Gold Closes Quietly in Thin Trading Waiting for a US Response Against Syria

Gold Closes Quietly in Thin Trading Waiting for a US Response Against Syria

Commentary for Wed Aug 28, 2013 (www.golddealer.com) – Gold closed down a quiet $1.60 at $1419.00 after trading higher ($1432.00) in overnight markets. At $1419.00 we are still hovering around 3 ½ month highs as world markets hold their breath waiting for the presumed US coalition response because of Syria’s supposed use of nerve gas.

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Silver was down $0.26 at $24.38 and to be frank I don’t see much big action at these higher recent levels but the small cash trade in silver is still robust.

Platinum was up $8.00 at $1539.00 and palladium was down $3.00 at $746.00 also not showing any volume numbers.

I don’t trade the currencies but watch them carefully. This morning the rupee was down a whopping 6% and India is not exactly a banana republic. So I was all ears when CNBC talked with Stephen Roach (Senior Yale Fellow) about his take on not only the rupee but weaker currency from countries like Brazil, Russia, Indonesia and Turkey. He believes that the current talk about beginning a tapering program has created this nightmare because it was this huge program worldwide of currency printing that supported growth in all of these countries.

Now that this extra money might be withdrawn and their debt infrastructure has not been corrected their currencies are crashing. This is exactly why gold should be part of everyone’s holdings whether you believe the market is moving higher or you belong to the free lunch crowd. Because in the end workers worldwide have little protection against government currency manipulation. All of which will end badly given enough time because you can’t create lasting wealth out of thin air.

So is the threat of higher oil created by this crisis pushing gold? Pavel Molchanov (Raymond James) claims there is plenty of oil and in fact Saudi Arabia is below output of just a year ago and could help if things get out of hand. He also notes that any outrageous action on the part of a coalition could bring the opposite of intended purposes as it might force Iran to withhold oil and so disrupt world trade.

I think the politics of the Middle East are difficult to understand using a Western mindset and so military action is always the wrong approach. I also question all the “facts” about the chemical attack in the first place. It would seem we have not learned much from the Bush era mistakes and both Russia and China are quiet on this subject. Why would Syria risk turning world sentiment against them when they are already winning the ground war against insurgents? The gas was delivered using Russian ordnance which points to the Assad regime and the US claims it has supportive transmission evidence from the Syrian government but how reliable is this information within a country which has been in a civil war for 2 years?

All I am saying is let’s not get carried away when there is little to gain and perhaps all the Syrians need is a boot in the rump reminding them of their international obligations. This is why I think the latest gold run to above the $1400.00 mark should be suspect. We could see this mess resolved and gold will disappoint once again. Meaning all the psychological capital gained because the technical picture is much improved is lost and we are back to wondering about quantitative easing and the debate over the US debt limit. Both of these metrics are real and while I would not discount the oil argument I think it might turn out to be a tempest in a tea pot.

This is interesting from Bill Hall (Money and Markets): ‘Money Multiplier’ Slows – “First, despite the unprecedented expansion of the Federal Reserve’s balance sheet — from $840 billion in 2008 to more than $3 trillion currently — the amount of money that has actually gone into the real economy to promote business and job growth has been nominal. That’s right: While the monetary base has quadrupled, the amount of money that has made its way into the real economy is growing at an annual rate of 6.8 percent. How can that be? It’s because of something called the "money multiplier," which the Fed doesn’t control. The money multiplier is influenced by the lending and borrowing activities of the banks and their customers. And, currently, there is not a lot of activity. In fact, at the end of 2007, the money multiplier was 9, and presently it’s about 3.6.”

The question about why inflation is not pushing gold higher is the most asked this past year. Exactly why is above my pay grade but Hall’s commentary points to the heart of the matter. The other factor to consider is that the government is not good at fine tuning so if they overshoot this proposition that inflation is not a problem it will be more difficult to put the genie back in the bottle. In other words once the inflation numbers begin to increase it will be much harder to get them under control.

Well this is certainly thinking outside the box Sharps-Pixley: CITI: GOLD $3,500 – “Citi’s top technical analyst Tom Fitzpatrick has been a long-time bull on gold. And in a new interview with King World News’ Eric King, Fitzpatrick reiterates his view that the yellow metal could head to $3,500. “Within the gold dynamic, we believe this recent correction was very similar to what the gold market witnessed from 1974 to 1976 — as the equity markets recovered from the bear market bottom in 1974. In this instance, very recently gold went 14% below the 55-month moving average, exactly as it did back in 1976. After the low in gold in 1976, the equity market peaked 4 weeks later. So far, following the $1,181 low in gold, the peak in the equity markets has been 5 weeks thereafter. And as we started that historic upward movement in gold, beginning in 1976, this was also when the equity market peaked and went into a corrective phase, and that is when gold really came into its own. So we believe we are back into that track where gold is the hard currency of choice, and we expect for this trend to accelerate going forward.We still believe that in the next couple of years we will be looking at a gold price of around $3,500. As the gold/silver ratio plummets near 30, this would also suggest a silver price above $100.” To be clear, this is not Citi’s house view. According to Bloomberg, Citi metals analyst David Wilson is much more cautious with year-end targets of $1,150 in 2013, $1,145 in 2014, and $1,250 in 2015. Read more about Fitzpatrick’s near-term views on gold and silver at KingWorldNews.com.”

I would claim this is very optimistic but the point is that we are now seeing progressive bulls getting on their feet. This is the type of publicity which pushed the metals to all time highs and like it or not gets headlines.

Walk in was steady most of the day but phone business was on and off but mostly off. So the physical markets do not seem to be reacting to the problems in Syria at least for now but like I said you have all the ingredients for big trouble.

The CNI computers place my almost famous LA Physical Trade Business Number at a “6” which is the highest it has been in more than a week. Like us on Facebook and follow us on Twitter @CNI_golddealer. Thanks for reading and enjoy your evening. These markets are volatile and involve risk: Please Read Before Investing

Written by California Numismatic Investments (www.golddealer.com).

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