Commentary for Wednesday, Jan 20, 2016 (www.golddealer.com) – Gold closed up $17.20 on the Comex today at $1107.10 in another surprise move – as world stock markets once again falter and safe-haven buying is brought out again from the back burner.
I’m usually not big on pattern trading – but there is something interesting presenting itself in the gold market. Most believed that 2016 would be another bad year for gold – interest rate hikes – lack of any upside momentum – falling safe-haven sales – virtually zero inflation.
Fair enough – my contention was that physical demand (China and India) would prevail. We would see further testing of the $1000.00 / $1050.00 support levels while the rest of the world worried about the next blow up and quantitative easing continued unabated.
But in fact what happened was surprising – early January saw a run to the upside ($1110.00) and most wondered where this came from and if there would be follow through momentum. There was not and the big price reversal fizzled pushing gold back to the $1080.00 range – with little real safe-haven buying that I saw across the counter – even the ethnic trade passed.
Yet within 2 weeks gold would again push to above $1100.00 as red ink once again visited China, Japan and Europe. This second push to the upside was even more surprising as oil makes new recent lows and financial fear returns.
I’m not saying we are all in hot water again but something is not right in River City. We have moved from “all-in” to “all-out” to “all-in” in several weeks – at the beginning of a year which should have been boring and only of interest to people who really love the gold bullion market.
I am also not saying “gold is back” but it certainly is not on life-support anymore and might once again be reacting to world events. If this pattern repeats we could be in for a very interesting 2016. This second run to the upside was again fueled by red ink all over the place.
Also worth mentioning is the dollar – normally during another 400 point DOW route I would expect the dollar to gain in strength because of safe-haven buying. It did not – the Dollar Index closed yesterday at 99.08 and today we are trading around that same level – this in spite of the fact that the Chinese will almost certainly “print” to weaken the yuan which should have been positive for the dollar. This plays well into my scenario that perhaps the dollar will remain flat despite the fear of further interest rate hikes by the Federal Reserve.
The following three points are interesting from Reuters –
(1) The International Monetary Fund cut its global growth forecasts for the third time in less than a year, as new figures from Beijing showed that the Chinese economy grew at its slowest rate in a quarter of a century in 2015.
(2) Confidence about near-term sales growth among chief executives around the world has fallen to its lowest level in six years as China’s economic engine slows and a slump in oil prices signals deep unease about the global outlook.
(3) The U.S. Mint cut its weekly allocation of American Eagle silver bullion coins to 1 million ounces, just a quarter of the 4 million ounces that were rationed and sold last week.
China again – this hammering on Chinese growth is getting tiring – but it will further rattle the international markets. Keep in mind that when information is released about Chinese economic activity that China is a special case.
Who in the world could find fault with a 6% industrial growth rate and an increase in consumer spending of 11%? So unless you wake up to a calamity in the paper overseas markets (which might also be reflected in our stock market) I would discount the Chinese “slowdown” threat.
For now at least they remain an unequalled manufacturing giant and the Bank of China will inflate at the drop of a hat just to keep this economic machine well oiled. All in all – neutral for the price of gold – further rumors, good or bad will only add volatility to pricing.
The fact the worldwide confidence about near term sales growth has fallen to 6 year lows on the latest Chinese numbers is not surprising and the continued downward pressure on oil prices should be setting off alarm bells all over the world. The Europeans are still trying to drag themselves out of a no-growth spiral even after committing to a large quantitative easing program well into 2017. The ECB is now meeting so expect further talk of quantitative easing and perhaps pressure – suggesting any further move by the US will invite trouble. Some believe further Federal Reserve interest rate hikes are not likely and a few FOMC insiders thought the last increase was not a good idea. All in all – positive for the price of gold.
The US Mint cutting allocation of Silver Eagles by 75% is confusing. This would indicate that the Mint is working to match supply and demand estimations. This is not new but after closing the books on another record year (2015) I would have expected more follow through momentum. Perhaps this is why premiums on the 2016 US Silver Eagles are so cheap. All in all – neutral relative to the price of silver. But we may remain at the lower end of this trading range for months, especially if there is an excess of products in the supply lines. The good news here is that for the long term holder there is a great deal more upside than downside in the current pricing model.
This from Chuck Butler (EverBank) – “Gold is on the safe haven train today – it’s all about the fear stuff folks. That’s the only thing that really lights a fire under Gold these days, for it sure isn’t the news of Physical demand or shipments, etc. I was reading Ed Steer’s letter this morning, and came across some very interesting data on Gold in China. Seems that China has finally issued their 2014 Chinese Gold Association (CGA) report on Gold holdings. Now remember when the World Gold Council issued a report saying that China’s holdings increased 813.6 tonnes, and I questioned that figure? It seemed way too low for me. Well the CGA’s figure just released showed the increase to be 2,106 tonnes of physical Gold. Guess what the Shanghai Gold Exchange (SGE) withdrawals were for the same period? They were 2,101 tonnes. In the end Gold researcher extraordinaire, Koos Jansen was right, when he said he believed SGE withdrawals to equal Chinese demand for Gold. Interesting stuff for sure!
Silver closed up $0.03 at $14.14. Saw some real action in 2016 Silver Eagle Monster Boxes downstairs this morning so yesterday’s blah’s may have abated – of course the big pop in the price of gold always helps those sitting on the fence.
Platinum closed down $9.00 at $820.00 and palladium was off $10.00 at $487.00. Platinum is now trading for $287.00 less than gold and there is still not much physical platinum bullion floating around – either between competent dealers or from the world mints.
This from Bernardo Vizcaino (Reuters) – Islamic finance set sights on standard for gold-based products – A top guideline-setting body for Islamic finance is developing a standard for gold-based products in the industry, a move that could allow the use of bullion in a wide range of sharia-compliant applications.
Until now gold has been treated mostly as a currency in Islamic finance, limiting its use to spot transactions. There has been little guidance from standard-setters on products which classify gold as a commodity underlying more complex contracts.
The Bahrain-based Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) said last week that it had taken up the development of a standard for gold, a project which was launched last year by the World Gold Council (WGC), a London-based market development body.
“This standard is expected to have a substantial, positive impact … and will cover a wide spectrum of contemporary applications,” AAOIFI secretary-general Hamed Hassan Merah said.
AAOIFI issues guidelines that are followed wholly or in part by Islamic financial institutions around the world, which hold around $2 trillion in assets.
The WGC published an exposure draft in November which analysts believe could accelerate the timetable for the creation of a final standard. Such drafts have traditionally taken AAOIFI scholars two years to develop internally.
The WGC’s draft outlines several uses for gold such as investment accounts, derivative contracts, security collateral, exchange-traded funds and Islamic bonds, said Natalie Dempster, WGC managing director of central banks and public policy.
Potential issuers of Islamic instruments have expressed interest in products such as gold accumulation accounts and its applications could extend to liquidity management tools for Islamic banks, she said.
Islamic banks are expected to increase the amount of high-quality liquid assets (HQLAs) which they hold to meet stricter Basel III banking standards being phased in globally.
“Gold for its nature could fit into HQLA buffers that Islamic banks could hold,” Dempster said.
The exchange of gold must be on a spot basis if treated as a currency, but gold as a commodity could be the subject of a future sale under the principle of salam, or deferred delivery sale, the WGC’s draft says.
This would require a unilateral undertaking from the buyer of gold to execute a spot purchase at a later date, while the seller would have full discretion to opt out of that transaction. The WGC has held seminars in Dubai and Kuala Lumpur to discuss its draft and plans to stage additional technical workshops in the second quarter, Dempster said.
This is our usual ETF information – Gold Exchange Traded Funds: Total as of (1-13-16) was 43,338,155. That number this week (1-20-16) was 48,616,652 ounces so over the last week we gained 5,278,497 ounces of gold.
The all-time record high for all gold ETF’s was 85,112,855 ounces in 2013. The record high for Gold ETF’s in 2015 is 53,901,867 and the record low for 2015 is 47,394,412.
All Silver Exchange Traded Funds: Total as of (1-13-16) was 601,548,480. That number this week (1-20-16) was 598,735,052 ounces so over the last week we dropped 2,813,428 ounces of silver.
All Platinum Exchange Traded Funds: Total as of (1-13-16) was 2,369,704. That number this week (1-20-16) was 2,356,411 ounces so over the last week we dropped 13,293 ounces of platinum.
All Palladium Exchange Traded Funds: Total as of (1-13-16) was 2,384,658. That number this week (1-20-16) was 2,376,742 ounces so over the last week we dropped 7,916 ounces of palladium.
The walk-in cash business was brisk all day and the phones were just hit or miss which is surprising considering the big jump in walk-in trade. And as a parenthetical comment some of these investors were nervous today. I have not seen this kind of tension since the banks failed in 2008/2009 – a bit of an overreaction in my mind as I am sure this will all settle down by the end of the week. By the way we are experimenting with a new phone system – now that makes me nervous – will keep you in the loop.
The GoldDealer.com Unscientific Activity Scale is a “ 5” for Wednesday. The CNI Activity Scale takes into consideration volume and the hedge book: (Thursday – 3) (Friday – 4) (Monday – Closed) (Tuesday – 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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