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).

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Name Last Change
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Resource Commodities

Name Last Change
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Silver 14.44 0.00
Copper 2.74 2.739
Platinum 901.00 0.67%
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Zinc 1.20 0

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