Gold Snoozes – Failing to Wake Up Over Greek Default

Gold Snoozes – Failing to Wake Up Over Greek Default

Commentary for Wednesday, July 1, 2015 ( www.golddealer.com) – Gold closed down $2.50 at $1169.00, so hardly much of a reaction to the Greek debt default – in fact no reaction at all – probably because many feel that there will be some sort of last minute deal regardless of all the bad press. Let’s hope so – a real default means many parties will get a severe financial haircut – something Greece, or Europe in general really, does not need.

I guess you could make the case that the default has supported the price of gold – if it were not for this financial fiasco we could be trading much lower. But this is a negative case to make and not something the physical gold world wants to hear.

This from CNN Money – “In a dramatic but widely expected step, Greece formally defaulted on a $1.7 billion payment to the International Monetary Fund early Wednesday in Athens.

Greece became the first developed country to default to the IMF, an organization of 188 nations that tries to keep the world economy stable.

Greece will now be cut off from access to IMF resources until the payment is made.

The move came hours after the country made a desperate attempt Tuesday to halt its plunge into economic chaos by requesting a new European bailout.

Greece asked for a two-year bailout from Europe, its third in six years. The bankrupt country is reported to be asking for 29 billion euros ($32 billion).

Finance ministers discussed the request by phone and agreed to hold another call Wednesday, when Greece is expected to provide more details.

Jeroen Dijsselbloem, who chaired the meeting, said any new rescue may require tougher conditions than those Greece has already rejected because of the rapid deterioration in the country's finances.

"So this is not an easy road to go down," he told CNN's Richard Quest.

Greece is fast running out of money. It rejected the conditions Europe and the IMF set for releasing the remaining billions from its existing bailout at the weekend. That bailout expired Tuesday.

"The last chance to get a solid extension of the old program has gone by," Dijsselbloem said. "We are now in a difficult situation." Greece is now on its own financially, and can't pay all its bills.”

Silver closed unchanged at $15.55 – silver bullion remains hot.

Platinum closed up $9.00 at $1097.00 and palladium was up $29.00 at $701.00. This strength in both platinum and palladium probably the result of giant car numbers this morning. The American favorite is still the SUV and the public is willing to buy – another sign that things for the consumer continue to improve.

Today’s weakness in gold is again dollar related. The Dollar Index closed yesterday at 95.52 and the range today has been from 95.47 through 96.25 – we are looking at 96.24 as of this writing. Almost a full point higher than the previous close and trading on the day’s high meaning everyone is still on board – perhaps for even higher numbers.

The dollar strength is the result of continued better economic data.

This from MarketWatch (Joseph Adinolfi) – Dollar strengthens on upbeat U.S. economic reports – The dollar started the month off strong on Wednesday, as a spate of strong U.S. economic data suggested growth remained robust in June, providing more justification for Federal Reserve policy makers to raise interest rates this year.

ADP’s June estimate for private-sector hiring beat estimates by nearly 20,000 jobs, quickly sending the dollar through 123 yen, and the euro below $1.11. The dollar had found resistance at both of those levels earlier in the session.

The ADP number has underestimated the Labor Department’s reading on jobs growth during five of the past seven months. Paul Dales, a senior U.S. economist at Capital Economics, said there’s a chance the June nonfarm payrolls number could surprise to the upside – maybe even as high as 290,000.

Economists polled by MarketWatch forecast that 225,000 new jobs were created in June.

The headline ISM manufacturing index came in at 53.5%, beating expectations by about 0.3%. The dollar continued to strengthen after the report.

Federal Reserve policy makers said they would be cautious about raising interest rates at their June meeting, reiterating that the timing of the first interest-rate hike remains “data dependent.” Wednesday’s data indicated the economy is on track to meet their criteria.”

This from Kira Brecht (Kitco) – Are More Chinese Gold Buyers Poised To Buy On Dips? Fact: China is the world's largest producer of gold. Fact: Since 2013, China has been the world's largest consumer of gold, according to a HSBC Commodities Global research report

“The Chinese stock market continues to plunge. The Shanghai Composite index has tumbled 19% since its mid-June high, in a decline worth $1.25 trillion in market capitalization. For emerging market consumers in China and India with limited access to alternative vehicles to preserve and grow wealth, gold investments remain a favorite choice.

Gold imports in China are already on the rise, with a significant jump in May. According to trade data out of Hong Kong, about 64.2 tonnes of gold was imported to the mainland, an increase of 36% compared to last month and up 35% compared to May 2014.

However, Chinese gold buyers have proven to be price sensitive. Why buy high, when you can buy at lower levels?

Pointing to consumers in India and China, "A plunge in [gold] prices can quickly encourage fresh physical gold demand as consumers with limited incomes secure gold at lower prices. This pattern will help support prices on downswings," wrote HSBC analysts in a commodities global research report. If gold prices were to come under additional pressure toward the USD$1,120 ounce zone, HSBC analysts expect that to trigger fresh buying demand. "In our view, any further drop to USD$1,120/oz or lower would likely stimulate retail demand and act as a brake on further declines," HSBC analysts wrote.

Taking a look at the Shanghai Composite Index below (source Bigcharts.com), the Chinese stock market is closing in on a test of the important swing low support around the May 7 low at 4112. Will that swing low act as support? Technically, a breakdown below that low would open the door to continuing declines. There is little nearby chart support and the index would become vulnerable to a test of 4000.

For Chinese investors, continuing declines in the Shanghai Composite index could encourage even more safe haven buying into gold. If the yellow metal were to come under additional pressure in the weeks ahead back toward the March 2015 lows around $1,143 or the November 2014 lows near $1,135, emerging market physical buying interest could sweep in at the lower price levels as has occurred in recent years.”

All Gold Exchange Traded Funds: Total as of 6-24-15 was 51,185,212. That number this week (7-01-15) is 51,259,065 ounces so over the last week we gained 73,853 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 51,019,356.

All Silver Exchange Traded Funds: Total as of 6-24-15 was 620,864,824. That number this week (7-01-15) is 619,373,374 ounces so over the last week we dropped 1,491,450 ounces of silver.

All Platinum Exchange Traded Funds: Total as of 6-24-15 was 2,533,600 ounces. That number this week (7-01-15) is 2,596,617 ounces so over the last week we gained 63,017 ounces of platinum.

All Palladium Exchange Traded Funds: Total as of 6-24-15 was 2,970,677 ounces. That number this week (7-01-15) is 2,972,261 ounces so over the last week we gained 1,584 ounces of palladium.

More Ouzo Please – As Greece defaults – will this debt repudiation spread to other countries in Europe? This question is at the core of why gold has not responded to the threat. First of all Greece has long been in trouble and the European Central Bank and International Monetary Fund has long been ready to help with loans, even though the cumulative Greek debt number continued to climb.

How much money does Greece owe? A lot according to the Telegraph – “Greece owes money to a number of countries and organizations following two bailouts – one in 2010 and another in 2012. The bailout funds totaled €220bn, most of which hasn't been paid back. Greece owes around €56bn to Germany, €42bn to France, €37bn to Italy, and €25bn to Spain. The Greek government also owes private investors in the country around €39bn, and another €120bn to institutions including Greek banks. Greece's debt mountain is 180pc of its GDP.”

That’s a lot of loot as they say – and the discouraging part is that even with some hopeful signs of world recovery the funds borrowed in 2010 and 2012 are still owed. This is 2015 – if you were applying for a loan with Bank of America with this type of payback schedule they would show you the door. But Greece is a nation not a person so let’s be a bit more optimistic.

I read a piece which claimed that small gold was selling like hotcakes in Europe and even went so far as to claim that they were running out due to the Greek financial scare.

This has to be a construct designed by some dealers to sell the sizzle to the public. I have rarely seen any gold dealer, this side of the pond or in Europe that could not restock completely on a few phone calls.

And I have rarely seen large dealers stop selling bullion – it happens but only for a short period of time and only when market volatility keeps them from making orderly markets. They may run out but restocking in the modern gold or silver world is easy if you have the money ready to wire – so these stories of a run on European small gold are bunk.

Besides the premium on small gold coins is fairly constant – given the turmoil in Europe I would expect premiums on small coins to increase significantly – they have not.

There is some credibility in the notion that this Greece problem could spread and if this happens the collective gasp might create larger gold bullion buying. But the chances of this happening are thin – want some odds, maybe 30 to 1 or even higher.

But let’s say that a Greek failure creates bigger problems – even then the chance of gold moving front and center does not make sense.

Why? Because the predominant gold sentiment these past few years has been negative and I think gold traders are convinced the path of least resistance is still down.

I don’t happen to agree for two reasons. First, there is just too much money floating around to cap the inflation genie. And second this market looks and feels like it is either at or near a long term bottom.

Still the general sentiment in gold is bearish and gold price charts look tired. In the past 60 days gold has tested the $1170.00 on three different occasions and held. This is promising but if Greece sinks those seeking cover will run to the dollar – it just makes sense in the short term.

But real gold holders remain concerned even if the paper trade likes the short end of the trade. Look at total gold holdings in the Exchange Traded Funds since the beginning of 2015.

As of today we are higher by 165,856 ounces meaning that since the beginning of 2015 while the paper trade was essentially negative because of a poor technical picture the physical trade was not so convinced. Granted ETF holdings are at the lower end of their range, participants are not jumping ship and are giving gold bullion the benefit of the doubt.

The walk in cash trade remains solid – a good mix of buying and selling and the phones are just average today.

The 4 th of July falls on a Saturday – so the CNI Building will be closed Friday July 3 rd for our Independence Day.

Also note that the trading markets, banks and post office will also be closed Friday – July 3 rd . Wishing you all a happy and safe 4 th of July.

The GoldDealer.com Unscientific Activity Scale is a “ 7” for Wednesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 4) (last Friday – 6) (Monday – 6) (Tuesday – 6). 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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