Obviously, the world is reacting in a deflationary manner to the news of the spread of the pneumonia-like virus in China. With 4 deaths, 15 medical staff and approximately 300 infected already, the trade is justified in factoring in some slowing fears and that in turn has applied pressure to gold, silver, and nearly every physical commodity.

Increasing the potential deflationary impact of the new virus is the fact that the Chinese New Year celebrations start this coming weekend and that usually results in roughly 300 million people traveling inside China and reducing that dramatically would remove a tremendous annual stimulus for the Chinese economy.

It should be noted that initially, gold prices managed a 2 week high before reversing course and tracking lower. As in the SARS situation, traders and economists fear restrictions on travel and fear lower economic consumption because of fears of personal contact.

While not overly important in the current environment, prices could be supported by overnight news that Chinese 2019 gold production declined by 5.2% on 380.2 tons of output. However more than offsetting that potentially supportive supply-side news is the fact that Chinese 2019 consumption was down by nearly 13% on 1002.7 tons.

The market was also presented with 12% higher gold production from Highland gold in 2019 which resulted in a production tally of 300,700 ounces.

If there is a bright spot for the gold market today it is the fact that the dollar is not tracking higher like a safe haven instrument while treasury prices are showing some signs of a need for safe-haven investment.

In yet another partially supportive development, the most recent positioning report in gold showed a reduction of the net spec long in the prior week and that should help to balance the technical overbought picture somewhat in gold. The Commitments of Traders report for the week ending January 14th showed Gold Managed Money traders are net long 262,335 contracts after net selling 9,967 contracts in the week. Non-Commercial & Non-Reportable traders net sold 18,732 contracts and are now net long 372,798 contracts.

Surprisingly the silver market did not take out last Friday's low in the early action today despite global deflationary fears and some initial negative spillover from gold. The Commitments of Traders report for the week ending January 14th showed Silver Managed Money traders net sold 348 contracts and are now net long 58,440 contracts. Non-Commercial & Non-Reportable traders net sold 372 contracts and are now net long 94,261 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.