Commentary for Friday Nov 1, 2013 (www.golddealer.com) – Gold closed down $10.50 today at $1313.10 and with the daily and weekly trend higher for the dollar I am surprised we did not see more damage. While gold was off $39.00 on the week we have also seen recent previous weekly advances of $38.00 and $46.00 so things remain steady and staying north of the $1300.00 mark is worth something these days.
Some traders are looking at Europe for clues next week as to gold’s direction and some financial experts see positive change now happening with our friends across the pond. But I am still a Doubting Thomas with their unemployment rate at 12% and a declining inflation rate (1.1% to 0.7%) I anticipate deflation and so expect further quantitative easing in various different forms (which is supportive of gold).
The Chinese continue to push the gold envelope with net imports for September at 109 tons and this makes the 5th month in a row her imports exceeded 100 tons. With Exchange Traded Fund holdings moving lower it would seem the short term speculator is being replaced with the long term real physical holder.
Silver was basically flat down $0.03 at $21.80 and for some reason there has been a big pop in 10 ounce bars.
Platinum was up $3.00 at $1451.00 which means we finished the week off $3.00 so you can imagine what the volume numbers would look like even though this market remains cheap.
Palladium was higher by $1.00 at $738.00 which means we were down $11.00 on the week.
In the Kitco News Gold Survey, out of 34 participants, 19 responded this week. Of these, three see prices up, while 13 see prices down and three see prices sideways or are neutral. Market participants include bullion dealers, investment banks, futures traders and technical-chart analysts. Last week, a majority number of survey participants were bullish. As of noon EDT Friday, December gold on the Comex division of the New York Mercantile Exchange was down about $44 an ounce for the week. Those who expect weaker prices cited the lack of inflation, particularly after this week’s lower-than-expected inflation readings out the eurozone. “We have suggested that the European economy has not found its legs and deflation was the primary concern. The suggestion that the EU is considering lowering rates re-enforces the weak tone to the European economies. Short term, this will create U.S. (dollar) inflows which should be negative for gold; however, should the issues become more severe, a financial contagion could begin to spread, with gold once again becoming a safe-haven play,” said Peter Hug, Kitco’s global trading director. Others pointed to technical-chart considerations. “Prices are headed lower despite positive seasonal forces. Until we clear 1375, the uptrend (if any) can be called into question,” said Mark Leibovit, editor of VR Gold Letter. Those who see prices rising said the gold market’s current focus on future tapering is misplaced. “Gold’s response to the latest Fed meeting and comments is one-sided, focusing only on the future tapering. We have heard about tapering in the future often enough not to be scared any more…Instead, the gold market should focus on the fact that the Fed did not taper this month, nor last, and is unlikely to on (Federal Reserve Chairman Ben) Bernanke’s last meeting; or over Christmas; or (Fed chair nominee Janet) Yellen’s first meeting; or during the midst of the next U.S. budget talks and debt-ceiling crisis. So we are already into March with no likely reduction in bond buying. This is positive for gold,” said Adrian Day, chairman and chief executive officer, Adrian Day Asset Management.
This from Reuters (Nov 1) is worth noting: “Investors worry an improving economy could prompt the US central bank to cut back soon on its $85 billion monthly bond purchases. “Gold prices are still under pressure from outflows from exchange-traded funds (ETSs). A the same time, retail demand is very healthy,” said Lau. China bought more than 100 tonnes of gold from Hong Kong for a fifth straight month in September as demand for bullion bars and jewellery stayed strong, keeping it on track to overtake India as the world’s biggest gold consumer this year. “There is strong demand even after the April rush. I think the demand is still sustainable,” Lau said. Gold prices fell sharply in mid-April – about $200 an ounce in two days – prompting strong pent up demand in Asia for jewellery, bars and coins. The metal has fallen about 20% this year as investors have dumped holdings in ETFs and switched to higher-yielding assets like stocks. SPDR Gold Trust, the biggest gold-backed ETF, has seen outflows of over $20 billion this year, weighing heavily on global prices. Holdings of the fund are near four-year lows.
This outlines nicely the forces working mightily on the price of gold. Tapering anytime through the first quarter of 2014 is a negative but continued physical demand is a positive. The gold ETF selloff has been massive but holdings are now at four year lows. A hot stock market attracts money that might otherwise be used in the gold trade but a continued weaker dollar supports the price of gold.
Now here is where the gold trade sees some light at the end of the consolidation tunnel: the dollar is in a secular downtrend which must continue because of poor government money choices. Gold is in a secular uptrend which dates back more than 20 years (the so-called mega-trend remains in tack even with the big recent price blowoff). Considering all the negative press gold has received since we saw highs in the $1700.00 range about a year ago the selloff is 20%, hardly the end of the world considering its monumental run to higher ground lasting a decade.
Could we move lower from present levels? Sure but huge pent up physical demand comes into play within $100.00 of today’s close ($1313.10) so it’s not crazy to say the worst of this consolidation is behind us so continued buying on weakness makes sense. Finally the China Factor: we really don’t know how much gold she has, how much she wants, and whether we will ever see what she already has stockpiled. Her gold mining capability is already on par with South Africa and she does not sell the gold she mines.
According to the IMF the United States holds about 8 times more gold in the form of reserves than the People’s Bank of China. But we have every reason to believe that with her financial reserves already in place and future cash flow based on China’s immense industrial capacity that her already established gold buying trends will be reinforced. So ask yourself how long will it be before China becomes another Fort Knox? Gold does face challenges especially on the shorter term but in the wider view make sure you take advantage of cheaper prices and not get lost in the latest government tale of “things are better now”.
The walk in cash trade and phone business was steady but not hurried going into the weekend and there was some pop to phone orders in the afternoon. Our Activity Scale was a “3” today. The CNI Activity Scale takes into consideration volume, open and closed orders (buying and selling), the cash trade, and the hedge book: (last Monday – 4) (last Tuesday – 3) (last Wed –3) (last Thursday – 3) (Friday – 3). The scale is 1 through 10 and we believe this is a reliable way to “sense” what a real bullion business is doing without the sales pitch.
Phase One of our new golddealer.com website will be delayed another week (November 11th) and now I am beginning to feel like the President. It will also include Live Chat, you will be able to set up your own customer account, receive automatic email confirmation, and ask for daily Gold Newsletter email if you have the nerve.
Phase Two will make accounting, shipping and tracking even easier (check to see if we have your email address in the new system). We now offer the choice of USPS or FedEx Ground. Our new flat screens within the CNI Building are operational and the cash trade loves this idea. The feed and graphs are live and bullion products are programmed with premium spreads: there is nothing like this on the West Coast and visitors enjoy complete transparency.
Like us on Facebook and follow us on Twitter @CNI_golddealer. And remember our Daily Gold Newsletter archive is now part of our Facebook page. Remember our best price guarantee (call Kenny 1-800-225-7531 and save money). Thanks for reading and enjoy your weekend. These markets are volatile and involve risk: Please Read Before Investing
Written by California Numismatic Investments (www.golddealer.com).