Commentary for Friday Feb 5, 2016 (www.golddealer.com) –
Gold closed up $2.50 today on the Comex at $1157.80 but it was a bumpy
ride. The markets opened calm in the $1158.00 range and quickly moved
down to $1146.00 before gaining traction – and then reversed direction
and moved steadily higher – managing to gain a few dollars on the day.
Today’s job’s report created all the trouble – better
than expected in many areas led to the notion that the expected Fed rate
hike was not so dead after all. The DOW dropped 200 points and the dollar
moved higher immediately. The Dollar Index closed yesterday at 96.56 –
today it has traded between 96.32 and 97.27 – we are now around 97.12.
The dollar may well have topped in relation to other world currencies.
Because these relationships are “relative” meaning when you
say the dollar is weaker it is compared with other stronger currencies
– this does not mean that the dollar will fall out of bed. It will
stay in the game simply because the yen for example is moving lower (faster)
than dollar. But my point is that some who watch dollar strength think
the party may be getting old. We could see a 10% or even 20% drop from
current levels which would be great for gold.
At any rate a few good job numbers and many brought back to the interest
rate hike “ghost”. And considering the immediate push to the
upside in dollar strength I’m surprised gold managed a small move
into the green. This actually supports the notion that something “different”
is happening in the gold market - but let’s not get carried away.
Gold was higher this week by $41.00 and this marks the 4th week in the
past five that prices have been higher so gold is up more than $100.00
from its most recent low. This equates to a powerful statement –
physical gold is back on the financial radar.
I have had a few conversations with readers about my “New Year’s
Surprise” relative to gold. Who knew? And a few that claim my outlook
is a bit gloomy considering we are up $75.00 in the past 30 days and gold
is trading above its 50 DMA – its 100 DMA and its 200 DMA.
Actually my outlook is not gloomy – it’s realistic. I am not
big on making price direction a primary factor in my decision to own gold.
Physical gold bullion (regardless of price) has been part of my life since
before it was made legal in the US (1975).
From a philosophical standpoint gold cannot be beat or replaced but dealers
should be obliged to tell consumers that gold bullion is volatile. And
physical dealers must have a business perspective – they understand
that because gold bullion is volatile it must be hedged.
Large dealers who neglect this cardinal rule pay the price – which
is usually bankruptcy or jail or both and the public is always surprised
when they hear the names.
Gold volatility has to be part of your plan – today is a great example.
Yesterday the mood on the gold trading floor was optimistic – prices
are heading higher - the Fed is not raising rates and there is trouble in China.
This morning we saw a positive jobs report and the floor mood changed into
“the rate hikes are back on the table”. You would have to
be Houdini to figure out if the Fed will continue with its interest rate
hike plan at this point but my point this entire week was that there are
significant headwinds still on the table for gold so don’t be surprised
– one way or the other.
A couple of other points – the relative direction in price of gold
does not matter to dealers. They would like the markets to rise because
it makes for better business – but because professional dealer inventory
is properly hedged they also buy in a falling market and make expenses.
So what about today’s job’s report? My personal position remains
unchanged – I think the market has moved too high too fast and I’m
concerned that US dealers have become large buyers and the general public
does not seem to be onboard in relative proportion.
This should cause concern but you never read about it in commentary because
the average dealer would not be that honest. That is not to say they are
dishonest – most are just hard working people trying to make a living.
But like most business people they want to put a shiny face on everything
My overall impression of today’s world financial situation is worrisome.
I’m not much on the doom and gloom scenario, we have managed to
wiggle our way out of the 2008 bank tragedy and have printed enough fiat
paper money to float a battleship in the process.
This situation remains dangerous and the big question is still on the table.
Will the Fed be able to bring interest rates higher, more into the “normal”
range without upsetting the apple cart.
Also keep in mind the US is not the only one on board this “experimental”
financial ship. Everyone who crossed this interest rate line will be faced
with the same interest rate challenge. The Bank of Japan has now resorted
to negative interest rates and so has the European Union. Stop and think
about that, Casey Research brought up this point recently and the way
they phased the notion was fantastic – instead of the borrower paying
the bank interest the bank now pays the borrower interest – borrow
$100,000.00 pay back $95,000.00!
This is lunacy and at some point may prove fatal to the system so gold
bullion is an absolute necessity regardless of price. My lesson for today
is that while the gold market may be a bit overpriced in a relative sense
it is still a bargain relative to old highs.
Gold bullion is the premier investment when it comes to protecting against
the fiat paper system. It is one of the few places left to park some insurance
money that is not subject to either government or banking control –
there are no third parties to contend with if something goes wrong. If this worldwide experiment blows up gold will present the owner with
value regardless of the chaos created in the world or domestic markets.
If you already have a core gold bullion position – good for you and
your family. If you don’t and are looking for a better price –
you may get one. But don’t delay much – make putting a small
amount of your extra capital in gold bullion a part of your financial
planning. And let’s hope we won’t need it.
Silver closed down $0.07 at $14.76. We finish the week up $0.53 so we continue to get a firm bid. I don’t
think this is just a knee-jerk reaction to gold moving higher. Silver
is still cheap in its current trading range so there is plenty of upside.
Platinum closed down $2.00 at $902.00 and palladium closed down $16.00
at $500.00. Platinum is trading for $255.00 less than gold.
Our Patented Employee Survey – Gold’s Direction Next Week?
Of course it’s not really patented but we do have some fun along
the way. This is what the GoldDealer.com employees think – 7 believe
gold will be higher next week – 4 think gold will be lower and none
think it will be unchanged.
Our Patented Customer Survey – Gold’s Direction Next Week?
Like the employees our customers were given three choices – up –
down – unchanged. We limited the survey to a random sampling of
100 transactions – unscientific but worth considering because these
people took action: 56 people thought the price of gold would increase
next week – 27 believe the price of gold will decrease next week
and 17 think prices will remain the same.
Precious Metal Closes & Dollar Strength –
Feb.1 – Feb. 5
This from Sarah Benali (Kitco) -
Nouriel 'Dr. Doom' Roubini Is Grim Again; Could He Be Positive on Gold? - Dr. Doom is back, and so is his grim outlook on the global economy.
But, could this mean he is finally positive on gold?
Famed economist Nouriel Roubini says the signs cannot be ignored anymore;
the global economy is weak and has been in a “new abnormal”
state, which doesn’t look to fade anytime soon.
“Welcome to the New Abnormal for growth, inflation, monetary policies,
and asset prices, and make yourself at home,” he said in a post
on Project Syndicate Thursday.
Since the start of the year, Roubini continued, the economy has been rattled
by volatile financial markets, concerns over China, low global growth,
emerging market turmoil, geopolitical tensions, Europe’s “identity
crisis,” and deflation, to name a few.
This is the new normal – or abnormal – he is talking about.
And, over this time frame, gold has shined. The New Year has ushered in
a positive gold market, with prices rallying to multi-month highs on the
back of financial market volatility. Investors are concerned about the
state of the global economy, with tumbling equity and oil prices pushing
them towards safe-haven assets such as gold.
This week, gold futures even pushed back above the 200-day moving average.
April Comex gold futures managed to hit an intraday high of $1,164 overnight
Friday, a level last seen in late October.
Market conditions so far in 2016 have proven to be gold positive, and Roubini
said he expects this environment to stay. “It looks like we’ll
be here for a while,” he said.
According to the NYU professor, one of the main reasons for this is the
divergence between what’s happening on Wall Street versus what is
actually happening in the economy.
“The real economy in most advanced and emerging economies is seriously
ill, and yet, until recently, financial markets soared to greater highs,
supported by central banks’ additional easing,” he said. “In
fact, this divergence is one aspect of the final abnormality.”
As an example, Roubini highlighted the fact that financial markets haven’t
reacted much as usual to growing geopolitical risks in the Middle East,
Europe, Asia and Russia.
“Again, how long can this state of affairs – in which markets
not only ignore the real economy, but also discount political risk –
be sustained?” he questioned.
Another main contributing factor to this new normal, Roubini noted, is
the fact that central-bank monetary policies have become increasingly
“But now these unconventional monetary-policy tools are the norm
in most advanced economies – and even in some emerging-market ones,”
he said. “And recent actions and signals from the European Central
Bank and the Bank of Japan reinforce the view that more unconventional
policies are to come.”
These policies, many thought, would bring about hyper-inflation as central
banks continued to balloon their balance sheets. Instead, policymakers
are now focused on tackling the exact opposite – deflation. Another
anomaly, Roubini emphasized.
One of the reasons for “ultra-low inflation,” according to
Roubini, is “that banks are hoarding the additional money supply
in the form of excess reserves, rather than lending it (in economic terms,
the velocity of money has collapsed).”
“Moreover, unemployment rates remain high, giving workers little
bargaining power,” he added. As long as current market conditions
and the divergence between markets and real life remains, Roubini’s
new abnormal – which has so far proven to be gold’s friend
– seems to be likely to stay.
The walk-in cash business was hectic until about noon and then the customer
stream dropped off – it’s funny – almost like a bus
dropped off 50 people and then “quiet”. The phones were pretty
steady all day – still experimenting with that new phone system
– the techs always claim “it’s no problem” but
let me know if you are having a problem.
The GoldDealer.com Unscientific Activity Scale is a “
5” for Friday. The CNI Activity Scale takes into consideration volume
and the hedge book: (Monday –
3) (Tuesday –
3) (Wednesday –
4) (Thursday –
7). 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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Thanks for reading, as always we appreciate your business and enjoy your weekend.
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