Commentary for Tuesday, Oct 7, 2014 – Gold closed up $5.00 at $1211.70 on light bargain hunting as the 5 day Dollar Index went flat just under 86.0.
Technically gold is still weak and the market belongs to the bears but we are seeing signs of some consolidation so the short players might be getting tired. Expect further downside testing by the short players but keep in mind that $1180.00 still looks solid.
And the world marketplace remains very fluid and dangerous. Watch dollar strength on the short term for direction and keep in mind the world is struggling economically in Europe. German industrial production for August announced today was down 4%.
World tensions remain high although the public seems to be adapting to extreme violence and Wall Street is showing a few cracks in the foundation. Expect a bumpy road in precious metals as we continue to consolidate but don’t be afraid of taking advantage of cheaper prices. The best prices usually appear when uncertainty is at its highest.
Don’t forget the slide in oil prices is also not good for gold. As Europe continues in a deflationary round of misery and gas prices across the US are the lowest in years the price of oil continues weak. Compare WTI Crude ($90.34) and Brent Crude (92.79) and the premium between the two is collapsing. Of course this is good for consumers and will add another small plus to available money for more stuff you don’t need. But this downward spiral in oil is limited and you have now seen the worst of it as Saudi Arabia continues to pump in the face of the glut. I think anything under $90.00 and they will turn the spigots down providing a cushion for oil and its lower price consequence for gold.
Silver closed up $0.01 at $17.19. But don’t let the small number fool you – there is action all over the place and mostly the public is buying. Remember the disconnect between the paper silver market and the real physical product delivery stream. The Canadian Mint has already gone on allocation which means they are struggling to match demand with available inventory. Most American traders believe the US Mint will also soon follow with allocation and as we approach the end of the year all world mints shut down for date retooling.
This from Chris Gaffmey (EverBank World Markets) – “Data out of Europe this morning caused the euro to give back all of the gains it had booked yesterday. The single currency came under some pressure in early trading after German data showed a 4 percent MOM drop in industrial output, far below the consensus forecast. This was the largest drop in industrial production since January 2009 and gave more credence to those who have been predicting trouble for Europe’s growth engine. The data emboldened those who expect further monetary stimulus from the ECB, perhaps full blown QE following the smaller asset buying which was announced following the last ECB meeting. As Chuck has suggested, any sovereign bond buying which would be involved in an expanded Quantitative Easing by the ECB would face stiff opposition from the Bundesbank, and would likely be challenged in the European courts. But the data does reflect the fact that Europe’s recovery is lagging the pace of recovery in the UK and US, which will likely keep the euro under selling pressure.”
Platinum closed up $13.00 at $1261.00 and palladium was also higher by $22.00 at $787.00 Rhodium was unchanged at $1215.00.
The price of platinum relative to gold is looking much better as the difference is now on the order of $40.00 instead of several hundred. We do see trading of gold bullion for platinum bullion but the big surge has passed and I can’t figure out why.
Trading gold for platinum has to be one of best value plays in the physical industry but is largely ignored by the public. The sales volume of platinum bullion relative to gold is tiny so for the most part platinum investment is still under the radar. This contrarian play should appeal to those looking to balance their physical position especially after the fall in the price of gold. Remember platinum is much scarcer and there is little in the way of platinum reserves.
And as long as we are talking about the PGM Metals also consider rhodium. There was a surge in sales not long ago but this too has calmed down as prices move lower. The Baird Rhodium 1 oz bar is the perfect play for everyone regardless of budget.
Granted rhodium is a dark horse play but everyone should own an ounce or two because it is the only precious metal which offers the investor 20 to 1 on their money because you are buying at the lower end of its trading range. There are no large supplies available and serious geopolitical tensions could bring western usage to a standstill overnight. You could make a good James Bond movie out of this metal and yet the American public is largely unaware of its investment potential.
How many Americans actually own gold or silver? Really, as a fraction of the population this number is small – probably less than 5%. And this is one of the primary reasons offered as to assessing the maturity of the current physical market in gold.
In other words are we in the middle of a larger blow off phase or is the price of gold and silver resting? This mind-set is interesting because as it relates to the man on the street the price of both gold and silver is collapsing. Not an unfounded conclusion especially if you are new to the precious metals since from its peak 2011 highs gold is down 35% and silver 65%.
So place your bets – is gold now a bargain or are we heading lower?
There are many reasons offered by hard asset believers which support the notion that these depressed prices simply offer another big opportunity which is placed within the super cycle of precious metals development – the core reason being paper money debasement.
I think an overlooked reason to continue a well thought out plan of precious metals accumulation is the fact that most Americans do not even consider ownership of gold or silver bullion.
When gold was surging in value most Americans were selling their scrap gold not rushing in to buy gold bullion from their neighborhood coin dealer. Of course there were plenty of buyers but most of the American public was interested in other things. They were worried about the 2008 financial collapse and some did move their bank money into gold money. But most only worried and took no precious metals action.
This is because the American people have no particular experience with worthless paper money. Our government has not officially defaulted on the paper it prints since the 1862 when the United States created the now famous US Note backed by the full faith and credit of the United States.
My point however is that the remaining precious metal bulls often rightly claim that the bull market in precious metals is not over by any means, and in fact may just getting warmed up citing the large pool of American investors who still remain on the outside of the precious metals envelope.
If only a fraction of the usually well healed American public decides gold or silver bullion is in their best interest the price of both metals would be making new highs. And not in its present defensive position of the bulls and bears tearing at each other.
The walk-in cash and phone business was busy most of the day but not hurried.
The GoldDealer.com Unscientific Activity Scale is an “8” for Tuesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Wednesday – 6) (last Thursday – 6) (last Friday – 7) (Monday – 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 very busy and see a low number – or be very 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 – perhaps a week or two. 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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