markethive.com/david-ogden

The precious metals continue to climb to higher pricing

As the last trading day of the month comes to a conclusion, precious metals futures traded moderately to strongly higher on the day. Today’s gains were felt across the metals.

However, none of the other metals could keep up with the precious ore and today could be summed up by the lone ranger himself “Hi-Ho silver away!”. SI futures were running like a horse in the Kentucky derby and in addition to earlier gains this month, silver galloped over 20% higher for the month.

The gains in silver were superb with the precious white metal gaining 2.88%. The July futures contract closed at $18 48 ½ cents, after factoring in today’s gains of almost $0.52. Technical studies indicate that resistance first starts at $18.65 per ounce, with major resistance at $19.

Gold also had a very strong finish closing higher on the day, as well as higher on the month. Gold futures basis the most active August 2020 contract gained $14.70 (+0.85%) and is currently fixed at $1743 per ounce. Our technical studies indicate that the first level of resistance occurs at $1765, with major resistance at $1788 per ounce.

Palladium futures gained 1.73%, a total of $32.90 with August futures closing at $1934.50. Platinum gained $5 in trading today, with the most current July futures currently fixed at $873.10 per ounce.

Strength in the precious metals this month can be attributed to two factors. The first of which is the global pandemic which has resulted in economies worldwide contracting. This global contraction of GDP has resulted in central banks worldwide taking emergency measures to aggressively curtail the economic damage.

The Federal Reserve along with the U.S. Treasury Department have taken dramatic steps infusing approximately $6 trillion in aid relief packages to individuals, small businesses and corporations. The massive government stimulus was a major underlying reason that both global equities and precious metals moved higher this month.

The second factor contributing to this month’s dramatic rise in the precious metals is due to the increased tensions between the United States and China. This tension stems from the recent unrest in Hong Kong, and the response by the United States.

Yesterday U.S. Secretary of State, Mike Pompeo declared Hong Kong to be no longer autonomous from China. That was followed by today’s press conference President Trump held in the White House Rose Garden. During this conference President Trump announced that the United States is leaving the World Health

Organization, and will begin to revoke Hong Kong’s special status. He also said that the United States would move to sanction Chinese officials if they continue to smother Hong Kong.

The economic fallout will take years before economies globally return to their pre-pandemic levels. It is also highly likely that the tension between the United States and China will continue. As such these two factors could have a profound impact on precious metals pricing taking the entire complex higher.

 

By Gary Wagner

David – http://markethive.com/david-ogden

‘Rocks beat stocks’ gold is still on its way to $1,900 – Bloomberg Intelligence

 

The gold market has seen consistent selling pressure since hitting a 7.5 year high last week, but one analyst said that investors need to keep their eye on the bigger-long term picture.

Mike McGlone, senior commodity strategist at Bloomberg Intelligence, said that gold is just starting its bull rally and investors shouldn't get caught up in the short-term price action, "missing the forest for the trees."

McGlone described the latest price action in gold as "noise within the trend."

"The next really big step for gold is getting above $1,900; it's just a question of time," he said, "I don't see what it is going to take not to go higher and I can think of a dozen reasons for it to go higher."

With the Federal Reserve expected to maintain its extremely loose monetary policy and the global economy nowhere near the road to recovery after being disseminated by the COVID-19 pandemic, gold will remain in a long-term uptrend.

As to what will be the catalyst to drive gold prices to its next stage in its bull run, McGlone said he is looking at over-valued equity markets. McGlone's comments come as the S&P 500 pushed to its highest level since early March, closing Wednesday's session at 3036 points.

"The equity market, I view as delusional at these levels," he said. "I don't think equity prices are sustainable at these levels and that is the biggest debate on the planet, I think right now. The rock is beating stocks."

With more than 30 million people applying for employment in the U.S. even as lockdown measures around the country start to ease, McGlone said that a recovery won't mean business as usual.

"I don't think we're going to come back to the old days of spend what you can right away. We're going back to saving and preparing for the worst, which means more demand for things like gold and bonds," he said. "And there's no more yield in bonds."

As to the timing of his call for gold prices at $1,900, McGlone said that if equity markets see another sharp correction in the fall, then gold prices could be at his target by the end of the year or early 2021.

 

By Kitco News

David – http://markethive.com/david-ogden

How Would Gold Perform In a Second Stock Market Crash?

1929… the 1970s… 2000… 2008… and now 2020?

In the biggest stock bear markets over the past nine decades, there was an initial crash… followed by a big bounce… and then a more severe selloff, a “second leg down” if you will.

Could it happen again?

As Mark Twain said, “history doesn’t repeat itself but it often rhymes.”

And some of the world’s most successful hedge fund managers are convinced a second drop is coming…

• Billionaire David Tepper, considered one of the world’s most successful hedge fund managers, said last month that “stocks are the most overvalued I’ve seen in my career.”
• Stanley Druckenmiller, whose net worth is $4.7 billion, says “the risk-reward for equities is maybe as bad as I’ve seen it in my career.”
• So-called bond king Jeffrey Gundlach says, “I’m certainly in the camp that we are not out of the woods… I think a retest of the low is very plausible.” He said at the same time that he initiated a short position against the stock market.
• Billionaire Mark Cuban says “the stock market is overvalued… it’s almost impossible to predict where consumer and corporate demand is going to come from. And because of that, it’s hard to create a valuation for businesses.”

With trillions of stimulus flooding the market, I don’t know if we’re looking over the cliff at another crash in the stock market or not. Even Mike Maloney mentioned that stocks could just as easily melt up as they could melt down.

But if we do get another leg down, I wanted to know… what happens to gold in the “crash after the crash”?

Gold in Second-Leg Crashes

I examined the four biggest bear markets in US stocks, ones that included a bounce and then a “second” leg down, and measured gold’s performance during each of those second selloffs. I had an idea of what I might find, but even I was surprised at the results. If you own gold I think you will be, too…

 

1929 – 1933

The stock market crash of 1929 kicked off the Great Depression. After that initial selloff, stocks bounced over 20%, but then proceeded to fall an incredible 84.5% over the next two years.

As most of you know the gold price was fixed during this time, and President Roosevelt nationalized it in 1933 anyway. But investors could own gold stocks as a proxy. Gold equities saw huge buy volumes during the Great Depression.

Here’s how the largest gold producer in the US at the time, Homestake Mining, performed during the Dow’s second leg down.

Homestake Mining—what some investors bought since they couldn’t own gold—ROSE 87.5% during this period. You can see it went on to rise much further, but from the beginning of the Dow’s second leg down to its eventual bottom, this proxy for gold ownership soared.
 

1973 – 1975

The mid-1970s was an ugly period for stock investors. The S&P 500 fell 20% in the first seven months of 1973. It then bounced 10%, but reversed into a second decline that lasted a year and resulted in a 44.1% drop.

Here’s how gold did during that second leg down.

Gold ROSE 52.7% in that second leg down. It eventually eased off when stocks started to climb again, but during the dark days of the second crash, it once again soared.
 

2000 – 2002

In early 2000 the S&P 500 was toppy and choppy. It fell as much as 10% but then gained that and more back. But that second leg down got ugly, as the S&P fell 48.9% over the next two years.

Here’s how gold did during that second leg down.

The gold price ROSE 15.3%, while the S&P fell by almost half.

Keep in mind this was during the “tech wreck” when the Nasdaq fell 66%.

You could talk me into starting the “second” leg down later, and if so the S&P’s loss would’ve been lower, but the gain in gold would’ve been higher.

Either way, the message is the same: gold once again rose during the second leg down for the broad stock market.

2007 – 2009

We all remember the Great Financial Crisis that started in 2008. Stocks starting falling in late 2007, the S&P dropping 16% in five months. It bounced about 10%, then began a second leg down and fell 52.5% over the next 10 months.

Here’s how gold performed during that second ugly downdraft.

The gold price ROSE 5%. That’s not as much as the prior ones, but it logged a gain during the period when stocks lost over half their value.

So, what do we conclude from this?

Gold Has Risen in Major Second Down Legs

In the stock market’s four worst bear markets, ones that included a major second leg down, the gold price has risen every time. It may suffer in the initial crash that kick-starts a bear market, but in these worst cases the demand for gold—and the price—surged when stocks started a second leg down.

Is that what gold will do if stocks crash again today? History is on our side, but whatever is ahead it’s reassuring to know that gold doesn’t follow stocks, and instead does what it’s done for centuries: serve as a hedge, as a store of wealth, and as the strongest form of money mankind has ever had.

 

Jeff Clark, Senior Analyst, GoldSilver.com

David – http://markethive.com/david-ogden

Nations globally begin to re-open businesses and return to the new normal

It seems highly probable that North America, as well as globally that new cases of the virus will begin to diminish day by day, week by week. Globally the data suggests that the world has hit the peak of new cases of Covid – 19. To date there has been 5.17 million confirmed cases of individuals contracting the virus, deaths reported 1.99 million individuals that have recovered, and 336,000 souls that have died.

The sad truth is that this pandemic will most likely fester for the next couple of years, there is still much uncertainty as to whether or not we see increases as the world begins to reopen businesses, and restart their economies.

This could last until a coronavirus vaccine is developed. Currently the top infectious disease experts in the United States, including Dr Anthony Fauci, believe it is conceivable that a vaccine might be available as early as December.

That being said, it will be the economic fallout from the massive expenditures that will be the dominate component or thread that will define the economic fabric for decades.

The massive expenditures are being made on two fronts, first by the Federal Reserve’s quantitative easing endeavors, and secondly by the U.S. Treasury Department’s responsibility to fund the rescue package which was voted into law on March 27.

 

According to Reuters on May 12 the United States reported a record $738 billion budget deficit in April. The rescue package voted into law will required $2.3 trillion to implement. However, it quickly became apparent that more aid was needed and the estimate of the relief and rescue packages will total approximately $3 trillion.

According to an economic report published in MarketWatch, yesterday the Federal Reserve’s balance sheet has now swelled to the highest level in history, now at $7.09 trillion for the week ending on May 20.

Collectively these massive debts will have to be paid back at some point, and no matter how slowly or quickly they begin to paydown this debt, this process could last far beyond the pandemic and a global return to whatever the new normal will be.

One result that is highly probable from the economic damage caused by these expenditures is the devaluation of the dollar which would cause gold prices to spike dramatically over the next 5 to 10 years.

What – We are still in a Trade War with China?

On top of the current health crisis in pandemic, today news began to surface about heightened tensions between the United States and China. It seems as though market participants and traders are now refocusing on the trade war, resulting in an extremely bullish sentiment for the safe haven asset class, specifically gold.

Collectively the massive increase in expenditures the United States to aid in recovery, and the renewed tensions between the United States and China could ignite gold pricing over the next couple of years. Our technical studies indicate that we could see gold rise as high as $2000 by the end of this year, or by the second quarter of 2021.

 

By Gary Wagner

Contributing to kitco.com

David – http://markethive.com/david-ogden

Gold, silver pull back on some profit-taking, normal consolidation

Gold and silver prices are lower in midday U.S. dealings Thursday, on routine downside corrections following recent gains. Some profit-taking from the shorter-term futures traders was also featured today. A rebound in the U.S. dollar index today was also a negative daily element for the metals. Once again, it appears the two metals are tracking the U.S. stock indexes, which are lower at midday. June gold futures were last down $27.00 an ounce at $1,725.00. July Comex silver prices were last down $0.556 at $17.47 an ounce.

Attitudes overall are still generally upbeat late this week as governments continue to reopen businesses that had been shuttered for weeks. Some sporting events have been scheduled to resume in the coming weeks and there are rising hopes autumn sports can be played.

Also supporting more positive trader and investor sentiment is the surprising rally in crude oil prices that sees Nymex crude oil trading above $34.00 a barrel Thursday morning. The strong rally in the oil market has caught most oil market watchers by surprise, given significantly reduced demand and still-burdensome global supplies. Just a few weeks ago Nymex May crude oil futures traded as low as -$40 a barrel just before the contract expired.

Global economic data for May is starting to improve from the dire numbers seen in April. The IHS Markit composite purchasing managers index (PMI) for May in the Euro zone rose to 30.5 in May from 13.6 in April. A reading below 50.0 suggests contraction. The U.K.’s PMI for the same period came in at 28.9 from 13.8. Japan’s PMI for the same period was 27.4 versus 25.8. Australia’s composite May PMI was 36.4 versus 21.7 in April.

China has begun its most important political event of the year, the National People’s Congress, after a delay because of the Covid-19 pandemic. The meetings signal what the government is calling its victory over the outbreak that began late last year, and will outline key economic and social goals for the year. U.S.-China relations have soured the past several weeks, amid the pandemic that the U.S. is blaming on China. President Trump tweeted late Wednesday that China’s “disinformation and propaganda attack on the United States and Europe is a disgrace.” The U.S. Senate on Wednesday moved to ban Chinese companies from trading on U.S. stock exchanges.

The other important outside markets see the yield on the benchmark U.S. Treasury 10-year note is currently around 0.67%.

Technically, June gold futures saw no chart damage occur today. The bulls still have the solid overall near-term technical advantage. Gold bulls' next upside near-term price objective is to produce a close above solid technical resistance at the April high of $1,788.80. Bears' next near-term downside price objective is pushing prices below solid technical support at $1,666.20. First resistance is seen at $1,735.00 and then at today’s high of $1,751.70. First support is seen at today’s low of $1,715.30 and then at $1,700.00. Wyckoff's Market Rating: 7.5

July silver futures saw a corrective and profit-taking pullback after hitting a nearly three-month high Wednesday. The silver bulls still have the firm overall near-term technical advantage. Silver bulls’ next upside price objective is closing prices above solid technical resistance at the February high of $19.07 an ounce. The next downside price breakout objective for the bears is closing prices below solid support at $16.50. First resistance is seen at $18.00 and then at this week’s high of $18.165. Next support is seen at today’s low of $17.26 and then at $17.00. Wyckoff's Market Rating: 7.0.

July N.Y. copper closed down 295 points at 243.05 cents today. Prices closed nearer the session low today and on profit taking after hitting a two-month high early on today. The copper bulls have the overall near-term technical advantage. Prices are in a two-month-old uptrend on the daily bar chart. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at 255.00 cents. The next downside price objective for the bears is closing prices below solid technical support at 230.00 cents. First resistance is seen at today’s high of 246.80 cents and then at 250.00 cents. First support is seen at 240.00 cents and then at 237.50 cents. Wyckoff's Market Rating: 6.5.

 

By Jim Wyckoff
For Kitco News

 

David – http://markethive.com/david-ogden

Fed minutes reaffirms Powell's testimony which supports higher gold price

The hard truth remains, economic stimulus continues to be needed as both the Federal Reserve through their monetary policy, and the U.S. Treasury through fiscal policies has ballooned, and more stimulus will likely will be needed.

Today the minutes from the April FOMC meeting were released. They indicated that Federal Reserve members discussed being more transparent in regards to their future direction of interest rates. The Fed minutes coupled with yesterday’s testimony by Chairman Powell and Secretary of the Treasury Stephen Mnuchin continue to be highly supportive of gold prices.

The testimony along with the report by the Congressional Oversight Commission underscored the vast amount of monetary expenditures in response to the pandemic that has rocked the world on two fronts.

First is the effect on millions of individuals who have contracted the disease. According to BBC News the total number of cases of the Covid-19 virus currently stands at 4,891,785, and the death toll is currently at 324,496. The United States has reported that the total number of infected individuals now stands at 1,529,123, of which 91,992 souls lost their lives in the United States due to the pandemic.

The second effect is the economic repercussions because of the pandemic. At the onset of the pandemic it was reported more than 90% of the United States population was under mandatory lockdown. However, across the country, on a state-by-state basis, many states are now relaxing their stay-at-home orders, and our allowing certain businesses on a limited basis to begin to reopen.

Whether or not the move to relax the stay-at-home order or the reopening of businesses will ignite a second wave of new cases in the pandemic is unknown. However regardless of when this pandemic concludes, the economic repercussions have caused the world to face the worst recession since the Great Depression of the 1930s.

According to the International Monetary Fund the global economy will contract by at least 3% this year. According to the IMF’s chief economist, Gita Gopinath, “the crisis could knock $9 trillion (£7.2 trillion) off global GDP over the next two years.”

In other words, even after the pandemic has run its course the economic implications will continue to affect economies globally for years to come.

Gold has now gained value for six of the last seven trading days. With the exception of Monday’s strong decline, gold prices have shown gains since May 11th, when gold was trading at approximately $1700 per ounce. As of 4:05 PM EST gold futures basis the most active June contract is currently trading up $5.50, and fixed at $1751.10. That is approximately a $50 gain since May 11th.

 

By Gary Wagner
Contributing to kitco.com

David – http://markethive.com/david-ogden