Gold Remains Flat and Uninterested

Gold Remains Flat and Uninterested

Commentary for Thursday, May 28, 2015 ( www.golddealer.com) – Gold closed up $2.50 today on the COMEX at $1188.10. Some have claimed today’s action looked like a combination of short-covering and bargain hunting, but I believe gold has become a news junkie – and there is so little new information that trading has become boring.

I’m sure this will not be for long even though we are looking at typical summer action – there is the Federal Reserve rate increase, the Greek funding problem, the EU QE to sweat, Yemen and a host of related bubbles created in this super-liquidity world market – but in the meantime patience is required. And has been for some time – remember that gold has traded in a $200.00 range since late 2013. I believe this type of non-volatile trading pushes traders into other possibly more lucrative venues.

China imports from Hong Kong – 52.2 tonnes down from 66.3 tonnes in March. That was the lowest since August of 2014 but keep in mind China now has many new sources. Total worldwide production of gold is surprisingly flat. The year production number for 2014 was 2860 metric tonnes. In 2005 the number was 2470 tonnes and the high/low for all the years in between was 2280 tonnes / 2860 tonnes. In other words yearly world production has only varied by as much as 580 tonnes yearly over the last 10 years.

So why has gold gotten so quiet these last few days? Our shiny friend has ignored Greece and any possible settlement about upcoming payments. And gold has again ignored all the press-talk about the upcoming Fed rate hike. Gold has decided to trade quietly between $1180.00 and $1220.00 over the past 30 days.

The big drop of $17.10 we saw on the COMEX close this past Tuesday (5/26) was the big recent event. Since then the range has been very tight – $1180.00 – $1190.00 – that’s very flat given recent news of an interest rate hike and a very strong dollar.

The public is still buying gold bullion on a regular basis so they are taking advantage of lower prices. But there has been no big pop in sales and we have not seen any very large action. This type of trading has been typical of late – also of note is that we have seen no large liquidations.

As I am writing this I can see the GoldDealer.com phone bank – we have received as few as 3 incoming calls this morning between 9:00 AM and 10:00 AM and as many as 8. This is not big action but it does indicate the public is still very interested and perhaps even waiting.

There have been some trades of gold bullion for platinum bullion but even these would be considered by the trade small to average in size. When the market was more active, trades of 100 or 200 coins would be fairly common – not so today.

So gold seems stuck in a boring $30.00 range and this always kills action. But there seems to be resurgence in smaller orders and new customers.

The reason the price of gold is resting is probably because of dollar strength. The three month Dollar Index chart will give you a good idea of recent dollar-range. In March and April the Dollar Index traded close to 100.00 but sold off considerably reaching a short term bottom in May slightly above 92.00. It then reversed itself and moved dramatically higher – trading around 97.00 as of this writing. This is certainly a short-term reversal to the upside – thus the gold headwind. But it’s too soon to speculate about either continued pressure to the upside or even a break above old recent highs (100.00). Obviously if the dollar continued strong – it would pressure gold lower but that is not a forgone conclusion.

This latest dollar strength is the result of better US economic data and safe-haven buying relative to Europe – but if you look at the action over the past 3 days, the index has flattened out around 97.00. And in today’s trading world “not going up” is almost as good as “going down” relative to the price of gold.

So for now the best way to describe this market is “wait and see”. I would also add that the ethnic gold bar bullion trade is not waiting – they continue to buy any weakness. And in LA we own the cash and carry gold bar action so we have a good feel of what is really happening.

This from Reuters – The market has been responding to fairly convinced statements from (Fed Chair) Janet Yellen that they are ready to implement a tighter monetary policy," said Bart Melek, head of commodity strategy for TD Securities in Toronto.

"We're going to be pretty range bound for the next little while," Melek said. "The reason is we're waiting for the Fed."

Higher U.S. interest rates increase the opportunity cost of holding non-yielding bullion.

"Expectations of an easing of the tightening proved wrong so far…but the Fed is clearly ruling out next year," Macquarie analyst Matthew Turner said.

"It's like an impending dread, like an exam coming up that maybe won't be so bad after all, but everyone is just getting a bit nervous and reluctant to take big positions."

Silver closed up $0.02 at $16.65.

Platinum closed down $3.00 at $1115.00 and palladium was unchanged at $785.00.

"The market has been responding to fairly convinced statements from (Fed Chair) Janet Yellen that they are ready to implement a tighter monetary policy," said Bart Melek, head of commodity strategy for TD Securities in Toronto.

"We're going to be pretty range bound for the next little while," Melek said. "The reason is we're waiting for the Fed."

Higher U.S. interest rates increase the opportunity cost of holding non-yielding bullion.

"Expectations of an easing of the tightening proved wrong so far … but the Fed is clearly ruling out next year," Macquarie analyst Matthew Turner said.

"It's like an impending dread, like an exam coming up that maybe won't be so bad after all, but everyone is just getting a bit nervous and reluctant to take big positions."

This from Paul Gilkes (Coin World) – American Buffalo bullion coin sales lagging behind previous years – “Sales of 2015 American Buffalo 1-ounce gold $50 coin have reached just 7,000 ounces thus far in May. May sales by the United States Mint to its authorized purchasers of 2015 American Buffalo 1-ounce gold $50 bullion coins continue to be sluggish.

The total number of coins sold through May 26 reached 7,000 coins, 3,000 coins fewer than were sold in all of April. The highest monthly sales in 2015 so far are from January, with 34,000 coins. January is traditionally a strong sales months since it typically signals the first availability of the coins for the incoming production year.

For the first five months of 2015, total sales for the American Buffalo $50 bullion coins have reached 73,000 coins. For the same period in 2014, sales totaled 95,500 coins. In 2013, the first five months of the year witnessed sales of 144,500 coins.

At the Mint's current monthly sales average of just under 15,000 coins, total 2015 calendar year sales could still slightly surpass the 2014 total of 177,500 coins.

Since sales of the American Buffalo .9999 fine gold coins were inaugurated in 2006, the Mint has recorded sales of 1,867,500 coins.

The strongest sales per calendar year were in the inaugural year of 2006, when 323,000 total coins were sold. Sales in July 2006, the first full month of sales for the coins (they went on sale June 20), were recorded at 117,500 coins, the highest monthly sales total to date.

Sales during 2009 totaled 200,000 coins but the coins were only offered the last three months of the year, as the West Point Mint was preoccupied with producing American Eagle 1-ounce gold and silver bullion coins to meet demand.

The U.S. Mint does not sell its bullion coins directly, but through a network of authorized purchasers who acquire the coins for the closing spot price of the metal on a given day plus a small premium. The coins are then resold to dealers, collectors and the public.”

This is our usual Thursday Chicago Mercantile Exchange report covering the last 5 trading days – so we are looking at the trading volume numbers for the “June” Gold contract: Thursday 5/21 (139,297) – Friday 5/22 (122,309) – Monday 5/25 Holiday – Tuesday 5/26 (89,621) – Wednesday 5/27 (30,493). These numbers actually make sense because we are at the end of the active trading month and we are looking at the roll-over into the next future trading month.

The walk-in cash trade today active all day and so were the phones. The GoldDealer.com Unscientific Activity Scale is a “ 3” for Thursday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 2) (last Friday – 3) (Monday – Closed) (Tuesday – 2) (Wednesday – 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 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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