Commentary for Tuesday, June 9, 2015 – Gold closed up $4.10 at $1177.30 on the Comex today so we remain stuck in the $1170.00 – $1190.00 band since late May. Still gold is struggling with that downward bias which makes the short paper players money – so for now the bears are laughing.
The overnight Hong Kong and London markets were both higher – pushing above the $1180.00 mark. But the domestic trade sold-off and on the day gold closed modestly higher.
This does not feel like a short covering rally relative to yesterday’s close of $1173.20 but we may be seeing some bargain or safe-haven buying. All in all this market may be just subject to summer drift on the short-term – especially because things like the Greek default do not seem to make much difference with traders. The fact that Greece postponed its due payment to the end of the month would have normally created tension – but not this time. It could also be that lack of fresh news reinforces the status quo – and narrow trading ranges remain common.
This is, however the second day of small gains for gold so let’s consider the Dollar Index. We closed yesterday at 95.25 and the range today has been from 94.85 through 95.58 – the reading as of now being 95.16. So we are almost half a point off highs if you are looking for another reason for gold to be at least firm.
Crude oil is also on the firmer side – today’s price chart moving from 58.50 to over 60.00 a barrel. Higher crude might in the longer term help to firm up the price of gold but with the latest IMF view which is looking for less world growth it is hard to get excited about higher oil prices.
Silver closed unchanged at $15.95 in very quiet trading. Silver has seen a rising support line since December so there is some off the radar support. Our most popular product today was the 10 oz Silver Bar American Freedom. And it’s interesting that silver accumulation in the exchange traded funds is firm. The ETF holdings for June have moved from 611 million to 614 million ounces – which shows interest by shorter term players. As far as our across the counter action – sellers of silver bullion at these levels are non-existent.
Platinum closed up $7.00 at $1108.00 and palladium was off $4.00 at $738.00.
When markets trade sideways or lower it makes everyone nervous. That’s the reason I like professional traders who understand price movement in gold and silver. Kira Brecht (Kitco) is one of these traders – solid even as some question the basics. I have read her commentary for years and always learn something about the real world of gold and silver. Here is her latest insight and not to be missed especially as gold is trading at the lower end of its current range.
This from Kira Brecht (Kitco) – Gold Traders Are Fickle, Investors Watch Long Term Trends – Traders are a fickle group. One day attention focuses on one issue, next day the key market drivers are different. There are a bevy of factors swirling around for the gold market in the short-term, namely expectations the Federal Reserve will hike interest rates this fall. However, this is not new news. The Fed has been broadcasting these intentions for literally months now. Yet, fickle traders sell gold on Friday following a strong U.S. employment report. Traders…
Then, there are investors. Long-term investors aren’t swayed by short-term dynamics. Investors have their eye on the big picture, the longer-term. Not today, not this week, and maybe not even this month. Investors think in terms of months or years.
Gold investors have a lot of food for thought these days. Here are just a few recent issues that could matter to gold investors considering longer-term investment decisions.
1. PHLX Gold/Silver index seasonal trend. The folks at StockTradersAlmanac.com follow seasonal and historical trends that impact the stock and other markets. They’ve crunched the numbers and found that over the past 15 years, the PHLX Gold/Silver index produced an average gain of 14.6% from its end of July bottom to its late December high, according to research from StockTradersAlmanac.com.
What is the PHLX Gold/Silver index? It is an index which includes 30 precious metals mining company stocks.
“Obviously, moves higher by physical gold and silver would benefit the companies that mine the metals, but the stocks can also rise in anticipation of higher precious metals prices and during periods of uncertainty,” wrote StockTradersAlmanac.com in a research note to clients.
2. Indian Economy Continues To Grow Gangbusters. While the U.S. and other advanced economies are desperately trying to squeeze out economic growth in the 1-3 percent range, India is growing at a solid pace. Real GDP in India rose 7.5 percent on a year ago basis in the first quarter, noted Wells Fargo Securities.
Looking ahead, “Lower interest rates should help to strengthen growth in investment spending in coming quarters. Indeed we are generally optimistic on Indian growth prospects and look for real GDP to grow at roughly the same rate in the current fiscal year as the 7.3 percent rate that was achieved in the fiscal year that just ended,” wrote Wells Fargo economists.
Why does this matter for gold? India consumers have an insatiable appetite for gold and solid growth prospects will underpin their ability to continue amassing the yellow metal for investment and wealth preservation. In 2014, India and China together accounted for 54 percent of consumer gold demand, according to the World Gold Council.
3. OECD Slashes World Wide Growth Prospects. Also in the news this week, the Organization for Economic Cooperation and Development downgraded its forecast for global GDP in 2015 to 3.1% from a previous outlook for 3.6% growth. Slower than expected growth in the U.S. in the first quarter declining growth in China were cited as two main factors behind the downgrade.
“The global economy can be characterized as only achieving a muddling-through “B-minus” grade,” the OECD said.
“The global economy is projected to strengthen, but the pace of recovery remains weak and investment has yet to take off” OECD Secretary-General Angel Gurría said. “The failure to trigger strong, sustainable growth has had very real costs in terms of lost jobs, stagnant living standards in advanced economies, less vigorous development in some emerging economies, and rising inequality nearly everywhere.”
What does this mean for gold? Major advanced economies, including Japan and Europe remain in massive monetary easing mode, which will continue to devalue their paper currencies. The global economy remains on weak footing. Many analysts believe that gold, as a tangible hard asset, will remain an attractive real investment as governments continue to attempt to stimulate economic growth in the months and years ahead.”
I rarely need another reason to own physical gold because I have learned with 34 years in the trading business that you never really know what world governments have in store. But this argument gets tiring especially in a market which is either neutral or worse moving lower.
But like I have said many times owning gold for me is not an option – it is a necessity. A balanced approach in your investing makes sense so I usually suggest about 10% of your net worth be in gold and silver bullion. More if you believe the world is in dire straits but this is not my opinion we will all muddle through and in the end inflation will take its toll.
At any rate I am singing to the choir and I would add a personal reason for owning gold. I simply like the stuff – it provides me with a secure feeling that my life is not completely in the hands of government and for this monetary independence price becomes secondary.
So in this time of lower ETF holdings, negative gold press, stock market records and Internet giants worth billions who never make a dime it’s nice to know that our friends at the Perth Mint (wonderful products – wealth you can actually hold in your hand) has produced a list of 12 good reasons to own gold today! Read away and rejoice in the notion that not all the world has lost its head surrounded by this Keynesian nightmare.
This from Anthony Hart (Perth Mint) – 12 reasons to own gold now: Part 1 – If you needed any further justification to take the plunge and invest in some precious metals, or to add to current holdings, then read on. Below we provide our first half dozen reasons why, in no particular order, investing in gold may just be a good idea.
1. Excessive Global Debt – Whether you consider Sovereign, Corporate or Private (individual) debt we are at or near historic highs on almost any metric you might care to evaluate. The markets attempt to deleverage after the Global Financial Crisis/Great Recession was offset by Sovereign state bailouts, financial repression and rampant money printing. The ongoing suppression of interest rates has allowed numerous struggling parties – be they Corporate, Individual or Sovereign – to continue to service, and in some cases add to, the high levels of debt held on their respective balance sheets. Greece is perhaps the most public example of ‘debt retention’ where potentially the more prudent and fair solution may have been for a constructive default. The combination of these excessive debt levels with the apparent refusal to allow the market forces to prevail (and subsequent defaults to ensue) has somewhat tied the hands of Sovereign states and their related central banks – largely leading to the following 2 points.
2 . Low Interest rates – Many critics of gold point to its lack of yield as a key weakness of gold ownership. Although it may be tempting to dismiss this out of hand, there is no denying that by allocating some of your precious resources to gold ownership, you are accepting the opportunity cost of not receiving any yield and/or income. However, in the low interest rate environment that we currently have throughout the developed world this opportunity cost is greatly reduced, if not negated entirely. As a matter of fact, in some jurisdictions, negative interest rates have already been introduced, and some bond yields have already dipped into negative territory. Interestingly in both of these specific aforementioned circumstances, gold actually starts to have a more attractive yield.
3. Money Printing – Call it quantitive easing, asset re-purchases or ‘one of three arrows’, the results are largely the same – a significant increase in the balance sheet of central banks and a considerable monetary influx into the financial system. Given the digitisation of our financial system, this is easily achieved without even actually printing any additional circulating currency – just simply adding a few zeros via computerised systems achieves the objective. How much this translates into genuine stimulus at main street level is debatable, although it’s unclear if this is genuinely the desired outcome. At this stage there is little end in sight for this unconventional monetary stimulus – as soon as one jurisdiction puts the baton down, another comes to pick it up. As we are in uncharted waters, it is unclear what inevitable outcome this will have on the global economy in the medium to long term, but what is clear from history – more money chasing the same amount of goods (including gold) inevitably leads to increasing prices.
4 . Currency Wars – It is somewhat inevitable in any low growth global economic environment that beggar thy neighbour policies get some airtime, albeit not necessarily publicly. Given the resistance internationally to increasing barriers to trade through tariffs and restrictions (a great lesson learned from prior financial calamities, not least of which was the Great Depression) various Sovereign states are required to be more subtle in their attempts at ‘stealing’ growth from competitors. A tried and true method of achieving this is by weakening the currency, making imports more expensive and exports and labour costs cheaper, providing a quick and easy boost to competitiveness. Unfortunately this is perceived as preferable to true structural reforms and resultant productivity gains that actually may benefit the global economy in the long run. As more nation states engage in currency debasement, real assets become increasingly attractive.
5. Financial system fragility – The Global financial system is now so integrated that a crisis in any one area could easily set off a contagion effect, reverberating throughout the global financial marketplace. We must also consider the derivatives market, with value estimates from 600 trillion to as high as 1.5 quadrillion – that’s 1,500,000,000,000,000.00 in numerical terms – or at least 20 times global GDP. Yes – you read that right, the current global financial system supports ‘hedging transactions’ (I use the term loosely) that in total face value are equal to more than 20 times the total measured output of goods and services from every man, woman and child on our planet. In light of these facts, I think it’s relatively easy to acknowledge that there is some fragility within the system (Ed note – this sentence is being nominated for understatement of the year).
6. Geopolitical Risk – Although this is an issue that never seems to fully go away, no matter how enlightened and learned we become as a collective race, it does appear that of late the risks have been heightened. The Middle East continues to be somewhat of a powder keg with Syria, ISIS, Iran and the Saudis ‘incursion’ in Yemen all vying for print space on a regular basis. Looking to Asia we have the US openly stating they are engaging in a ‘pacific tilt’, including in relation to force projection, clearly attempting to contain a rising China. Additionally, China themselves have been throwing their weight around in their own backyard with the South China Sea seething with territorial disputes. The renewing of tensions between Russia and the US (and greater Europe), most aptly represented by the conflagration within the Ukraine, shows that even geographical locations close to the ‘developed world’ are not free from open conflict. Given Europe has given rise to 2 of the most bloody and destructive conflicts in human history, it’s not overstating the fact that geopolitical risks are somewhat heightened.
Anthony Hart (Perth Mint) – 12 reasons to own gold now: Part 2 will be posted Wednesday.
The walk in trade was just semi-busy – we did business but there was little buzz. The phones were exactly the same – not fall asleep time but nothing to write home about. Such are the pains of a sideways market during the usually slow coin dealer summer season.
The GoldDealer.com Unscientific Activity Scale is a “ 4” for Tuesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Wednesday – 7) (last Thursday – 4) (last Friday – 5) (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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