Commentary for Thursday, June 18, 2015 – Gold closed higher by $25.10 on the Comex today, helped by a number of factors.
First the usual suspects – the Dollar Index closed yesterday at 94.28 – today range was 93.56 through 94.23 – at this writing we are looking at 94.05 so some weakness helped gold. There was also some safe-haven buying because of Greece and perhaps because the Asian paper market was weaker – created by possible problems in China.
I also think this push to higher ground was helped by three additional factors – the first of which we saw yesterday in the Janet Yellen statement. All Wall Street wanted to hear was “no rate increase” and stocks were off to the races. Gold popped higher in the aftermarket and part of today’s increase is reflected in that release.
But keep in mind that most believe Yellen will raise rates, perhaps a quarter point in September and some think once more before year end.
Today’s news which supported this initial rise last night was the release of the Philly Fed Index and Reuters’ piece on Consumer Prices. These are quoted below – and they are no big deal. Each reinforces the idea that our economy continues to improve so the possible September Fed rate hike remains on course – but if you read between the lines on each article there is something which sounds like creeping inflation talk.
Again, not a big deal by Yellen’s own admission but something that is on their minds – they remind the public often enough that this massive quantitative easing has not created that inflation nightmare some expected.
But inflation is a nagging concern – wait too long on moving the cost of money higher and the genie might escape the bottle. So any news print which even suggests inflation might be awakening has potential to move gold higher.
At any rate today’s move in gold is not a watershed event. The close ($1201.50) is important because we have regained the $1200.00 mark but as I pointed out yesterday we have done that many times since last November.
The real question remains as to whether gold can maintain the higher ground above $1200.00 in the face of rising interest rates – if and when they are presented by Uncle Sam. And until we have a bit more data I remain uncommitted as to direction – we are still stuck in the trading range established back in November between $1150.00 and $1250.00.
Silver closed up by $0.21 at $16.15 and the Australian Silver Kangaroo 1 oz Bar is still popular. Silver is cheap but remains price sensitive – there are still lots of buyers in this range because the cash trade loves the less than ten grand Monster Box – but the buzz increases significantly when silver spot moves below $16.00. This is curious to me in that even in the $16.00 range silver is very cheap relative to old highs of $48.88 in the summer of 2011.
Platinum closed up $10.00 at $1082.00 and palladium was down $2.00 at $718.00. Platinum is now trading at $119.00 less than gold.
This from CNBC – Philly Fed index rises to 15.2 in June, beats expectations – Manufacturing conditions in the region improved in June, according to a report by the Philadelphia Federal Reserve Bank released on Thursday.
The broadest measure of manufacturing conditions increased from 6.7 in May to 15.2 in June. That is the highest reading for the index since December. Analysts polled by Thomson Reuters had forecast the Philly Fed business index to rise to 8 for the month of June.
Any reading above zero indicates expansion in the region’s manufacturing. The survey covers factories in eastern Pennsylvania, southern New Jersey and Delaware.
It is seen as one of the first monthly indicators of the health of U.S. manufacturing, leading up to the national report by the Institute for Supply Management. Nearly every component of the index rose from May. The reading on new orders rose to 15.2 in June from the May reading of 4.0, while the prices paid sub index surged to 17.2 from negative 14.2 in May.
On the downside, the employment index fell to 3.8 from 6.7.
Also on Thursday, the Conference Board released its Leading Economic Index report that increased 0.7 percent in May to 123.1, following a 0.7 percent increase in April, and a 0.4 percent increase in March.
Analysts had expected leading indicators to increase 0.4 percent in May.
“The U.S. LEI increased sharply again in May, confirming the outlook for more economic expansion in the second half of the year after what looks to be a much weaker first half,” said Ataman Ozyildirim, Director, Business Cycles and Growth Research, at The Conference Board.
US consumer prices post largest gain in more than two years.
“While residential construction and consumer expectations support the more positive outlook, industrial production and new orders in manufacturing are painting a somewhat more mixed picture.”
The LEI is comprised of 10 components including manufacturer’ new orders, stock prices, and average weekly initial claims for unemployment insurance. The full report is available at The Conference Board.
This from Reuters (Eric Morath) – U.S. Consumer Prices Rise 0.4% in May – Price index has risen for four straight months as modest inflation pressures start to build – Consumer prices rose a seasonally adjusted 0.4% in May from a month earlier, the Labor Department said Thursday.
WASHINGTON – U.S. consumer prices posted the largest monthly increase in May in more than two years, a sign modest inflation pressures are beginning to build.
The consumer-price index, which reflects what Americans pay for everything from cars to cans of tuna, rose a seasonally adjusted 0.4% in May from a month earlier, the Labor Department said Thursday. That was the largest gain since February 2013.
The gain, however, primarily reflects a rebound in gasoline prices. The pickup in energy prices should support a firming in overall inflation during the second half of the year, moving price measures back toward the Federal Reserve’s 2% annual target.
U.S. ECONOMY – Consumer prices “posted a solid advance in May on a surge in gasoline prices,” said Oxford Economics economist Gregory Daco. Outside of energy, “inflation appears well anchored.”
The consumer-price index has now risen for four straight months after falling from November through January. That decline largely reflected the tumbling cost of a barrel of crude oil, which topped $100 last summer but then dropped below $50 earlier this year. Prices have since firmed near $60.
Energy prices rose 4.3% last month, but are still down 16.3% from a year earlier. Gasoline prices were up 10.4% on a seasonally adjusted basis in May, the largest monthly gain since June 2009. Gasoline prices remain 25% below year-earlier levels.
Overall prices were unchanged from a year earlier. That marks a slight pickup from April, when prices had fallen on the year.
Excluding volatile food and energy categories, so-called core prices increased 0.1% last month and rose 1.7% from a year earlier. Annual core inflation has remained between 1.6% and 2% since the middle of 2012.
Food prices were unchanged last month and were up 1.6% from a year earlier.
Federal Reserve officials are looking for signs of firmer inflation before they move to raise short-term interest rates from near zero. The central bank left rates unchanged following a meeting Wednesday.
The Fed’s preferred inflation gauge, the Commerce Department’s personal consumption expenditures price index, rose 0.1% from a year earlier in April. The measure has stayed below the Fed’s annual inflation target for three years.
“Inflation has continued to run below our longer-run objective, in part reflecting lower energy prices, Fed Chairwoman Janet Yellen said Wednesday. “Declines in import prices have also restrained inflation. However, energy prices appear to have stabilized recently. My colleagues and I continue to expect that as the effects of these transitory factors dissipate and as the labor market improves further.”
A stronger dollar has made imported goods relatively cheaper for American consumers. For example, prices for apparel fell 0.5% in May and footwear prices were down 0.6%.
But Americans spend the bulk of their budgets on food, energy and services, limiting the ability of cheaper imports to restrain overall inflation.
Thursday’s report showed shelter prices and the medical-care index both rose 0.2% in May. The personal-care index rose 0.3%. Airline fares, which had declined in five of the prior six months, rose sharply in May, increasing 5.7%. A separate Labor Department report showed Americans’ inflation-adjusted weekly earnings fell 0.1% in May. The decline reflects a pickup in inflation offsetting a modest increase in wages.
This is our usual Thursday Chicago Mercantile Exchange report covering the last 5 trading days – so we are looking at the trading volume numbers for the “August” Gold contract: Thursday 6/11 (264,561) – Friday 6/12 (267,333) – Monday 6/15 (266,551) – Tuesday 6/16 (273,644) – Wednesday 6/17 (274,492). These numbers remain in the higher end of the range.
The walk in trade was steady today but no heavy lifting – this is curious to me. It should have been more busy – this might indicate that a whiff of inflation and a $25.00 rise in the price of gold is just not interesting enough to move any boats. The phone trade was steady to slow which should also tell you the public is interested but not that interested.
The GoldDealer.com Unscientific Activity Scale is a “ 4” for Thursday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Friday – 4) (Monday – 6) (Tuesday – 4) (Wednesday – 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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