Gold Pops Higher on More Delayed Taper Talk

Gold Pops Higher on More Delayed Taper Talk

Commentary for Thursday Oct 24, 2013 (www.golddealer.com) – Gold closed up $16.30 to $1350.20 on more delayed taper talk. It also moved above its 50 day moving average ($1343.00) and 100 day moving average ($1326.00) which calls more attention to recent strength.

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We are now in a prime testing area for gold which will separate the men from the hype. Will gold not only challenge but hold above the important $1400.00? Without such a strong technical move on the short term nothing really has changed but with such a surprise we could once again be off to the races but still subject to the tapering and debt solving questions which push against one another. So don’t expect a rocket ship but these latest moves upward are encouraging in a market which really does not have a great deal of good news.

Silver closed up a mild $0.20 at $22.78 and we are now about $1.50 away from some interesting technical levels: silver is now above its 50 day moving average ($22.53) and its 100 day moving average ($21.40) but below its 200 day moving average ($24.39). So is this recent “creeps to higher levels” just a reaction to gold moving higher (and therefore subject to profit taking in the paper market) or are we seeing a return to a market which has been sleepy for sometime now?

Platinum closed up $16.00 at $1454.00 and was helped by solid car manufacturing numbers in the US and palladium was up $1.00 at $747.00.

This from Debarati Roy (Bloomberg): “Gold futures rose to a three-week high on speculation that the Federal Reserve will maintain the pace of monetary stimulus to boost economic growth. Fed policy makers will delay reducing $85 billion in monthly bond purchases until March, according to the median estimate of 40 economists in a Bloomberg survey last week.”

Told you this taper talk was a bit premature relative to real economic growth. But don’t think it won’t happen because sooner or later this program could become very inflationary and so needs to be modified. The trick at this point is figuring when…or is it? Does it really matter if the Fed tapers in March or mid-year (my guess) or later in the year? What you should understand is that by the time the Fed does taper gold will have factored this into its current pricing model. What is really important with the price of gold today is the combination of dollar strength and real physical demand from Asia.

Today is a big earnings day in stocks and stocks in my opinion should be watched carefully not that they are anti-gold but they do provide interesting clues. The problem with some gold commentators today is that their bullish message is tired: dollar collapse, economy stuck or moving in the wrong direction, out of control government spending. Not that this lacks credibility but after a time and especially when this mantra does not produce higher gold prices the public looses interest and real gold bullion dealers (there are a few remaining – but majority of big advertisers are really dressed up telemarketers looking to rob you) lose business. The point being that in today’s stock news for example hotel stocks are strong and this can relate to gold. The reasoning is that if hotel rooms are being rented the public has money so recovery however weak is there and brings pressure on gold because it increases taper talk. The same is true with oil which continues lower today and as this plays out puts more money in everyone’s pocket because gas is cheaper (moving toward $3.00).

I could even make the case that if you stretch out the dollar index (10 years) now trading under 80 and supporting higher gold you would see it becomes rather flat so causal relationships between it and gold become less important. So am I negative on gold? No actually I am short term neutral looking for taper news but still accumulating on weakness. My point however is that all of the above will support a higher inflation scenario for gold as soon as all this money begins to circulate. And commentators would do more justice to their business and the consumer if they were less “end of times” orientated and more focused on the next dynamic change in the financial world powerful enough to push gold prices higher.

How about some China rumors? (1) Too much growth the model cannot sustain 7% to 9% annual growth per year and will soon crash. Perhaps but I doubt it because this rumor has been around for years and each time there is a scare nothing happens. (2) Inflation is growing in China and the government controlled bank will take measure to cut back on lending. Actually this one is true but I doubt that the People’s Bank of China will do anything which could decrease their growing need for raw materials. This buying spree also includes gold and even if inflation heats up I would take the other end of the trade and say that this is another reason to buy more gold. (3) The Chinese are working to replace the US dollar with their brand of currency. This sounds good because “their currency” would be gold backed (supposedly) but China lacks the infrastructure (legal and otherwise) to create a transparent financial environment necessary to create a currency which would replace the dollar. (4) China is the largest manufacturing country in the world now surpassing the US. Actually this is true and according to the United Nations and MAPI in 1990 the top 3 were United States, Japan, and Germany. In 2000 it was the United States, Japan, and China and in 2010 it was China, United States, and Japan. This dynamic will have profound implications for gold bullion in the next 20 years. There are about 1.3 billion people who live in China which accounts for about 1/5th of the world’s population and all of them appreciate the importance of gold. India is the largest consumer of gold followed by China and then the United States. And for the record the Chinese are really not forthcoming about the amount of gold they have so my bet is that the real number is greater than anyone thinks. (5) China holds about 4 trillion dollars in foreign cash reserves (a very large number) and about half of that is US related (bonds and treasuries) meaning they could buy all the available gold in the world if they really wanted to and while this is not in their plans you can see it is in their best interest to have a hedge against all those dollars.

Walk in cash trade was slow today and the phones were slow to moderate so the public is not exactly throwing money at this market which is interesting because prices do indicate something is afoot (the “what” part is the missing key). The CNI Activity Scale came in at a modest 3 today. Our new CNI Activity Scale will take into consideration volume, open and closed orders (buying and selling), the cash trade, and the hedge book: (Monday – 3) (Tuesday – 3) (Wednesday – 5) (Thursday – 3). The scale is 1 through 10 (5 being relatively busy and this approach considers today’s business so it will be more intuitive). We believe this is a reliable way to give you an idea of what a real bullion business is doing without the sales pitch.

Phase One of our new golddealer.com website will soon be complete (Oct 28th best guess) and includes a new look along with live pricing. It will also include Live Chat, you will be able to set up your own customer account, and you will receive automatic email confirmation on buying or selling. Look for further improvements before year end which makes accounting, shipping and tracking 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 up and operational and the cash trade loves this idea. The feed and graphs are live and bullion products are programmed with premium spreads so your choices are easier. There is nothing like this on the West Coast and visitors enjoy complete transparency when buying or selling.

Like us on Facebook and follow us on Twitter @CNI_golddealer. Our Daily Gold Newsletter archive has been moved and enlarged (30 days) to our Facebook page and the new website will include a direct daily newsletter. Remember our best price guarantee (call Kenny 1-800-225-7531 and save money). Thanks for reading and enjoy your evening. These markets are volatile and involve risk: Please Read Before Investing

Written by California Numismatic Investments (www.golddealer.com).

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