Commentary for Monday, May 11, 2015 – Gold closed down $5.90 today on the Comex at $1183.20. There was some early upside movement after the announcement that China would cut its lending rate by a ¼% but their attempt at fine-tuning their staggering economy lost steam with gold traders probably because of a combination of a firmer dollar and the still poor technical picture.
The dollar while fairly flat today has moved from less than 94.00 on the Dollar Index this last Wednesday/Thursday to near 95.00 today so this firming would catch the trader’s eye – especially because the Dollar Index topped around 100.00 (March/April) making two attempts to move higher and failing. I would not short the dollar here but technically it looks weak and a break to the downside (unlikely with the coming interest rate hike) would support gold.
Also possible Greece default remains in the background – tomorrow she owes the IMF (International Monetary Fund) another interest payment (750 million euros). I’m sure there will be some sort of extension but Germany is once again claiming an EU exit by Greece might be in everyone’s best interest. I don’t think this will happen but default tension underscores gold.
And amazingly with the price of crude oil still around $60.00 a barrel the buzz has turned from “very negative” to the talk that $100.00 oil might be back on the table! This about-face is goofy in the extreme but there is some reasonable commentary which suggests that the recent collapse in price has been overdone. If this turns out to be true it could also support the price of gold.
Silver closed down $0.14 at $16.30. We have posted new RMC (Republic Metals Corporation) 100 oz and kilo (32.15 oz) bars live on the site. Nice silver bullion products by one of America’s largest private refiners. The kilo makes for an interesting play – larger than a 10 oz bar yet much smaller than the 100 oz and is also available in original boxes of 15 bars.
Platinum closed down $16.00 at $1126.00 and palladium closed down $20.00 at $781.00. Even with platinum’s $57.00 discount to gold there is surprisingly little interest in platinum bullion. I originally thought the lack of physical bullion was the reason behind this lack of investing interest. But we now have platinum Canadian Maple Leafs, the Platypus, the Koala and 1 oz bars in stock and I’m hearing nothing but crickets.
This from Tim Smith (Daily Pfennig®) – Where Will Gold Be At the End of 2015? Survey Results Are In – Earlier this year, we asked readers of the Daily Pfennig® newsletter where they envisioned the price of gold to be at the end of 2015, and the results may not come as a huge surprise to most of you.
With the price of gold starting the year at about $1,200 per ounce, the overwhelming majority of those polled predicted a higher price at year-end. The results were spread out across the tiers when trying to determine where the price would eventually land, but the tier that garnered the most votes was the top tier, with almost a third of voters predicting gold to end the year above $1,600 per ounce.
On the flip side, only 13.82% of those responding thought that gold would end the year below $1,200. Only time will tell who ends up being right, but as we cross into May, gold is still hovering around $1,200 an ounce. That means gold will need to see a fairly large move in the price during the remainder of the year to approach what many of you think the price will be.
The Case For Higher Gold – As many of you are aware, there are numerous factors that could lead to a jump in the price of gold, so I will touch on a few of them. First, central banks are continuing to add gold in massive amounts. For example, Russia just added 1 million ounces to its reserves in March, and China continues to not only mine large amounts, but also import it as well. Although the exact figure of how much gold China has is unavailable, there is speculation that they may have to disclose their actual holdings if they want to add the Yuan to the International Monetary Fund’s (IMF) Special Drawing Right (SDR) currency basket in the near future. If the number of ounces disclosed ends up being higher than previously thought, that could be a very bullish sign for the price of gold. Speaking of Russia, continued conflict in that region, and other regions around the world for that matter, could lead to higher prices. Gold is typically considered a safe haven asset, and global conflicts tend to lead to a rush into gold and thus higher prices.
The risk of a Greek default is still on the table as well, and many analysts believe a Greek default or exit from the Euro could result in a global financial crisis that will lead many to purchase gold as a hedge against fiat currency positions. And, even if that does not happen, there is so much excess liquidity in the economy now due to all the quantitative easing (QE) central banks have undertaken, which could lead to an inflationary environment and higher gold prices.
As I mentioned above, these are just a small sampling of the forces that could drive gold prices higher, but this is by no means an exhaustive list. There very well could be unforeseen events that could also be bullish for gold going forward.
The Case For Lower Gold – But, not all of you see things going splendidly for gold to finish out the year, and possibly further into the future. With the clear consensus being higher gold prices at year-end, the contrarians among us believe gold will continue the fall from its lofty high of $1,900/ounce back in 2011, to its current price of $1,200/ounce, and even further. The overall downward trend over the past four years has certainly reaffirmed those investors’ beliefs.
Many people feel that the dollar will continue to strengthen, and with the Fed possibly on the verge of raising interest rates, that would make holding gold less appealing as an alternative. With higher interest rates and a strong dollar, it will be more difficult for gold to compete against those deposits, as the shiny metal typically has a carrying cost and, for many years now, did not have interest rates to compete with.
Another reason people may feel gold is heading down is that their perception of the overall economy, both nationally and globally, is getting better. If things aren’t as bad as they seem, then the safe haven asset may not be needed as much. This could easily go the opposite direction as well, if the Fed decides to put off raising rates in June, as previously planned, then gold could see a bump in the price.
Of course, I believe gold is always needed as a component of a truly diversified portfolio to hedge against the many geo-political risks out there, but I would like to hear from you as well. If you think gold is going to continue downward, please post in the comments on our blog at DailyPfennig.com as to why you believe that to be the case.
What The Analysts Are Predicting – Well, we have heard from you, the readers, but what are the experts saying? It’s somewhat of a mixed bag of results as well, but here is a sampling of some analyst forecasts for the price of gold in the fourth quarter of 2015. The median price across 31 analysts was $1,227/ounce, with a low of $1,025 and a high of $1,500.
• Barclays & Citigroup – $1,170
• BNP Paribas & Societe General – $1,050
• Deutsche Bank – $1,150
• TD Bank – $1,225
• RBC Capital Markets & Bank of America – $1,300
• Standard Chartered – $1,320
And, Finally, The Conclusion – So, will gold buck the trend of the past two years closing at a lower price than it started the year? Prior to 2013, gold prices closed higher than they started the year for 13 years in a row. As you can see, even among analysts who are paid to make forecasts, there is a wide range of predictions and, honestly, nobody knows what will happen, but we will see who was right and who was wrong in about seven months.
That being said, since nobody knows for certain what the future holds for any asset price, I still believe it could be a prudent investment strategy to diversify your portfolio with precious metals, regardless of the price, as it will act as a hedge against your dollar-denominated investments. And, with gold trading around $700/ounce off its high – with many projecting it to increase in the future – it could be a good time to buy before the potential run up. And, as the world’s physical supply dwindles, more people are starting to jump on board the gold diversification train, including Jim Cramer, who, believe it or not, recently recommended a 10% physical gold allocation to a portfolio.”
The walk-in cash trade was actually busy today – this is unusual considering the “back and forth” price action. There were also a few large sellers in gold. The phones were mostly steady and mostly buyers with an even mix between gold and silver bullion.
The GoldDealer.com Unscientific Activity Scale is a “ 4” for Monday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Tuesday – 3) (last Wednesday – 5) (last Thursday – 4) (last Friday – 5). 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”.
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