U.S. retail sales reported a strong number in June up 0.6 percent after a weaker number in May, just 0.2 percent. Dollar index seen in positive territory after the report putting pressure on the price of Gold this morning. The technical level everyone was watching at $1,332 was violated yesterday as the Gold market traded down to the $1,320 level.
A selling bias in Gold continues, as we see equities continue a massive rally, setting new highs every day. Foreign investment continues to bring money into the U.S. equities looking for the best yields possible as negative interest rates continue over the pond.
Some Wall Street gold traders indicated this morning, that as long as equities continue their surge to the upside, Gold will be under pressure.
So after we broke thru two major support levels, most traders now will take a wait and see attitude. Overall the majority of them believe the price of Gold will be much higher by yearend, but for now they believe we could test the $1,300 level. Three points they refer to, why they expect gold to be higher by year end:
I believe the major catalyst in the rally in gold going forward will be the breakup of the European community. If this happens, and I think it will, it will put all the other counties in financial turmoil and cause a strong increase in the price of Gold. After last night’s horrific attack in France, the rally cry from the people of France is getting louder for France to exit the EU, as the UK did to control its own destiny. The question remains who will be next? Germany or France? If this happens, how do the other countries in the EU financially survive? Only time will tell how this plays out.
If this all comes to fruition, my main concern for our market will be supply. Remember last year, for a few months we had delays of up to 90 days for product? Most refiners and producers have not increased production this year and do not have the capital to make the necessary improvements to meet the potential demand for metal in the event the market takes off. This is my biggest fear, and if this happens an inability to meet the demand of product will only add fuel to the fire and rally the markets further.
So as Wolf Blitzer of CNN always says before every commercial break, “stay right there, more breaking news ahead.” It will be a very interesting 2nd half of 2016 in the precious metals arena.
Author Name: Walter Pehowich
Walter Pehowich is the executive vice president of precious metals investment services for Dillon Gage with over 38 years of experience in precious metals investment services. His career began in 1977 at Bache (which evolved to Prudential-Bache Securities and then Jefferies Investment Bank). While at Jefferies, he served as senior vice president with oversight of investment grade precious metal products. Pehowich holds a National Futures Association (NFA) Series 3 license, authorizing him to advise and sell alternative investments in commodities and futures markets.