Commentary for Thurs, July 24, 2014 (www.golddealer.com) – Gold closed down $13.90 today at $1290.60 giving up the important $1300.00 support as US weekly unemployment numbers came back better than expected, with just 284,000 registering, while the forecast was for 310,000. This was the lowest reading since February 2006 and points to continued improvement in the economic recovery. This would reinforce current Fed policy which aims to reduce quantitative easing by year end.
The US manufacturing sector has once again failed to hold on to expansion rates above 57 (see below), however, this indication of a reduction in expansion does not necessarily imply a negative connotation to the sector. Demand remains robust and, with export order growth remaining subdued, this implies that demand continues to be driven domestically as economic momentum continues to pick up steam. This is further backed by new business growth which continues to increase strongly, albeit at a slightly reduced rate on last month, where manufacturing production increased to a four month high.
Going forward, we should continue to see strong demand within the manufacturing sector which should continue to add upside pressure to base metal prices. This sign of sustained strength within manufacturing, which indicates maintained consumer confidence going forward, will likely increase downside pressure on the precious metals, as we would expect this to spur increased speculation that the Federal Reserve could decide to raise rates earlier than is currently expected, as this decision remains data dependent.
This latest test of support is also technically driven so let’s look at gold’s 50 Day Moving Average ($1293.00) its 100 Day Moving Average ($1303.00) and its 200 Day Moving Average ($1287.00).
Gold broke below its 100 Day Moving Average ($1303.00) which indicates a continuation of last week’s sell-off but then found significant support around the 50 Day Moving Average ($1293.00).
This pattern is similar to last week’s test – gold at that time reversed in short covering and settled higher ($1313.00) but failed to gather further upside strength resulting in the usual push/pull market between the bulls and bears.
So I would consider today’s action another test of the downside putting the bears in charge short term but there has not been enough damage to claim we have resumed the bearish trend – especially with developing military problems in Ukraine and Gaza.
But the bulls are under assault and so gold’s 200 Day Moving Average becomes key ($1287.00) – a break below this number would likely set up a retest of recent $1240.00 lows and confirm a long term range bound market.
Silver followed gold lower down $0.58 at $20.37. In a similar fashion watch silver’s moving averages for short term clues: 50 Day Moving Average ($20.13) – 100 Day Moving Average ($20.09) and 200 Day Moving Average ($20.35).
From Standard Bank – Walter de Wet – “China’s June silver imports a mere blip – “We keep a close eye on silver. It has been quite resilient, trading between $18.50 and $22 since late last year. As with many other metals, China’s silver import numbers are crucial to the metal’s price, especially since China turned net importer of silver in 2009. China’s latest silver import numbers show the same picture as for gold and platinum – the country has probably imported too much metal of late. We therefore foresee that the silver price will not manage to sustain rallies beyond $22. China imported 107mt of silver in June, up from 47mt in May and 70mt in March. Although the rise of silver imports in June is encouraging, volumes have been lacklustre.
Also, YTD total imports are largely skewed by the large import number of 332mt in February (Figure 1); the year otherwise has been very weak. At the current pace of imports, China would have imported 1,630mt in 2014, compared to total imports of 3,578mt in 2010, 2,236mt in 2011 and 1,994mt in 2012. Nevertheless, total imports for 2014 would be marginally higher than the 1,360mt imported in 2013. However, unlike palladium, where our estimates would suggest the bias lies towards China importing more metal in H2:14, silver’s bias lies to China importing less metal in H2:14 than H1:14. This is premised on the fact that since 2011, H2 has been characterized by seasonal weakness, with m/m declines in silver imports starting in September and continuing into December.
What would change this profile? A sharp decline in the silver price. Indeed, given the seasonal weakness in Chinese imports starting in September, combined with the fact that we see mine supply rising and a speculative market that has flipped from being very short silver to very long silver on COMEX, we maintain that the price bias for silver lies to the downside, as the price is currently near the upper end of the $18.50 – $22.00 range.”
We believe sooner or later silver will break to the upside – in the meantime take advantage of “sale” prices. The discount to old highs is substantial and no one is smart enough to call the exact bottom so buy weakness. When considering silver bullion stick with the standard fair – low premium bullion products.
And avoid the telemarketing nonsense – high premium “fake collectable bullion” designed to look like something special.
And always keep in mind the big advantage silver bullion offers – a low premium and affordable entry price. Everyone – on all economic levels can participate. This is powerful investment leverage which will eventually produce results.
Platinum was lower by $13.00 at $1472.00 and palladium was down $4.00 at $869.00. In a similar fashion watch platinum’s moving averages for short term clues: 50 Day Moving Average ($1473.00) – 100 Day Moving Average ($1457.00) and 200 Day Moving Average ($1432.00).
The walk-in cash trade today was active which is usual on lower prices but there was not a big pop in buyers which might indicate the public is a bit spooked by the sudden drop in prices.
I would be concerned but not get carried away – it’s summer like trading conditions – thin really – so traders can push markets around for short term gains.
The phones were just average and we will need a few more days to see if this weakness confirms or is just another blip in a market which continues range bound. Rather large bullion activity going into IRA Accounts continues.
The GoldDealer.com Activity Scale is a “5” for Thursday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Wednesday – 2) (last Thursday – 4) (last Friday – 4) (Monday – 4) (Tuesday – 4) (Wednesday – 5). The scale (1 through 10) is a reliable way to understand our volume numbers.
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