Commentary for Monday, Sept 15, 2014 (www.golddealer.com) – Gold closed up $3.70 at $1233.60 as the market remains dicey – the big question being what will Yellen have to say on Wednesday? To raise rates or not to raise in light of a better than expected US recovery versus a still floundering EU drowning in debt. If it appears the US will be raising rates (doubtful) the bears will be wearing party hats.
The good news is that lower gold has finally attracted some over the counter buying – especially with the cash walk in trade. This metric has been showing some life of late even as the paper market was pushed lower by a poor technical picture. And there may still be life in the China/India gold trade – which has been sleeping of late but now is showing typical signs of life even though the Chinese numbers look a bit anemic.
The dollar remains strong and oil cheap holding a club over gold’s head but the world remains a mess on the nightly news as gold continues to get bad press. I was wondering out loud this morning – What else will prove a store of value in a world upside down? I know you have heard that one before but over my first cup of coffee the headlines were discouraging – Ukraine Sees The Worst Fighting Since Ceasefire Began – Iran Rejects A Global Strategy Against Islamic State Militants – Britain’s Prime Minister Heads To Scotland To Warn Against Independence – US Launches Programs To Counter Extremists. Really! How can gold not have a future as Europe slips back into a debt swamp and the amount of fiat currency worldwide reaches another record high.
And don’t discount that Scottish independence vote – what happens to their share of the English gold reserves if the “yeas” win? Just another problem which will help support gold.
Silver was up $0.01 at $18.55 and even though we are well under the magic $19.00 level the physical market seems slow.
Platinum was down $6.00 at $1365.00 and palladium was up $2.00 at $837.00.
Gold near 8-month low on fears of hawkish Fed, weak physical buying – SINGAPORE, Sept 15 (Reuters) – Gold edged higher on Monday as Asian equities tumbled but the metal continued to struggle near an eight-month low due to weak physical demand and fears the Federal Reserve may signal an early interest rate increase at this week’s policy meeting.
The Fed meeting may be pivotal as it debates a potential overhaul of its guidance on interest rates and seeks to nail down a plan for quitting its extraordinarily easy monetary policy.
Investors will parse the U.S. central bank’s words closely for any clues on the timing of the first U.S. rate rise in more than eight years. An announcement is expected on Wednesday at the end of the two-day meeting.
Any increase in interest rates would hurt non-interest-bearing gold and boost the dollar. “The (Fed) meeting this week will dictate price action for the precious metals,” said Samuel Laughlin, a metals dealer at MKS Group.
“Market consensus is for a June 2015 rate increase. However, any Fed comment hinting at an earlier rise would put further downward pressure on the metals.”
Spot gold fell to $1,225.30 an ounce, its lowest since January, early on Monday before climbing 0.4 percent on balance to $1,232.75 by 0627 GMT. Last week, gold fell 3 percent as the dollar index posted its ninth straight weekly gain.
Traders said the small gain could be due to safe-haven bids after Asian stocks fell to a five-week low due to a batch of weak data out of China.
Unwinding of some short positions, which have built up significantly in the past few weeks, could also be a factor in providing some support on Monday. But investor sentiment towards gold remains weak, with hedge funds and money managers cutting bullish futures and option bets in gold to their lowest in nearly three months, according to data from the Commodity Futures Trading Commission on Friday.
Dollar strength and weak physical demand are also weighing on bullion. Asia – the top gold-consuming region – has not shown too much interest in buying the metal at lower prices as buyers expect further declines.
“There is still very little interest from China,” said ANZ analyst Victor Thianpiriya. China is the biggest buyer of gold and robust buying in the country could lend support to global gold prices.
Thianpiriya said the sluggish demand was not, however, isolated to China.
This from FXEmpire – This is going to be one crazy week for the markets. Tuesday and Wednesday are the FOMC meetings with a decision and speech by Janet Yellen on Wednesday afternoon. No changes are expected in the current Federal Reserve plans but there is expected to be a change in the tone of Ms. Yellen’s presentation, as future interest rate increases are key. Although Ms. Yellen will not give any specifics, traders believe her words and a move from a dovish stance to a more hawkish position will signal plans to raise interest rates sooner than later. The US dollar and gold are expected to sit tight ahead of the announcements but could see a great deal of volatility on Wednesday afternoon. Gold fell Friday, settling at $1,231.50 on the Comex, down 2.8% on the week. Silver rose Friday, settling at $18.599 an ounce, down 2.8% on the week. Robin Bhar, head of metals research at Societe Generale, said there was a shift in expectations of Fed rate hikes this week, spurred by a paper published by the San Francisco Fed, which suggested market expectations of rate hikes were more dovish than FOMC projections. That added to the recent dollar strength, which also weighed on gold, he said. The dollar index rose to its highest level since July 2013 this week. The US dollar is currently trading at 84.42.
Within hours of Ms. Yellens speech, traders will turn their attention to two strange one time market events on Thursday. In Scotland traders will eye the vote for Scottish independence and in the US the launch of the Alibaba IPO. Which one will gain the most market attention is hard to say at the moment. The highly anticipated IPO of e-commerce giant Alibaba on September 18-19 is expected to raise more than $20 billion, a record in U.S. history. It is startling that the company that will set this record is based in China, a country that is challenging American global dominance. Fueled by the growing Chinese middle class, Alibaba dominates e-commerce in China, positioning the company at the center of the world stage and hogging the spotlight from Silicon Valley.
This from Kyle Caldwell (The Telegraph) – September is the time to buy gold, history suggests – “For those who like to follow investment trends there is a new one that is growing in popularity – buying gold in September.
Over the past 20 years, the gold price tends to shine in September. On average bullion has delivered returns of over 3pc, which is by far the best performing month for the precious metal.
Fans say there is a good reason for the trend – September marks the start of India’s gold gifting season. During September a huge amount of gold jewellery is bought by Indians as gifts for family members during the Diwali festival.
India is the second biggest buyer of gold, behind China, so when India buys in droves the gold price is usually given a short-term boost. As traders know gold tends to perform well in September they are happy to continue buying when the gold price goes up, which drives bullion higher.
According to Nick Moore, a commodity strategist at BlackRock, Indian gold buying has become a seasonal trend for the gold price. “The surge in Indian buying, during the festival period and also for the Indian Wedding season which starts at the end of September, has translated into making September the best month of the year for gold price gains,” Mr Moore said.”
I was never much of a believer in seasonal buying or selling but have made an exception with the Diwali festival. Still the government of India holds to the gold import tax (10%) which the new Prime Minister Narendra Modi promised to eliminate.
So what will happen to gold demand for the festival? Of course the smuggling trade will fill in for as long as it takes for Modi to lower the import tariff on gold.
But there is a new development which might prove more interesting. We have already talked about the interest the Russians and Chinese have in developing a new world currency to offset or even replace the dollar. In the past this idea was considered only a pipe dream – but today is it possible to challenge the dollar hegemony?
The reality is more political than economic but interesting – and even a small challenge might offer super mojo in supporting the price of gold, especially if that fight came from the Chinese sector.
The theory goes something like this – the Chinese want a hedge against all those dollars they have accumulated and so the Bank of China regularly increases its gold holdings. Now consider that the Chinese government is suspicious of everyone including the US and so their pretense after the Cold War is just that – dig deep enough into this political conundrum and you will see world domination – if not militarily then financially.
The renminbi is the official currency of the People’s Republic of China and the yuan is its basic unit of exchange. The reason the dollar works as the world’s trading currency is because our government and its value are stable.
There is no reason to believe however that this constant will always remain. The euro replaced a basket of long standing currencies in a consolidation move driven by a new economic reality.
The idea that the yuan will be used as a unit of exchange is already being tested between the Russians and the Chinese. And further supporting this political reality is the notion that the Russians want to play hardball when it comes to sanctions. And equally important the Chinese would love to have a currency offset relative to their dollar position – something beside gold. Why? For political reasons but there is a wider question in that dollar dependency places many world powers under the yoke of what they see as American imperialism. Whether you buy the argument or not there are many changing dynamics in the political world today – the Cold War is dead and the currency status quo might well be in for a challenge – something to think about when you consider gold and open that cute fortune cookie for dessert.
The walk-in cash business today was hot and we even attracted a whale! The national phones were generally busy most of the day and we did see a few sellers but mostly buyers. I think we are seeing the last of the summer doldrums – not that gold will move dramatically higher on the short term – especially with a weak euro – but investors are asking questions – there is an uptick in interest – perhaps even a bit of buzz.
The GoldDealer.com Unscientific Activity Scale is a “6” for Monday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Tuesday – 4) (last Wednesday – 5) (last Thursday – 5) (last Friday – 7). The scale (1 through 10) is a reliable way to understand our volume numbers.
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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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