Commentary for Wednesday, Jan 27, 2016 (www.golddealer.com) – Gold closed down $5.60 on the Comex today at $1116.10. Keep in mind this close was before the FOMC announcement since that time gold has shown an $8.00 aftermarket – which means the electronic paper market saw the FOMC information release as a plus for the gold market.
This will translate into a somewhat higher Comex tomorrow but I still don’t see any legs here – we are still dealing with a defensive market.
Actually everyone expected no interest rate action from the Federal Open Market Committee this time around and in fact most expected a dovish release considering that world markets continue to struggle. There statement made most happy – they would continue to monitor the economy – labor is improving and household spending is increasing.
Their position on interest rates remains the same – they see rates rising over time but gradually. This reinforcement makes everyone sleep a little easier and the hope is that while the Federal Reserve keeps its powder dry – the rest of the world will “catch-up” while continuing to implement their own brand of quantitative easing.
The economic situation in China still draws attention because they are everyone’s end user. Sill this manufacturing giant continues to manufacture and sell goods to the world cheap. That does not mean their equivalent to our stock market will hold up – it has been heading south now for some time even though the Bank of China inflates and buys their own stock whenever necessary.
All of the above is not news – China is pretty much the elephant in the living room but I think it will hold together just fine. It is also interesting to note that Chinese gold imports hit 3.56 million
ounces in December versus 1.89 million ounces in 2014.
The only thing really scary about the Chinese model is that transparency is missing – they are better than they used to be but there is still plenty going on over there that is under the table.
Silver closed down $10.00 at $14.44. Another day of ho-hum here – I think the public has become complacent when it comes to silver bullion.
When the silver market was hot all it took was a relative drop in prices to bring in new buyers – today the big discounts from old highs are less important. Today the public wants that extra-discount at the bottom end of the curve – that means something less than $14.00 before volume numbers move higher.
Platinum closed up $5.00 at $880.00 and palladium was higher by $8.00 at $500.00. This area of the bullion market remains active – there are people buying and trading.
This is our usual ETF information – Gold Exchange Traded Funds: Total as of (1-20-16) was 48,616,652. That number this week (1-27-16) was 49,871,605 ounces so over the last week we gained 1,254,953 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 47,394,412.
All Silver Exchange Traded Funds: Total as of (1-20-16) was 598,735,052. That number this week (1-27-16) was 595,841,872 ounces so over the last week we dropped 2,893,180 ounces of silver.
All Platinum Exchange Traded Funds: Total as of (1-20-16) was 2,356,411. That number this week (1-27-16) was 2,345,547 ounces so over the last week we dropped 10,864 ounces of platinum.
All Palladium Exchange Traded Funds: Total as of (1-20-16) was 2,376,742. That number this week (1-27-16) was 2,326,651 ounces so over the last week we dropped 50,091 ounces of palladium.
There has been a small rally in crude oil ($32.10) but no one expects this to last – the generally accepted wisdom at this point is that oil is doomed to these lower levels. While this may make the reader happy at the gas pump it is murder on the worldwide economy and creates havoc with Wall Street. Both of these factors are generally negative for gold.
The US dollar remains steady – the Dollar Index (99.08) is virtually unchanged from yesterday so let’s call this neutral relative to the price of gold on the short-term but as the year progresses any potential rate hikes would push the dollar higher and gold lower.
Listened to Richard Fisher on CNBC this morning – who knows something about the inside workings of the FOMC once being part of the group. He made an excellent point about extremely low interest rates – a key for the moment in the direction of gold.
It is difficult to know how the price of gold will be ultimately be affected because of the long program of zero interest rates which the Federal Reserve initiated in 2008.
The reason being is that the exit strategy from this program is a chapter in a book which is not yet finished. This is an important point – the Fed can claim the economy is improving and it is if you use the solid real estate market as a guide. But he clearly stated that recent stock market gains are the result of cheap money and so an overvalued market must adjust downward.
This brings me back to something I have been saying for years – the results of cheap money over the longer term are difficult to gauge. We could well sail out of this economic trap if the Yellen team can figure out a way to “normalize” rates without much collateral damage.
If this were the case the price of gold would remain at current levels waiting for the next government emergency. If however there is a price to pay for this entire government largess – like severe market turmoil or inflation gold will clearly benefit.
The reason, in my mind that gold remains firm in its current price range is because the answer to this question is still uncertain.
So I am getting bashed about a bit on my feeling that this market is missing something – customers. I am not saying that safe-haven demand is non-existent – I just can’t see what all the fuss is about – especially this early in a market which has consistently disappointed the bulls.
Think about it – the gold press wants everyone to believe that this is the “big-one” and it might just be another covering rally in a market which was oversold. Now it happens that the timing of the purported Chinese “meltdown” helped the story line – but without a jump in actual physical sales across the counter I remain suspicious.
And the dovish FOMC meeting certainly helps the story line. There is a case to be made that the expected dovish tone (because of world economic problems) also helped gold to higher levels.
But a look at the 1 year gold price chart might be surprising. Gold has some heavy lifting to do technically at the $1150.00 mark and some very heavy lifting to do at $1200.00. Granted you can make a case that the technical picture has improved on the short-term but the longer term still looks gloomy.
So I’m still of the opinion that the best you can make out of these last two big pushes above $1100.00 since the first of the year is that gold has once again began to act like a safe-haven asset – that is something to be happy about.
The problem with this scenario is that gold is fickle – we have visited the “safe-haven” areas many times in this long unwinding process only to be disappointed when monster headlines of calamity only resulted in a generally lower gold price and a yawn by the general public.
The walk-in cash business was slow today and so were the phones. Most thought that buying or selling action today would be subdued as the public waited for the FOMC information release – actually there was not much activity either before or after the release. Perhaps the American public is not really that interested.
The GoldDealer.com Unscientific Activity Scale is a “ 3” for Wednesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 4) (last Friday – 4) (Monday – 3) (Tuesday – 3). 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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