Gold and Silver weekly Update – w/e 7th June 2019

Gold rose $35 last week from $1305 to $1340 having hit a high of $1,347 and a low of $1,305.  In sterling terms gold finished the week at £1052 that’s up £19, and in Euros it closed at 1,182 Euros that’s up 14 Euro’s

Silver rose 44 cents from $14.58 to $15.02 having hit a high of $15.13  and a low of $14.58. In sterling terms, it closed at £11.79, that’s up 25 pence and in Euros it closed at 13.25 euros, that’s up 0.20 euros.

The Gold to Silver Ratio fell slightly from 89.5:1 to 89.2:1

The Dow Jones closed on Friday at 25,983 up 263 points on the day and up 1168 points on the week, and the NASDAQ closed at 7,742 up 126  points on the day and up 289 points on the week, and the S&P 500 closed at 2,873  up 29 points on the day and up 121 points on the week.

Brent Crude fell $1.20 from $64.49 to $63.29 and US Light Crude rose 49 cents from $53.50 to $53.99

The dollar index stands at 96.55 that’s down 1.2 on the week.

We ended last week’s video with the words:

“So next week we can see a continuing in the strengthening of gold and silver prices until the Mexico tariff situation is resolved. We must caution you, however. Once China and Mexico are resolved, and assuming we have seen a significant rise in gold and silver prices, do not be surprised to see their price fall back.”

Well this is exactly what happened with gold strengthening from the beginning and rising throughout the week, with the poor non-farm payroll figures guaranteeing the maintenance of its rise. An increase of only 75,000 new jobs for may against an expectation of 180,000 put downward pressure on US yields with the US 10 yr. yield hitting a new 2-year low at 2.05% and closed nearer 2.08%.

The jobs figures coupled with Jerome Powell’s comments earlier in the week is suggesting to analysts and traders that the US may be reducing interest rates sooner rather than later and therefore rates have fallen in anticipation and the dollar weakened, especially against the Euro thereby causing gold prices to rise and silver in sympathy.

Gold yesterday ended up at the highest level for a trading day’s close in 2019 and technical analysts are suggesting support at $1309 (the 10-day moving average) and resistance at $1365 which represent April 2018 highs. That said, Technicals suggest that gold is overbought and is due a short-term correction especially as the 10-day moving average crosses above the 50 day moving average and also the RSI Relative Strength Index reads 77 above the overbought level of 70.

Now before we move on to silver its worth mentioning that although the non-farm payroll figures were disappointing, nevertheless this still represents 104 straight months of gains plus the unemployment rate remained at a 50 year low of 3.6% and average hourly earnings year over year in May were up 3.1% – only 0.1% lower than expectations and the labour force participation rate was unchanged at 62.8%

What tended not to hit the headlines so much but is worthy of note is that March’s figures were revised lower from 189,000 to 153,000 and April was also revised lower from 263,000 to 224,000 representing a total reduction of some 75,000 jobs.

Now, this certainly surprised traders, in that, it is strong evidence to suggest that the economy is not only slowing down but could potentially be heading into a recession – though most admit that they are looking ahead up to 12 months.

Markets however are now pricing in a summer interest rate reduction, likely in July, followed by another cut in September or October followed by a third in early 2020. Our view is that this decision has not been made as yet and there is a danger that markets may run ahead of themselves.

Whilst the growth in jobs are declining, they are still growing, and it was announced late Friday that the planned Mexican trade tariffs will not go ahead. A greater stumbling block is of course China with tensions increasing rather than decreasing between these 2 global economic superpowers.

Our analysis still suggests only one rate cut this year, but much depends upon how well President Trump can negotiate a number of outstanding trade deals over the next couple of months. It’s very much in his hands but with President Xi of China calling Russia his best friend, will hardly help matters with any US negotiations.

Now let’s cover silver.

We are always one of the first to mention silver going down, but likewise when we have seen a shift in sentiment, we have also called its rise.

There is now an interesting pattern being created. Silver has been the victim to some extent of falling Industrial demand; and traders who trade paper silver have not been interested in it either, because of a most plausible argument that silver’s demand will weaken further if the world economy is moving towards recession.

That said silver is also trading close to a GSR of 90:1 – now that on its own doesn’t concern us. We have stated even when it was in the 70’s that we expected it to rise well into the 80’s However chart patterns are suggesting that there could be a break through and based on historical trends silver could actually attempt to rise to that $16 level again quite soon.

That said, we still have to be mindful, that the issues which pushed silver down from $16 near the start of the year to $14 are still present, save that interest rate expectations have changed, and therefore a little dollar weakness is expected.

The prospect for lower interest rates, whether real or imagined, have also re-ignited stock markets and they too could become the beneficiary of ‘hot money’ at least in the very short term – and this could be at the expense of gold and silver.

So, there is quite a balancing act for investors to consider: A deteriorating economic trade system which will mean industrial demand for silver will fall; leading to lower rates to boost the economy, which will help equity markets perhaps at the expense of silver; vs silver prices rising in tandem with gold, as interest in it as a monetary metal, as opposed to an industrial metal, increases, and as interest rates fall, the dollar weakens against other currencies thereby causing gold and silver prices to rise.

You see its not a perfect science. Add into the mix Trump’s tweets and almost anything can happen. Seriously though as we have mentioned in previous videos, we are more concerned about potential escalating military action with Iran plus skirmishes with North Korea and China and not forgetting the undoubted plan the US has for regime change in Venezuela.

So, what economic data is being announced next week:

• Tuesday – producer price index for May
• Wednesday – Consumer Price Index and Core CPI for May
• Thursday – Import price index
• Friday – another important day with Retail Sales, and Industrial Production for May and the Consumer Sentiment Index for June.

So next week we may indeed see a pullback certainly of gold prices initially and especially as the Mexican tariff threat has been removed. That said, it is quite possible that both gold and silver may only use that as a pause before higher prices are on the horizon.

We are not rushing out to buy as yet but even if gold does hit $1400 and Silver $16 we must all be mindful we have been there before expecting further escalating rises only to be disappointed.

We are keeping our powder dry for the moment to see how traders react on Monday and Tuesday but as we said last week, with all of the geopolitical as well as economic concerns it is most surprising that gold and silver are not already 20% higher than they are – which at least suggests for now where investors minds are focussed – rightly or wrongly.