Gold Closes Virtually Unchanged into the Weekend

Gold Closes Virtually Unchanged into the Weekend

Commentary for Friday, Sept 5, 2014 (www.golddealer.com) – Gold closed almost unchanged today even with all the jobs hoopla – so up $0.70 at $1265.80. But gold did lose $20.00 on the week as the dollar gained over 1% reacting the euro.

You can see gold is pretty flat going into the weekend. This is interesting because there are a number of things which could easily push prices lower but these factors are held in check because for now the insurance value of gold holds significant sway.

Regardless of the deserved positive spin the disappointing jobs number should support gold prices.  This from Daily Finance (Lucia Mutikani) WASHINGTON — Employers hired the fewest number of workers in eight months in August and more Americans gave up the hunt for jobs, providing a cautious Federal Reserve with more reasons to wait longer before raising interest rates.

Nonfarm payrolls increased 142,000 last month, the Labor Department said Friday. The unemployment rate fell one-tenth of a percentage point to 6.1 percent as people dropped out of the labor force.

June and July data were revised to show 28,000 fewer jobs created than previously reported. In addition, manufacturing saw no job growth and retail payrolls declined for the first time since February.

"Clearly it’s disappointing, but the preponderance of evidence is that the economy is still gaining a lot of traction," said Russell T. Price, senior economist at Ameriprise Financial (AMP) in Troy, Michigan.

The above was enough to produce an initial uptick in gold but this quickly faded indicating to me at least that gold traders are still just testing the waters – a few bucks on either side unchanged to see how the market feels. So even with a negative price bias traders remain cautious

The Russian/Ukraine cease fire  is a safe-haven take away for gold but traders do not trust that such an arrangement will hold water for long given Putin’s aggressive nature. The dollar strength has created significant head winds for gold and the Dollar Index as of this writing is 83.72 – this is nosebleed country for the Green Back and while there was some weakness this morning the yearly low is 78.91. The Dollar Index jumped almost a full point on yesterday’s news that the ECB would again lower interest rates and develop an asset buying program.

The ECB news should have been a big positive for gold but it wasn’t – this I assume is because the markets in none traditional fashion are waiting for results.

The price of crude oil this past quarter has not been gold friendly moving from over $105.00 a barrel to about $94.00 a barrel. So the fact that gold while not stellar in price action has held the line considering the many negatives.

Finally on the positive side for gold is the nagging problem of that potential rise in interest rates due to the winding down of the Federal Reserve quantitative easing program. Quantitative easing is an old economic tactic (the Japanese are masters) but does this really solve the stubbornly high unemployment problem? There is plenty of cash to push asset prices higher but little points to the true economic recovery relative to the middle class – those folks that spend the money needed to create a real pop in consumer spending. My point being that while traders may fear higher interest rates the reality might be just the opposite – a Federal Reserve forced to keep interest rates low which will again support the price of gold.

So who wins here? Gold technically is damaged and so the bears are in charge short term. But you might find that “insurance” premium I talked about earlier is more valuable than most believe.

The real problem gold might have is simply getting over the traditional summer blues. Demand from both China and India should soon pick up and in fact we have seen the first pop in physical gold bar demand from these sectors taking place across our counter. I bet you thought import numbers were only relevant to countries – I have always believed there is a direct correlation to physical sales within the US.   

People like George Soros are already talking about shorting the stock market so the speculative money we have lost to stocks might soon be returning – all in all considering the pile of bad news gold has recently seen – the kid’s returning to school might turn golden.

Silver closed up $0.02 at $19.08 in a seemingly quiet paper market but there might be something up in the physical 100 oz bar market. This market is traditional for long term silver players – no glitz at all but cheap and reliable. Not a bad combination these days – at any rate even this market has been quiet this week but today it woke up – not real big time but enough so that inventory control had to recount available supplies in the vaults so interest is back.

Platinum was up $2.00 at $1410.00 and there is a $10.00 discount on the Austrian Platinum Platypus 1 oz – a beautiful platinum bullion coin which comes in its own hard plastic case. Discount limited to supplies on hand. Palladium was up $1.00 at $891.00.  

 Precious Metal Closes for this week – Sept 1 through Sept 5 – 2014

            Gold                Silver              Platinum         Palladium

Mon    (Closed)          (Closed)          (Closed)          (Closed)

Tues    $1263.70        $19.07             $1410.00         $882.00

Wed    $1268.90         $19.11             $1412.00         $825.00

Thurs  $1265.50         $19.06             $1408.00         $890.00

Fri       $1265.80         $19.08             $1410.00         $891.00

Our Patented Employee and Customer Survey – Gold’s Direction Next Week?

This is what the GoldDealer.com employees think – 6 believe gold will be higher next week – 3 think gold will be lower and 2 believe it will be unchanged.

Also consider a survey on what our customers think about the gold market next week.

Like the employees they were given three choices – up – down – unchanged. We limited the survey to a random sampling of 100 customers – unscientific yes but worth considering because these people actually took action: 65 people thought the price of gold would increase next week – 25 believe the price of gold will decrease next week and 10 think prices will remain the same.

Chicago Mercantile Exchange reports for the last 3 trading days – so in fact we are looking at the trading volume numbers for the December Gold contract: Tuesday 9/02/14 (190,582) Wednesday 9/03/14 (107,908) and  Thursday 9/04/14 (151,579) .

The volume numbers appear fairly high but jerky if such a trading word exists – perhaps inconsistent is better. This to me might indicate that traders are “in the military” the old “hurry up and wait” approach so favored by our Uncle Sam. If you have a military backgound this comment will make perfect sense.     

From CNBC (Jeff Cox) – Fed says Americans are hoarding cash

The low level of money movement in the US is a sign that people are unwilling to spend, according to a new paper from the St. Louis Federal Reserve.

One of the great mysteries of the post-financial crisis world is why the U.S. has lacked inflation despite all the money being pumped into the economy.

The St. Louis Federal Reserve thinks it has the answer: A paper the central bank branch published this week blames the low level of money movement in large part on consumers and their "willingness to hoard money."

The paper also cites the Fed’s own policies as a reason for consumers’ unwillingness to spend.

Though American consumers might dispute the notion that inflation has been low, the indicators the Fed follows show it to be running well below the target rate of 2 percent that would have to come before interest rates would get pushed higher. That has happened despite nearly six years of a zero interest rate policy and as the Fed has pushed its balance sheet to nearly $4.5 trillion.

Much of that liquidity, however, has sat fallow. Banks have put away close to $2.8 trillion in reserves, and households are sitting on $2.15 trillion in savings — about a 50 percent increase over the past five years.

"So why did the monetary base increase not cause a proportionate increase in either the general price level or (gross domestic product)?" economist Yi Wen and associate Maria A. Arias asked in the St. Louis Fed paper. "The answer lies in the private sector’s dramatic increase in their willingness to hoard money instead of spend it. Such an unprecedented increase in money demand has slowed down the velocity of money."

Monetary velocity — or the force to which money is put to work in the economy — is widely considered a key metric in measuring inflation.

Under normal circumstances, according to the Fed analysis, when the money supply increases at a faster rate than economic output, which has been the case since the Fed has instituted its aggressive easing practices, prices should keep pace. Factoring in the growth in the money supply against output, inflation should have grown at a whopping 33 percent annually, when in fact it has been rising less than 2 percent.

The reason that inflation hasn’t kept up with gains in the money supply simply has been that people are sitting on cash rather than spending it, which has kept money velocity at historically low levels. Yi and Arias explained:

During the first and second quarters of 2014, the velocity of the monetary base was at 4.4, its slowest pace on record. This means that every dollar in the monetary base was spent only 4.4 times in the economy during the past year, down from 17.2 just prior to the recession. This implies that the unprecedented monetary base increase driven by the Fed’s large money injections through its large-scale asset purchase programs has failed to cause at least a one-for-one proportional increase in nominal GDP. Thus, it is precisely the sharp decline in velocity that has offset the sharp increase in money supply, leading to the almost no change in nominal GDP.

The hoarding of money, then, is attributed to two factors:

A (gloomy) economy after the financial crisis.

The dramatic decrease in interest rates that has forced investors to readjust their portfolios toward liquid money and away from interest-bearing assets such as government bonds

The Fed pair go on to make a fairly stunning indictment of sorts about Fed policy:

In this regard, the unconventional monetary policy has reinforced the recession by stimulating the private sector’s money demand through pursuing an excessively low interest rate policy (i.e., the zero-interest rate policy).

They make one final point in regard to interest rates.

Fed policy, in which it has expanded its balance sheet to nearly $4.5 trillion by buying various debt instruments, including Treasurys, has driven interest rates lower. Under normal circumstances, the decline in 10-year Treasury rates would have pushed monetary velocity lower by 0.085 percentage points. Instead, it has declined 5.85 percentage points, fully 69 times more than models would suggest, the paper states.

This happened because the nominal interest rate on short-term bonds has declined essentially to zero, and, in this case, the best form of risk-free liquid asset is no longer the short-term government bonds, but money.

The findings, of course, beg the question of what happens once the Fed takes its foot off the throat of bond yields, people start spending again, and the velocity of money, at least theoretically speaking, runs wild.

Economist Michael Pento, a frequent and harsh Fed critic, believes the St. Louis group has some of its assumptions wrong, particularly its understanding of why people aren’t spending money. He sees it more as a function of high levels of debt that are constraining spending.

While Pento believes rates should rise, he thinks the initial reaction is going to be painful for the economy and unlikely to unleash a torrent of new spending.

"They’re hard-money guys and I like them," Pento said of the St. Louis Fed. "I think they’re trying to make an argument for interest rates to go up. But if they think rising rates are going to be good for the economy in the short term, they’re mistaken."

Christopher Whalen, senior managing director at Kroll Bond Rating Agency, believes the Fed will come to regret how much it expanded its balance sheet and how long it kept rates low.

"The risks of continued low interest rates when measured against market benchmarks such as corporate bond spreads and volatility suggest to us that the longer the (Fed Open Market Committee) continues current policy, the more likely we are to see an adverse event in the financial markets when interest rate policy does change," Whalen said in a note. "We believe that the Fed’s refusal to normalize interest rates now, during a time of high investor demand for assets, and relative economic stability and growth, could lead to adverse market conditions in the future."

The walk-in cash business was mostly busy today with special interest in 100 oz silver bars. The phones moved from busy to quiet throughout the day and while it does not seem that busy our activity number indicates things are moving along.   

The GoldDealer.com Unscientific Activity Scale is a “5” for Friday. The CNI Activity Scale takes into consideration volume and the hedge book: (Monday – Closed) (Tuesday – 2) (Wednesday – 3) (Thursday – 5). The scale (1 through 10) is a reliable way to understand our volume numbers.

Email confirmation using a PDF File when buying or selling is functional. It also includes the various forms of payment and includes bank wire instructions. And you can now see your actual invoice or purchase order on your computer screen.

When you buy or sell please check to see if we have your current email on file and that your computer will accept our email (no spam).

About shipping information – when buying or selling your rep will walk you through your current mailing information. Thanks for keeping us up to date if you have moved.

Our four flat screens downstairs with live independent pricing (BullionDesk.com) are a big hit with the cash trade. Live pricing moves all the buy/sell product prices on a real time basis. Yes – you can visit the store with cash and walk away with your product. Or you can bring product to the store and walk away with cash. When buying from us remember if you exceed $10,000 in cash (the real green kind) a Federal Form is necessary.

In addition to our freshly ground organic coffee offered visitors throughout the day we have added cold bottled water, cokes and Snapple. We have also added fresh fruit in a transparent attempt to disguise our regular junk food habits – which seem to grow when things get this quiet. And it does not help that the world famous Randy’s Donuts is just down the street. 

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I would like to finish by thanking many of you for your kind customer service comments. The staff meets daily to discuss customer service and your input (positive or negative) helps us improve. You can email me directly (RSchwary@aol.com) with comments and your business is very much appreciated.  

Thanks for reading from your friends at GoldDealer.com and enjoy your weekend.

Disclaimer – The content in this newsletter and on the GoldDealer.com website is provided for informational purposes only and our employees are not registered financial advisers. The precious metals and rare coin market is random and highly volatile so it may not be suitable for some individuals. We suggest before deciding on a course of action that you talk with an independent financial professional. While due care has been exercised in development and dissemination of our web site, the Almost Famous Gold Newsletter, or other promotional material, there is no guarantee of correctness so this corporation and its employees shall be held harmless in all cases. GoldDealer.com (California Numismatic Investments, Inc.) and its employees do not render legal, tax, or investment advice.

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