With the Treasury bond market literally on fire it is clear that fears of recession are burning brightly in the headlines and consequently gold is a direct benefactor. Obviously another US trade war front with Mexico combined with suggestions from a Chinese "white paper" indicating Chinese purchases of US goods should be "realistic" shows that tensions remain in place and therefore safe haven buying is coming from a number of storylines.
Furthermore some trade sources have interpreted recent Fed comments to be shifting "toward" cutting interest rates. Not surprisingly a number of gold analysts have turned very bullish toward the metal after last Friday's rise above $1300 as that move fostered targeting up around $1335.
Obviously the growing list of geopolitical safe haven issues have created a favorable environment for gold, but a certain amount of direction for gold will be determined by the action in equities. In other words, the need for safe haven in the presence of anxiety will be signaled by the equity markets which finished the month of May with massive declines on the month.
We would suggest the classic physical demand side of the equation is also supportive given the latest World Gold Council demand figures. Another potentially supportive development came from India at the end of last week with expectations for the new government to take steps to develop gold as an asset class.
The policy initiatives are also expected to suggest a reduction in the import duty on gold from 10% to 3%. In the end, unless the US relents on the Mexican tariffs or there are signs of renewed US/Chinese trade talks, an environment of anxiety and weakness in equities should keep gold on an upward track.
Gold positioning in the Commitments of Traders for the week ending May 28th showed Managed Money traders added 8,756 contracts to their already long position and are now net long 33,134. Non-Commercial & Non-Reportable traders were net long 108,732 contracts after increasing their already long position by 7,548 contracts.
While the silver market has shown some positive correlation with gold and it managed to climb above a four month old downtrend channel resistance line last week, we are suspicious of the bull case. However, the latest positioning report showed silver to be net "short" and therefore the potential for stop loss selling should be reduced.
Silver positioning in the Commitments of Traders for the week ending May 28th showed Managed Money traders were net short 39,042 contracts after increasing their already short position by 8,182 contracts. Non-Commercial & Non-Reportable traders net sold 4,427 contracts which moved them from a net long to a net short position of 3,765 contracts.
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Non-Reliance and Risk Disclosure: The opinions expressed here are for general information purposes only and should not be construed as trade recommendations, nor a solicitation of an offer to buy or sell any precious metals product. The material presented is based on information that we consider reliable, but we do not represent that it is accurate, complete and/or up to date, and it should not be relied on as such. Opinions expressed are current as of the time of posting and only represent the views of the author and not those of Zaner Financial Services LLC, unless otherwise expressly noted.
