Commentary for Wednesday, July 1, 2015 (
Gold closed down $2.50 at $1169.00, so hardly much of a reaction to the
Greek debt default – in fact no reaction at all – probably
because many feel that there will be some sort of last minute deal regardless
of all the bad press. Let’s hope so – a real default means many parties will get
a severe financial haircut – something Greece, or Europe in general
really, does not need.
I guess you could make the case that the default has supported the price
of gold – if it were not for this financial fiasco we could be trading
much lower. But this is a negative case to make and not something the
physical gold world wants to hear.
CNN Money – “In a dramatic but widely expected step, Greece formally
defaulted on a $1.7 billion payment to the International Monetary Fund
early Wednesday in Athens.
Greece became the first developed country to default to the IMF, an organization
of 188 nations that tries to keep the world economy stable.
Greece will now be cut off from access to IMF resources until the payment is made.
The move came hours after the country made a desperate attempt Tuesday
to halt its plunge into economic chaos by requesting a new European bailout.
Greece asked for a two-year bailout from Europe, its third in six years.
The bankrupt country is reported to be asking for 29 billion euros ($32 billion).
Finance ministers discussed the request by phone and agreed to hold another
call Wednesday, when Greece is expected to provide more details.
Jeroen Dijsselbloem, who chaired the meeting, said any new rescue may require
tougher conditions than those Greece has already rejected because of the
rapid deterioration in the country's finances.
"So this is not an easy road to go down," he told CNN's Richard Quest.
Greece is fast running out of money. It rejected the conditions Europe
and the IMF set for releasing the remaining billions from its existing
bailout at the weekend. That bailout expired Tuesday.
"The last chance to get a solid extension of the old program has gone
by," Dijsselbloem said. "We are now in a difficult situation."
Greece is now on its own financially, and can't pay all its bills.”
Silver closed unchanged at $15.55 – silver bullion remains hot.
Platinum closed up $9.00 at $1097.00 and palladium was up $29.00 at $701.00. This strength in both platinum and palladium probably the result of giant
car numbers this morning. The American favorite is still the SUV and the
public is willing to buy – another sign that things for the consumer
continue to improve.
Today’s weakness in gold is again dollar related. The Dollar Index
closed yesterday at 95.52 and the range today has been from 95.47 through
96.25 – we are looking at 96.24 as of this writing. Almost a full point higher than the previous close and trading on the day’s
high meaning everyone is still on board – perhaps for even higher numbers.
The dollar strength is the result of continued better economic data.
This from MarketWatch (Joseph Adinolfi) -
Dollar strengthens on upbeat U.S. economic reports - The dollar started the month off strong on Wednesday, as a spate of
strong U.S. economic data suggested growth remained robust in June, providing
more justification for Federal Reserve policy makers to raise interest
rates this year.
ADP’s June estimate for private-sector hiring beat estimates by nearly
20,000 jobs, quickly sending the dollar through 123 yen, and the euro
below $1.11. The dollar had found resistance at both of those levels earlier
in the session.
The ADP number has underestimated the Labor Department’s reading
on jobs growth during five of the past seven months. Paul Dales, a senior
U.S. economist at Capital Economics, said there’s a chance the June
nonfarm payrolls number could surprise to the upside - maybe even as high
Economists polled by MarketWatch forecast that 225,000 new jobs were created in June.
The headline ISM manufacturing index came in at 53.5%, beating expectations
by about 0.3%. The dollar continued to strengthen after the report.
Federal Reserve policy makers said they would be cautious about raising
interest rates at their June meeting, reiterating that the timing of the
first interest-rate hike remains “data dependent.” Wednesday’s
data indicated the economy is on track to meet their criteria.”
This from Kira Brecht (Kitco) -
Are More Chinese Gold Buyers Poised To Buy On Dips? Fact: China is the world's largest producer of gold. Fact: Since 2013,
China has been the world's largest consumer of gold, according to
a HSBC Commodities Global research report
“The Chinese stock market continues to plunge. The Shanghai Composite
index has tumbled 19% since its mid-June high, in a decline worth $1.25
trillion in market capitalization. For emerging market consumers in China
and India with limited access to alternative vehicles to preserve and
grow wealth, gold investments remain a favorite choice.
Gold imports in China are already on the rise, with a significant jump
in May. According to trade data out of Hong Kong, about 64.2 tonnes of
gold was imported to the mainland, an increase of 36% compared to last
month and up 35% compared to May 2014.
However, Chinese gold buyers have proven to be price sensitive. Why buy
high, when you can buy at lower levels?
Pointing to consumers in India and China, "A plunge in [gold] prices
can quickly encourage fresh physical gold demand as consumers with limited
incomes secure gold at lower prices. This pattern will help support prices
on downswings," wrote HSBC analysts in a commodities global research
report. If gold prices were to come under additional pressure toward the
USD$1,120 ounce zone, HSBC analysts expect that to trigger fresh buying
demand. "In our view, any further drop to USD$1,120/oz or lower would
likely stimulate retail demand and act as a brake on further declines,"
HSBC analysts wrote.
Taking a look at the Shanghai Composite Index below (source Bigcharts.com),
the Chinese stock market is closing in on a test of the important swing
low support around the May 7 low at 4112. Will that swing low act as support?
Technically, a breakdown below that low would open the door to continuing
declines. There is little nearby chart support and the index would become
vulnerable to a test of 4000.
For Chinese investors, continuing declines in the Shanghai Composite index
could encourage even more safe haven buying into gold. If the yellow metal
were to come under additional pressure in the weeks ahead back toward
the March 2015 lows around $1,143 or the November 2014 lows near $1,135,
emerging market physical buying interest could sweep in at the lower price
levels as has occurred in recent years.”
Gold Exchange Traded Funds: Total as of 6-24-15 was 51,185,212. That number this week (7-01-15) is
51,259,065 ounces so over the last week we
gained 73,853 ounces of gold.
The all-time record high for all gold ETF's was 85,112,855 ounces in
2013. The record high for Gold ETF's in 2015 is 53,901,867 and the
record low for 2015 is 51,019,356.
Silver Exchange Traded Funds: Total as of 6-24-15 was 620,864,824. That number this week (7-01-15)
is 619,373,374 ounces so over the last week
we dropped 1,491,450 ounces of silver.
Platinum Exchange Traded Funds: Total as of 6-24-15 was 2,533,600 ounces. That number this week (7-01-15)
is 2,596,617 ounces so over the last week we
gained 63,017 ounces of platinum.
Palladium Exchange Traded Funds: Total as of 6-24-15 was 2,970,677 ounces. That number this week (7-01-15)
is 2,972,261 ounces so over the last week
we gained 1,584 ounces of palladium.
More Ouzo Please
– As Greece defaults - will this debt repudiation spread to other
countries in Europe? This question is at the core of why gold has not responded to the threat.
First of all Greece has long been in trouble and the European Central
Bank and International Monetary Fund has long been ready to help with
loans, even though the cumulative Greek debt number continued to climb.
How much money does Greece owe? A lot according to the Telegraph – “Greece owes money to a
number of countries and organizations following two bailouts - one in
2010 and another in 2012. The bailout funds totaled €220bn, most
of which hasn't been paid back. Greece owes around €56bn to Germany,
€42bn to France, €37bn to Italy, and €25bn to Spain. The
Greek government also owes private investors in the country around €39bn,
and another €120bn to institutions including Greek banks. Greece's
debt mountain is 180pc of its GDP.”
That’s a lot of loot as they say – and the discouraging part is that even with some hopeful signs
of world recovery the funds borrowed in 2010 and 2012 are still owed.
This is 2015 – if you were applying for a loan with Bank of America
with this type of payback schedule they would show you the door. But Greece
is a nation not a person so let’s be a bit more optimistic.
I read a piece which claimed that small gold was selling like hotcakes
in Europe and even went so far as to claim that they were running out
due to the Greek financial scare.
This has to be a construct designed by some dealers to sell the sizzle
to the public. I have rarely seen any gold dealer, this side of the pond
or in Europe that could not restock completely on a few phone calls.
And I have rarely seen large dealers stop selling bullion – it happens
but only for a short period of time and only when market volatility keeps
them from making orderly markets. They may run out but restocking in the
modern gold or silver world is easy if you have the money ready to wire
- so these stories of a run on European small gold are bunk.
Besides the premium on small gold coins is fairly constant – given
the turmoil in Europe I would expect premiums on small coins to increase
significantly – they have not.
There is some credibility in the notion that this Greece problem could
spread and if this happens the collective gasp might create larger gold
bullion buying. But the chances of this happening are thin – want
some odds, maybe 30 to 1 or even higher.
But let’s say that a Greek failure creates bigger problems –
even then the chance of gold moving front and center does not make sense.
Why? Because the predominant gold sentiment these past few years has been
negative and I think gold traders are convinced the path of least resistance
is still down.
I don’t happen to agree for two reasons. First, there is just too
much money floating around to cap the inflation genie. And second this
market looks and feels like it is either at or near a long term bottom.
general sentiment in gold is bearish and gold price charts look tired. In the past 60 days
gold has tested the $1170.00 on three different occasions and held. This
is promising but if Greece sinks those seeking cover will run to the dollar
– it just makes sense in the short term.
But real gold holders remain concerned even if the paper trade likes the
short end of the trade. Look at total gold holdings in the Exchange Traded
Funds since the beginning of 2015.
As of today we are
higher by 165,856 ounces meaning that since the beginning of 2015 while the paper trade was essentially
negative because of a poor technical picture the physical trade was not
so convinced. Granted ETF holdings are at the lower end of their range,
participants are not jumping ship and are giving gold bullion the benefit
of the doubt.
The walk in cash trade remains solid – a good mix of buying and selling
and the phones are just average today.
th of July falls on a Saturday – so the CNI Building will be closed
Friday July 3
rd for our Independence Day.
Also note that the
trading markets, banks and post office will also be closed Friday – July 3
. Wishing you all a happy and safe 4
th of July.
Unscientific Activity Scale is a “
7” for Wednesday. The CNI Activity Scale takes into consideration
volume and the hedge book: (last Thursday –
4) (last Friday –
6) (Monday –
6) (Tuesday -
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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