Technical Resolution

On the surface, activity in precious metals markets was subdued during the week ended Friday, April 26. Spot gold rose 0.85% to $1,290.35 and spot silver increased 0.67% to $15.09. During the week, the U.S. Dollar Index (DXY) increased 0.64% to 98.01 and 10-year Treasury yields declined 6 basis points to 2.498%. Spot gold ended the week 72 basis points above its trailing two-year average of $1,274.76, while silver closed the period 6.0% below its two-year average of $16.04.

Just below the surface, trading in Western precious metals markets has assumed a technical tone.

After advancing 16.08% from an 8/16/18 intra-day low ($1,160.27) to a 2/20/19 intra-day high ($1,346.82), spot gold has spent the past two months consolidating its gains in the midst of a pattern of converging moving averages. As shown in Figure 1, spot gold’s trading range this past week was entirely below its 50-day moving average ($1,299.77) and its 100-day moving average ($1,292.54), and therefore appeared destined to test support at its 200-day moving average at $1,252.02. To the degree technical traders might be excited by such a classic “check” of support, we have been willing to concede such a trading path might actually prove to be the most efficient and healthy manner to reenergize gold’s ascent since mid-August 2018.

Figure 1: Spot Gold versus 50-Day, 100-Day & 200-Day Moving Averages (4/27/17-4/26/19)
Spot Gold Prices

Source: Bloomberg.

Of course, whenever lots of eyeballs identify a likely price trend in a commodity or currency market, the trading spirits have a way of snatching away the football like Lucy from Charlie Brown. In short, if everyone is looking for a short-term price target, it makes it harder and harder for the price to actually get there! Sure enough, spot gold disappointed those looking for a check of underlying support by closing this past week on a bit of a tear, rising 2.0% from an intra-day low of $1,265.50 on Wednesday (4/24).

Pressure Building to Break Through $1,300

Especially given the approach of April month-end, we would expect the coming week to witness increased COMEX volumes from bearish gold traders seeking to contain gold’s paper price below the $1,300-level. In our view, this goal will be difficult to achieve for three reasons.

First, as shown in Figure 2, the 4/23 Commitment of Traders report disclosed a speculator net long position of 37,395 contracts, the lowest since July 2018, and before that January 2016 (not pictured), both levels from which gold launched multi-month advances (below normal levels of potential long sellers on COMEX).

Figure 2: Weekly Gold Commitment of Traders Reports (4/24/18-4/23/19)
Figure 2

Source: CFTC; Software North.

Second, demand from global physical markets remains quite robust. Without question, gold pricing equilibrium during the week of 4/22 was supported by continued strong demand from physical markets. During the week, AM Indian ex-duty premiums averaged $6.62, and, as shown in Figure 2, trading premiums on the Shanghai Gold Exchange expanded to fresh 2019 highs of 1.67% (or an average premium of $17.59).

Click here to continue reading...

Subscribe to the RSD email list and get the latest resource stock activity directly to your inbox, for free.

Part of the Stock Digest family of websites

Small Cap Stock Digest



Name Last Change
DOW 25886.00 1.18%
S&P 500 2888.68 1.42%
NASDAQ 7895.99 1.64%
TSX 16149.79 0.85%
TSX-V 570.43 0.00%

Resource Commodities

Name Last Change
Gold 1512.50 0.92%
Silver 17.11 0.99%
Copper 2.60 2.595
Platinum 901.00 0.67%
Oil 54.87 0.73%
Natural Gas 2.20 1.45%
Uranium 25.25 0.00%