Commentary for Thursday, Aug 27, 2015 (
Gold closed down $2.20 at $1122.40 – a mild drop after yesterday
and I expected a steeper decline as the short paper traders gear up for
another push to the downside.
The dollar was firm – the Dollar Index traded between 94.99 and 96.03
– we are now around 95.71 with a positive bias so the dollar is
once again getting stronger and has been since Monday morning when we
were below 93.00.
The equities are also back in the game, paring gains today but still strong
since Monday’s big move to the downside over the China scare. This
kind of big money play in paper always detracts from the physical world.
As long as the average Wall Street guy believes there is little in the
way of safe-haven buying for the paper trade.
Gross Domestic Product numbers released today continue to encourage.
Silver closed up $0.37 at $14.42. Business here remains very busy but not crazy.
American’s love affair with the Silver Eagle continues – this according to
Coin World: The U.S. Mint's authorized purchasers will have to wait until Aug.
31 to learn the bureau's next weekly allocation of silver American
Eagle bullion coins after purchasing the current week's allotment
in just two days. The Aug. 24 allocation was 812,500 coins, 601,000 of
which were purchased Aug. 24 and the remaining 211,500 on Aug. 25. Silver
Eagle bullion coin demand has stretched the Mint's production limits.
Platinum closed up $26.00 at $1006.00 and palladium was up $39.00 at $586.00. The price of platinum is now $116.00 less than the price of gold –
this difference is narrowing. Lonmin a South Africa platinum producer
announced more job cuts – they are expected to lay off 6000 workers
and reduce annual production by 100,000 ounces – according to them
mining is unprofitable at current price levels.
Gold’s short term fate is still in the hands of the Federal Government. This morning on CNBC they had an interesting conversation about “when”
the Federal Reserve will raise interest rates. They actually put a chart
up on the screen which compared major bank time estimation for the first
step in interest rate normalization since the financial crisis. The range
was very wide – some believe the Fed will raise rates in a few months;
the longest out was in March of next year.
I am still hedging – because of the uncertain overseas markets. Believe
me if the Fed gets this wrong there could be a great deal of red ink on
The good part of this interest rate equation is that the price of gold
continues to settle. Gold is anticipating this negative event and over
the next few months the actual event may be less turbulent than some expect.
Why? Because the threat of “higher interest rates” is always
more powerful than the actual rate increase everyone is worried about
and subsequent moves by the Federal Reserve to “normalize”
interest rates will take years. Think about it – we have had near
zero interest rates for 7 years, that’s unheard of relative to business
The Fed has created a kind of “Rube Goldberg” situation with
the interest rate machine. Reuben Garrett Lucius "Rube" Goldberg
was an American cartoonist best known for cartoons depicting complicated
machines whose actual function was lost in translation. When I was in
college a favorite professor was proud of displaying some of Goldberg’s
work behind his desk - with this admonition – this isn’t engineering
My point being that the Federal Reserve is worried – not that they
will show their hand, but they are in uncharted waters. That is the reason
they won’t commit other than to say that the rise in interest rates
will be “data dependent”.
They have been talking about raising rates for years and during that time
gold has moved lower by several hundred dollars. You may find that by
the time the Fed does raise rates the change in the price of gold might
be small because the real market has already discounted the news.
Jeffrey Sparshott (Associated Press) -
GDP Numbers Reveal Underlying Momentum, Possible Headwinds for U.S. Economy - WASHINGTON—Consumer, business and government spending helped propel
better-than-expected U.S. growth in the second quarter of the year, a
hopeful sign for an economy buffeted by overseas turmoil and sharp gyrations
in equity markets.
Gross domestic product, the broadest sum of goods and services produced
across the economy, expanded at a 3.7% seasonally adjusted annual rate
in the second quarter of 2015, the Commerce Department said Thursday,
up from the initial estimate of 2.3% growth.
The latest U.S. numbers stand in contrast to much of the rest of the world,
where financial troubles, falling commodity prices or broader uncertainty
have been hindering growth. But the sharp U.S. rebound, after a weak start
to the year, appears likely to settle back into a familiar up-and-down
pattern that equates to overall modest growth.
Indeed, GDP growth averaged only 2.2% during the first half of the year—right
in line with the expansion as a whole. “Despite some sharp swings
in the quarterly growth rates, we don’t look for this to change
much,” said Richard Moody, chief economist at Regions Financial Corp.
The U.S. GDP expanded at a brisker pace than initially thought in the second
quarter of 2015. What does this mean for the September Fed decision? Will
they raise rates? WSJ's Eric Morath joins Lunch Break to discuss.
Thursday’s GDP numbers offer a backward view of the economy, detailing
a three-month stretch that ended in June. Concerns about China have since
battered global markets and introduced greater uncertainty into forecasts
for the U.S. economy. But economists and policy makers will examine the
latest numbers closely for clues on what factors may be adding to growth
in the current quarter. Federal Reserve officials will weigh the latest
hard data against volatility in markets as they consider raising the central
bank’s benchmark interest rate for the first time since 2006 at
their next meeting in mid-September. Many economists and some top Fed
officials have recently cast doubt on a rate increase next month amid
so much China-driven volatility overseas.
“I think the Fed would want to see a little stronger momentum growth
in the economy” before raising rates, said Tim Hopper, chief economist
at TIAA-CREF. “With financial market turmoil like we’ve seen
over the past week and a half or so, I think that strengthens the argument
for a December hike.”
The latest GDP numbers show some underlying momentum but also possible
headwinds for the U.S. economy. Consumer spending, representing more than
two-thirds of economic output, grew at a 3.1% rate in the second quarter,
compared with the initially reported 2.9%. The new reading is a marked
improvement from the first quarter’s 1.8%, a possible sign of an
improving consumer outlook amid steady hiring and lower gasoline prices.
Spending on home building and improvements advanced at a 7.8% pace, compared
with a previous reading of 6.6% and a first-quarter gain of 10.1%. Solid
readings may carry into the third quarter—July single-family housing
starts and existing home sales both have touched new post-recession highs.
And the latest figures on business investment—reflecting spending
on construction, equipment, and research and development—are especially
welcome. The category rose at a 3.2% pace, compared with an earlier estimate
of a 0.6% decline, suggesting a degree of optimism about future demand.
It is less clear whether that will continue amid global uncertainty and
economic crosscurrents that are supporting, for example, strong auto sales
but suppressing demand for mining equipment.
SWD Inc., an Addison, Ill., maker of fasteners used to bolt together Ford
trucks, John Deere tractors, Whirlpool appliances and other goods, invested
$7.5 million in expansion and capital equipment in 2012 but now is holding
off on a roughly $5 million project to add more capacity.
“I would have thought we would have a decision by now, but we haven’t
made it,” said Rick Delawder, company president. “We’re
still trying to gauge what this economy is going to do, what our customers
are going to need. Is the economy going to continue to have strength and
if it does, that makes our decision much easier.”
And inventories—which add to GDP when they are rising—are one
factor likely to weigh on growth in the second half of the year. Companies
have added heavily to stockpiles, an accumulation of goods that is unlikely
to continue into the current quarter.
“Inventories will be a mild drag on growth in the second half of
the year,” said Stu Hoffman, chief economist at PNC Financial Services.
A stronger dollar and lackluster overseas growth may also squeeze exporters.
Net exports contributed 0.23 percentage point to GDP in the second quarter,
only the second time since the start of 2014 that trade hasn’t been
a drag on top-line economic growth.
Government spending offers a final wild card for GDP. Federal expenditures
and investment were flat in the second quarter while state and local levels
jumped 4.3%, the strongest increase since 2001. That is a positive sign—government
spending was a drag through much of the recovery—but the figures
are volatile, leaving their impact on the second half uncertain.
This is our usual
Thursday Chicago Mercantile Exchange report covering the last 5 trading days – so we are looking at the
trading volume numbers for the “Dec.” Gold contract: Thursday
8/20 (315,796) – Friday 8/21 (311,379) – Monday 8/24 (309,962)
– Tuesday 8/25 (303,186) – Wednesday 8/26 (293,384). These
numbers remain in the higher end of the range.
This from Sarah Benali (Kitco) -
Equity Drop Will Unlikely Have Major Bearing on US Economy – Capital
Economics - As analysts question whether or not the Federal Reserve will delay tightening
following the recent drop in global equities, and subsequent volatility,
one UK-based research firm says the stock slump is unlikely to have major
bearing on the economy. “We doubt the recent plunge in global equity
prices will have a major bearing on the FOMC’s decision next month.
Nonetheless, it may provide an excuse for the Committee to hold fire,”
John Higgins, chief markets economist for Capital Economics, says in a
research note Thursday. U.S. equities surprised markets, opening the week
much lower on concerns over China – the world’s second largest
economy. “But the decline of 10% or so [in U.S. stocks] has already
been partially unwound and may be further before the FOMC meets next month,”
he notes. “Of course, if policymakers in the U.S. think, as [New
York Fed] President [William] Dudley seemed to suggest on Wednesday, that
slowing demand in China may have a lasting adverse effect on the U.S.
economy, or that the risks of tightening policy now are too great given
the prevailing low level of inflation, then they may hold fire. But this
is not a done deal given the further signs of strength that the U.S. economy
has been showing lately.”
This from Jan Harvey -
Gold falls for 4th day as U.S. data boosts stocks, dollar - LONDON, Aug 27 (Reuters) - Gold eased on Thursday after its biggest
one-day drop in five weeks as upbeat U.S. growth and jobs data drove stocks
and the dollar higher, though uncertainty over the timing of a U.S. rate
rise held losses in check.
Spot gold was down 0.5 percent at $1,119.35 an ounce at 1345 GMT, and U.S.
gold futures for December delivery were down $5.30 an ounce at $1,119.30.
U.S. stocks opened higher and the dollar firmed after data showed the U.S.
economy grew faster than initially thought in the second quarter and jobless
claims fell more than expected last week. European stocks extended gains
to 3.4 percent.
"The data came in above expectations, and it's really going to
be down to the wire for the rate hike," ING commodities analyst Hamza
Khan said. "It's not making the picture for gold any clearer,
which is why we haven't been able to maintain a large sell-off, or
a large rally."
A three-day slide in gold prices has eroded the bulk of last week's
gains, made after speculation gained traction that the Federal Reserve
may raise rates later than had been expected.
It is still up nearly 5 percent from July's 5-1/2 year low of $1,077,
but has given up more than 3 percent since touching a seven-week peak
of $1,168.40 last week, hurt by a rebound in the dollar and other assets.
Stocks surged after a U.S. Federal Reserve policymaker said the case for
an interest rate increase next month seemed "less compelling"
than it was a few weeks ago.
Gold tends to benefit from ultra-low rates, which cut the opportunity cost
of holding non-yielding bullion while boosting the dollar.
Other precious metals rebounded from this week's slide. Platinum was
up 1.6 percent to $990.74 and silver was up 0.4 percent at $14.18. Palladium
was up 2.4 percent at $545 an ounce after falling to a near five-year
low of $528 on Wednesday. It is still down nearly 10 percent this week.
"Positioning on Nymex suggests that weakness had initially been driven
by aggressive shorts while exchange-traded fund liquidations added to
the pressure," UBS said in a note.
"With the exception of gold, palladium now has the leanest positioning
within the precious metals complex. This suggests that while sentiment
remains frail and charts continue to look worrisome, the market may now
be nearing a bottom."
The walk in cash trade was again busy today – thanks for your patience.
The phones were also very active as the public is encouraged by product
Unscientific Activity Scale is an “
8” for Thursday. The CNI Activity Scale takes into consideration volume
and the hedge book: (last Friday –
7) (Monday –
8) (Tuesday –
8) (Wednesday –
9). 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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