Commentary for Wednesday, Oct 22, 2014 – Gold closed down $6.20 at $1244.80 reacting to a stronger dollar and profit taking.
Gold was steady in the overnight Hong Kong and London markets but dipped in domestic trading as a strong dollar – moving as high as 85.67 on Dollar Index created some drag on gold prices.
There are other factors as well which caused gold to move lower – the Consumer Price Index data released this morning shows a 1.7% year on year increase – meaning inflation is still under control and more importantly there does not seem to be any deflation as we are seeing in Europe.
Still there are anomalies in the CPI number which might cause concern – food was up 3% – a big number with consumers.
The Federal Reserve “target” of 2% inflation is important – today’s CPI number of 1.7% is below that target so a continued low interest rate Federal policy seems intact.
There are a lot of moving parts in the CPI number and a lot of speculation. CNBC this morning pointed out that the windfall which had been hoped for with lower oil might be muted as food prices rise. Still generally inflation looks like it is no problem and so pressures gold lower.
Gold’s recent move from around $1180.00 to above the $1240.00 level has long traders in a profit position. So we are also seeing a bit of profit taking in an otherwise positive short term technical market.
Supporting gold is the flattening out of a generally negative oil market. This morning WTI Crude is trading at a higher $82.81 a barrel – so oil’s generally down market looks like it is getting traction which helps support gold prices.
Still in the longer term gold must show strength above the important overhead resistance number of $1280.00.
And the case for a continued stronger dollar remains – even though the Dollar Index has flattened out recently today it moved to the higher end of its 5 day trend. Previous Dollar Index close (85.40) today we saw a low of 85.23 and a high of 85.75. Hedge fund manager John Burbank made the case that all US companies which can create a global presence are doing so and this changes the trading paradigm – this expansion will continue to support the dollar.
On the positive side the physical demand for gold is picking up as China (now 50% bigger than it was 5 years ago), India and Russia seem to have picked up their game.
Finally, many now believe gold has put in a solid floor around $1200.00 so we might see a sideways market in the shorter term as the international threats like Ebola and ISIS seem to be moderating for the present.
Look for further direction from the coming Federal Reserve Open Market Committee next week as traders wonder if Yellen will end quantitative easing as promised.
Silver closed down $0.32 at $17.18. And physical buying or selling of silver bullion today was subdued.
Platinum closed down $12.00 at $1271.00 and palladium was unchanged at $775.00.
Dealer Surety Bonds – perhaps a growing trend in the gold bullion business. This from our friends at ICTA (Industry Council for Tangle Assets) – Since the Minnesota bullion coin dealer law (Chapter 80G) became effective on July 1, 2014, ICTA has been receiving many inquiries from its members and non-members about how the law may or may not affect them.
There is a lot of confusion about whether coin dealers need to comply with the law. The statute affects dealers residing in Minnesota, and any coin dealer outside of Minnesota, who buys or sells to Minnesota residents, regardless of where the transaction takes place.
The law requires dealers to obtain a bullion-coin dealer license for themselves and their representatives. The law also requires dealers and their representatives to comply with its sales practices / prohibited conduct, surety bond, and screening requirements.
I have included the above because there is a growing trend today more consumer protection within the gold bullion business. Within the last few years a number of large so-called bullion dealers have been closed either through bankruptcy or fraud prosecution and the states are now taking precautionary measures to protect the consumer. Minnesota was the first to pass a law requiring a Dealer Surety Bond.
The gold trade has made a bigger deal out of this than is necessary claiming that the process is onerous and expensive. In fact it is not – it took GoldDealer.com about 2 months – it requires background checks for owners and employees – and the ability to acquire a surety bond.
Surety bonds in the securities business are commonplace and may soon become a necessity for bullion dealers. They are simply an insurance policy which guarantees you get what you paid for – simple. The cost to the dealer depends on size and volume numbers but most honest bullion dealers will pay between $1000.00 and $2000.00 a year. Many fake gold dealers – more recently called telemarketers or “expert” IRA specialists will not qualify because they can’t get through the screening process.
So why should this be important to you? It might be something to look at when you are deciding on a good bullion dealer. A dealer which holds a Minnesota Surety Bond is one which follows the law and all his employees pass background checks to the satisfaction of Minnesota. So actually it’s kind of a cool idea – although that may be a minority position in the coin business. A surety bond will not solve all the problems caused by coin market telemarketing fraud but it is a step in the right direction.
This from MineWeb (Lawrence Williams) – Chinese and Indian gold buyers back in market in a big way – The gold price has been falling but physical gold demand appears, counter-intuitively, to have been rising dramatically over the same period. What has been particularly strange about the gold market over the past two years is that the stronger the physical demand appearing for gold, the weaker the gold price has tended to get.
In the past few months, the gold price has fallen back from around $1,340 down at one time to $1,190 and now hovering back seemingly trying to breach $1,250 on the upside again, yet by all accounts demand in the two biggest consuming nations has been soaring and they are, between them, taking in virtually everything the world’s gold mines can produce.
The two countries are India and China. A mild relaxation of some of the import controls put on gold in the former saw gold imports rise to around 95 tonnes in September, while the weekly withdrawal statistics from the Shanghai Gold Exchange show that gold demand has latterly also picked up extremely well in China after a good start to the year, but then a marked downturn from March to August.
Indeed the latest weekly figures from the SGE could be seen as particularly strong given that the markets were closed for half the period due to China’s Golden Week holiday. While the total for the two weeks at around 68 tonnes may not seem spectacular, given that these purchases were actually made in only five days (September 29th and 30th and October 8th, 9th and 10th) due to the long holiday market closure could suggest that Chinese demand is indeed soaring enormously.
Of course another interpretation might be that the very high sales on the days markets were open were because jewellers and traders primarily were stocking up ahead of the holiday and restocking after it, but one suspects the reality is something of a combination between the two. Subsequent weekly withdrawal figures will show a better light on these figures, but in general withdrawals from the SGE since the end of August have been running at far stronger levels than in the previous six months.
Overall looking at the more recent SGE withdrawal figures we are looking at Chinese total demand for the year reaching close on 2,000 tonnes and, if one subtracts China’s own gold production and scrap from the total this suggests gold imports near 1,300 tonnes this year – which is yet another nail in the coffin for the belief that Hong Kong net gold exports to the mainland are representative of total Chinese imports. They patently are not and have not been since around February this year as other points of import for gold have begun to dominate.
The other principal global gold consumer is, as noted above, India. Gold imports here have been so great that they have had a decidedly adverse effect on the country’s balance of payments and the previous government too action to mitigate this through imposing some fairly drastic import restrictions including a 10% tax level on gold imports and a regulation that 20% of imported gold would have to be re-exported (the 80:20 rule). It was widely hoped among the very significant Indian gold fabrication sector that the new Modi government, which took office earlier this year, would reverse this decision, but so far has not done so, again in recognition of the country’s current account deficit. There has been a minor relaxation of the 80:20 rule, but even this seems to have led to a massive increase in the country’s gold imports in recent months with September figures particularly high at $3.75 billion- equivalent to around 95 tonnes. August imports were put at around 60 tonnes plus.
Gold imports soar 450% in India – Of course these figures do not represent the full picture for Indian gold imports. The 10% tax regime on imported gold in particular has also led to substantial amounts of smuggled gold coming into the country. While recent reports have suggested that increased seizures have led to this becoming less attractive one suspects these are only the tip of the iceberg with thousands of Indian workers coming home daily from contract work in the Middle East, as well as more professional smugglers taking advantage of India’s long land borders and coastline.
So gold hungry China and India continue to accumulate gold, between them at a rate which probably accounts for close to the full total of global mined supply. And there are another group of Asian nations with similar gold hoarding proclivities, not quite at the same scale, but cumulatively significant.
One may ask that, if indeed they are collectively accumulating more than global new mined supply, and with scrap supplies falling with the gold price, where all this gold is coming from. The gold bugs will tell you it is gold leased from the world’s central banks which now can never be returned because it now resides in strong hands – yet remains on their books because it is leased rather than sold. Last year it may have come from gold ETF liquidations which amounted to perhaps more than 700 tonnes, but although there have been some sales out of the gold ETFs this year they have been on nothing like the scale of 2013. So the conundrum remains. Demand has to be exceeding supply, yet the price keeps falling. Surely that has to end soon.
And, of course, there is the other big unknown in the gold market demand. Is China surreptitiously building its gold reserves, but not reporting the increase until it feels it is politically expedient so to do. There is a lot of evidence out there in speeches by top Chinese officials and academics (and in a tightly controlled country like China these would seldom be made without some kind of government approval) that China is looking to build its gold reserves to around 8,500 tonnes, thus topping the US’s 8,133.5 tonne official reserve figure. But no-one knows for sure.
The walk-in cash trade was quiet in the morning but picked up considerably after lunch. The phones were just average to quiet. There was an amazing rush of last minute activity across the counter yesterday – the placed was packed but that buzz is missing in action today.
The GoldDealer.com Unscientific Activity Scale is a “4” for Wednesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 4) (last Friday – 5) (Monday – 5) (Tuesday – 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 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.
Email confirmation using a PDF File when buying or selling is functional. It also includes the various forms of payment and includes bank wire instructions. And you can now see your actual invoice or purchase order on your computer screen.
When you buy or sell please check to see if we have your current email on file and that your computer will accept our email (no spam).
About shipping information – when buying or selling your rep will walk you through your current mailing information. Thanks for keeping us up to date if you have moved.
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.
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Thanks for reading – your friends at GoldDealer.com. Enjoy your evening and we appreciate your business.
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