Commentary for Tuesday, June 2, 2015 – Gold closed up $5.80 at $1194.10 on the COMEX today as gold once again looks at $1200.00. Trading opinion, as to general market direction remains mixed. The Hong Kong overnight market was flat but the London players began to push prices somewhat higher and this mild upward trend continued in the domestic market.
Crude oil prices, while choppy have been generally higher since Friday and as of this writing are $61.33 a barrel – surprisingly firm which supports the price of gold. The real story however centers on the dollar. The Dollar Index closed strongly yesterday at 97.43 – today’s low was 95.67 and today’s high was 97.53 – as of this writing we are trading around 95.74 and moving lower. That is a significant spread and the reason the dollar is moving lower is because the euro is having its best day against the dollar in two weeks. Considering the slide in the Dollar Index I am surprised gold did not do better on the close.
According to MarketWatch – “Gold is marginally higher “due to concerns about the Greek situation and concerns about the health of the U.S. economy,” said Mark O’Byrne, a director at GoldCore in Dublin.
“Stocks are under pressure … and this is leading to a safe-haven bid to gold,” he said. “This may continue given that many stock indices look quite over valued and gold has the hallmarks of a market that has bottomed or is in the process of bottoming out.”
You are probably tired of hearing about Greece – but it does have the markets on edge. And with an aggressive government it could create problems within the EU. Will it happen? Probably not but it sure does keep the pot boiling. Also according to MarketWatch – ATHENS – “Greece’s creditors have reached a consensus on the terms of a proposed deal to put to the Greek government, according to two people familiar with the talks.
Officials representing European institutions and the International Monetary Fund on Tuesday morning completed the draft of an agreement to unlock bailout aid for Greece, after key European and IMF leaders met in Berlin late Monday to overcome differences between Greece’s creditors, they said.
Eurozone governments and the IMF have agreed to press Greece for far-reaching economic overhauls, while the IMF has softened its insistence that Europe offer explicit commitments to relieve some of Greece’s debt burden, the people said.
Greece’s high debt remains a contentious issue in the background between the IMF and European lenders, led by Germany, but is not holding up the creditors’ proposal to Greece. IMF head Christine Lagarde warned at the Berlin meeting that debt restructuring will become necessary if Greece doesn’t enact thorough economic overhauls that improve its budget balance and lift its growth trajectory, these people said.”
These debt numbers however are discouraging – Greece will make the 300 million euro payment due the International Monetary Fund (IMF) and other creditors on Friday. They owe another 1.3 billion euro due later this month but this agreement between creditors and Greece will give them access to some $7 billion. And when the numbers get this big the fracturing of the system can create a goofy outcome. Consider that individual Greeks are taking money out of the banking system in Greece and putting it into other European banks who are then lending it back to Greece. Does this sound like a sound financial plan to anyone? And does it make anyone nervous that the Germans are buying gold like crazy?
So let’s compare the COMEX gold close ($1194.10) against gold’s most popular moving averages. Gold 50 DMA is $1198.00 – its 100 DMA is $1211.00 its 200 DMA is $1211.00. The news is surprisingly good – considering the market letdown when gold could not hold its last attempt above $1200.00 – the close approaches gold’s 50 Day Moving Average and is only $17.00 away from the 100 and 200 DMA. I would not get too excited here technically as gold is still very defensive but turns flat around $1190.00.
There are still two trading camps out there – the pessimistic “we will soon break lower” fellows and the more optimistic group which claims gold has “turned the corner”. The latter group is bolstered by the world’s ever increasing supply of paper money chasing anything of value and the increasing physical demand especially through China and India. Who wins here is anyone’s guess but it does help to balance your financial exposure with gold bullion.
I would also watch the premiums on smaller gold coins for a better picture of what is happening in Europe. For now premiums over melt on all of these small bullion coins remain cheap meaning it looks like there is little action. For example the Austrian 1 Ducat (.11 oz pure gold) are a bargain at $140.40 – that’s $60.00 per ounce cheaper than the also popular American 1/10 oz Gold Eagle. If you see these premiums rise it will mean the small European saver is worried.
Silver closed up $0.12 at $16.78. The premium on American Silver Eagle Monster boxes is moving lower – this is a sure sign of dealer inactivity during a typical summer.
Platinum closed up $9.00 at $1113.00 and palladium was down $4.00 at $768.00. Notice that with platinum trading $81.00 dollars less than gold the premium on American Platinum Eagles 1 oz has not moved lower. This does not mean there is any big action going on in either direct investor buying or the trading of gold bullion for platinum bullion. It simply shows there are not enough American Platinum Eagle coins to go around and the US Mint is still sitting on the fence.
This from Chuck Butler (EverBank) – “There was some other friendly news for the euro this morning. The “Flash” reports for CPI (consumer inflation) in the Eurozone came in higher beating the estimates. On a month to month basis CPI grew 0.3%, the core CPI grew 0.9%. This is good news for the Eurozone, nascent inflation. But, I think the European Central Bank (ECB) is going to have to wait a long, long time to see CPI at their target rate of 2%. Shoot Rudy, I would be super-surprised to see Eurozone inflation reach 1% by the end of the year! But the idea here is that this bump up in inflation is a result of stronger economic growth in the Eurozone. To me, it appears that the Eurozone economy has troughed. If that proves to be true, the euro could avoid all the nastiness that a ton of economists and currency observers are still calling for.”
I thought this was an interesting comment form Chuck Butler. Perhaps the news out of Europe and even Greece is not the end of the world – the European Central Bank is buying bonds and taking a page out of our play book. Liquidity is improving and I think you will find Europe is quicker to really recover than the US – which supports my notion that the euro will not do as badly against the US dollar as pundits claim. All of this may push the dollar lower against the euro and a generally weaker dollar these days is good for gold.
Harry’s Box – To understand this commentary realize that a small percentage of gold and silver product which any large dealer buys is simply melted and turned into a new product. This was not always the case, in the old days people liked the idea of buying the odd and curious because while they wanted low premiums they were also collectors. And because our building is also one of the oldest coin stores in LA it attracts all kinds of collectors. So when we get something old and interesting we don’t necessarily melt the product – we put it into Harry’s Box.
To take advantage of this you will have to visit the store – so the project is limited but it has become popular. These are items you don’t see often these days like vintage early silver bars or so-called limited issue coins which you can’t find anymore but because no one cares so they sell cheap. At any rate if you are able to visit take a look – you might find something and for the record this area is visited by smaller dealers who resell the items on Ebay to eager collectors looking for something different.
The walk-in cash trade today was quiet and so were the phones. If this continues I will be once again talking about a downstairs popcorn machine.
The GoldDealer.com Unscientific Activity Scale is a “ 5” for Tuesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Wednesday – 3) (last Thursday – 3) (last Friday – 7) (Monday – 4). 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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