Commentary for Tuesday, Nov 24, 2015 (www.golddealer.com) –
Gold closed up $8.00 at $1074.80 on the Comex today reacting to the news
that Turkish fighters shot down a Russian military jet which they claim
had invaded their air space. Supposedly the Turkish military warned the
Russian fighter before firing and the Russians claim their fighter was
not in Turkish air space when it was shot down.
Another fine mess in a region which is armed to the teeth and itching for
a fight – the Russians claim they will seek retribution and this
attack was unprovoked and a “stab in the back”.
This along with the French ISIS attacks, video of ISIS claiming the US
is next and various other attacks worldwide has everyone on edge –
thus the push to higher ground in gold. The problem now is that these
countries need to stop and take a deep breath – rhetoric will lead
to more civilian misery.
I posted the Reuter’s report on just released Gross Domestic Product
numbers – things continue to improve so expect that pesky interest
rate hike in December. By the way if they do not raise rates after all
this hullabaloo the price of gold will again move above $1200.00.
The Dollar Index numbers look steady – we closed yesterday at 99.76
– the range today was 99.47 through 99.79 and we are now trading
at 99.61. There has been some firmness in the price of oil probably because
of the Turkish/Russian incident.
So the US Mint has stopped making US gold eagles – expect to hear
from your favorite telemarketer that this is a monumental reason for buying
gold. Of course we all know that the US Mint stops producing gold Eagles
around this time every year as it gears up for its new 2016 production
run. Newly minted coins (2016) will be available in the 1
st quarter of next year – don’t believe any dealer claiming to
have coins in 2015 - it’s against the law. And don’t pay any
additional premium for 2016 before or after they are released –
everything will settle down and these premiums will melt like they do
Finally there are lots of alternatives to US Gold Eagles – every
mint in the world is producing gold bullion product and they are essentially
all the same – they will all move directly with the price of gold
so why not save some money?
Silver closed up $0.13 at $14.17.
Platinum closed down $6.00 at $840.00 and palladium closed unchanged at $541.00. Platinum is now trading for $234.00 less than gold.
Reuters - The U.S. economy grew at a healthier clip in the third quarter than
initially thought, but strong inventory accumulation by businesses could
temper expectations of an acceleration in growth in the final three months
of the year.
The Commerce Department on Tuesday said the nation's gross domestic
product grew at a 2.1 percent annual pace, not the 1.5 percent rate it
reported last month, as businesses reduced an inventory bloat less aggressively
than previously believed.
The pace of economic growth, which was also boosted by upward revisions
to business spending on equipment, suggests a resilience that could help
give the Federal Reserve confidence to raise interest rates next month.
While consumer spending was revised down a bit, its pace remained brisk,
suggesting consumers were cash-flush.
"The economy continues to move along at a good clip relative to its
potential. With growth like this, the Fed has the data it needs to light
the candle finally and lift off on December 16," said Chris Rupkey,
chief financial economist at MUFG Union Bank in New York.
When measured from the income side, the economy grew at a sturdy 3.1 percent
clip, the fastest in a year and an acceleration from the second quarter's
upwardly 2.2 percent pace. Wages and salaries increased $109.3 billion,
$61.6 billion more than initially estimated.
The third-quarter's respectable expansion should set up the economy
to achieve at least 2 percent growth in the second half of the year, around
its long-run potential. In the wake of robust job growth in October and
strong domestic demand, the Fed is expected to raise rates at its Dec.
15-16 policy meeting.
Other data on Tuesday showed consumer confidence fell further in November,
hitting a 14-month low, as sentiment towards the labor market surprisingly
soured. Economists suspected the Nov. 13 attacks in Paris and rising tensions
in the Middle East had weighed on consumer confidence.
Despite the drop, more consumers say they plan to buy homes, automobiles
and other big-ticket items over the next six months.
"The bigger picture suggests that domestic demand is still firm, spending
plans are evolving positively and the housing market continues to post
gains," said Robert Kavcic, a senior economist at BMO Capital Markets
A third report showed house prices rose solidly in August.U.S. financial
markers were little moved by the data as investors worried about global
security after Turkey shot down a Russian warplane.
Large Inventory Accumulation - In the third quarter, businesses accumulated
$90.2 billion worth of inventories, instead of the $56.8 billion reported
last month. That followed more than $100 billion worth of inventories
accumulated in each of the prior two quarters.
As a result, the change in inventories chopped off only 0.59 percentage
point from third-quarter GDP growth, rather than the 1.44 percentage points
the government reported in October. That, however, suggests inventories
could be a drag on fourth-quarter growth.
"The bigger inventory overhang helps explain why manufacturing sentiment
remains cautious early in the fourth quarter, and does present downside
risk to our 2.5 percent estimate for current-quarter GDP growth,"
said Michael Feroli, an economist at JPMorgan in New York.
Consumer spending, which accounts for more than two-thirds of U.S. economic
activity, grew at a still strong 3.0 percent rate in the third quarter,
down from the 3.2 percent rate estimated last month. The downward revisions
mostly reflected weak outlays on communication services and utilities.
A measure of private domestic demand, which excludes trade, inventories
and government spending, was revised down to a still sturdy 3.1 percent
pace from the previously 3.2 percent rate. Though there are signs consumer
spending slowed early in the fourth quarter, it should continue to be
supported by strong income gains. Income at the disposal of households
after adjusting for inflation rose at a robust 3.9 percent pace in the
A trade deficit that was larger than previously estimated subtracted 0.22
percentage point from GDP growth in the third quarter. Data on Tuesday
showing a smaller goods trade deficit suggested trade would contribute
to fourth-quarter growth.
Deep spending cuts by energy firms following a collapse in oil prices continued
to weigh on growth. Spending on mining exploration, wells and shafts tumbled
at a 47.1 percent rate, rather than the 46.9 percent pace reported last month.
However, business spending on equipment was revised up to a 9.5 percent
rate from a 5.3 percent pace.
The Commerce Department also reported that corporate profits after tax
fell at a 1.6 percent rate in the third quarter after rising at a 2.6
percent pace in the second quarter. Profits, which have been undercut
by the dollar's strength and lower oil prices, were down 8.1 percent
from a year ago, the biggest decline since the fourth quarter of 2008.
This from Sarah Benali (Kitco News) -
Is Gold Still A Good Investment or Just A Pet Rock? – CME Group - As investors shy away from gold given the metal’s
continuous decline and imminent U.S. interest rate hike, one senior economist
says that although he remains pessimistic on the yellow metal in the short
term, historical data still proves it remains a great portfolio diversifier.
CME Group’s Erik Norland said that although it is difficult to say
with certainty whether or not gold is a good investment, he looked at
historical data to decipher if gold was useful in portfolios in the past.
“To do so, we compare the risk-adjusted excess returns of gold to
the risk-adjusted excess returns on stocks and bonds,” he said.
The four main results based on his research report released on (date) showed
that: having gold in the portfolio was “marginally Goldbeneficial”
both in the shorter and longer terms, the ideal gold allocation was around
10-15% of portfolio risk, gold has much lower risk-adjusted excess return
over time than either government bonds or stocks, and since gold has a
low correlation to both stocks and bonds, it makes it a “useful
However, Norland remains pessimistic on gold in the short term and the
reason for it is not necessarily the same as the market consensus - U.S.
rate hikes - but rather related to mining.
“Those familiar with our research will know that we aren’t
especially optimistic about gold in the short term because we think that
it’s driven by mining supply to a much greater extent than most
people realize, and that mining supply, in our view, is likely to continue
growing,” he continued.
“Our perspective on mining supply appears to be in the minority.
Many analysts think that gold-mining supply is likely to come down significantly
in the next few years. If mining companies begin shutting down production,
it would be bullish for gold,” he explained.
Norland also noted that he does not see inflation becoming a major problem,
which would in turn be negative for gold.
“The Fed seems to disagree, however. If they didn’t think that
inflation was a threat at all, they probably wouldn’t be considering
raising rates,” he said.
“To the extent that they tighten, however, this should be negative
for gold as it will quell inflation fears while, at the same time, highlight
the contrast between (near) zero interest rate gold deposits and rising
interest rates on T-Bills and other short-term interest rate instruments
in the U.S.”
However, Norland noted that his apathetic short-term sentiment towards
gold is also shared with equities and bonds.
“[W]e wouldn’t be surprised if fixed-income returns are close
to zero or even negative, after inflation, over the next decade or so,” he said.
“Equities present a more complex picture… corporate profits
aren’t growing very quickly and with the Fed apparently getting
ready to hike rates, the cost of capital might begin to increase slightly,”
he noted, adding that equities in Europe and Asia, on the other hand,
are cheaper and may outperform the S&P 500 in coming years, especially
if the U.S. dollar remains strong.
Based on Norland’s research, the benefits of diversification historically
come mainly from stocks and bonds rather than gold, but with the data
he gathered, he saw that the yellow metal still added value to an investor’s
The walk-in cash business was a slow start today and never really recovered
– the phones were the same although the Activity Scale remains high
so volume numbers are holding up. This is interesting in that I would
expect volume to decrease as we head into the holidays. Finally there
have been a few gold whales that have shown up – just something
to think about over that extra helping of mashed potatoes.
Unscientific Activity Scale is a “
7” for Tuesday. The CNI Activity Scale takes into consideration volume
and the hedge book: (last Wednesday –
7) (last Thursday –
8) (last Friday –
5) (Monday –
6). The scale (1 through 10) is a reliable way to understand our volume
numbers. The Activity Scale is weighted and is not necessarily real time
– meaning we could be busy and see a low number – or be slow
and see a high number. This is true because of the way our computer runs
what we call the “book”. Our “activity” is better
understood from a wider point of view. If the numbers are generally increasing
– it would indicate things are busier – decreasing numbers
over a longer period would indicate volume is moving lower.
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Yes - you can visit the store with cash and walk away with your product. Or
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Early Holiday Note: This week is of course
Thanksgiving – and we all have many things to be thankful for – one of
particular note is living in this country. Not that we don’t have
a legitimate grumble with how Uncle Sam handles our tax money –
but America really does shine when compared to alternatives.
We will be closed Thursday and Friday (Nov 26
th and 27
th) for Thanksgiving
. Wishing you good health and all the best this holiday season!
Thanks for reading – we appreciate your business and enjoy your evening.
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