Commentary for Tuesday, June 16, 2015 – Gold closed down $4.80 today on the Comex in quiet trading. This market continues to drift – looking for something new to get excited about.
The usual talk about what the Greeks are doing or what the FOMC might say today or tomorrow is so overworked I fell asleep just thinking about this first paragraph.
Everyone and their brother is watching (or sleeping) waiting for the Yellen pronouncement after the market closes on Wednesday.
The Texas state run depository for precious metals story broke on CNBC this morning. Will it have much impact on the physical gold market? Nope – but the idea that Texas does not trust the Federal government to such an extent that it’s willing to build its own state depository to protect against confiscation is hilarious. Maybe the confiscation folks are on to something or Texas suspects something is financially amiss – both stories play well in the gold business.
I see that Trump is once again running for president – this allows me to admire the British election system – 30 day limit on campaigns.
Just because the dollar has been rather flat does not mean its importance relative to gold has diminished. Dollar strength or weakness remains king of the jungle and sooner or later will be the only real metric which matters – so let’s once again consider the Dollar Index.
The Dollar Index closed yesterday at 94.84 and is trading range today has been from 94.56 through 95.23 – it being 95.02 as of this writing. The index sold off in early trading but recovered and strengthened when Greek debt talks stalled. At any rate it remains happy around 95.00 and any deviation one way of the other will be reflected in the price of gold.
Silver closed down $0.11 at $15.96. Action seems slow to me but any number less than $16.00 seems to push the needle – public interest and buying in silver bullion like the 1 oz Silver Round American Freedom is alive and well. It is just hypersensitive to price.
The sweet spot continues to be anything around $15.50 and the public likes the usual suspects – Monster Boxes – $1000 face 90% silver bags (by the way you can break these down into units as little as $250.00 face if you want real barter money but don’t need a bag) – 100 oz silver bars and smaller units. There also seems to be a surge in buying 10 oz silver bars for some reason but I don’t know why.
Platinum closed down $9.00 at $1080.00 and palladium was off $2.00 at $732.00. Platinum is now trading at a $100.00 discount to gold! Between 2000 and 2010 the average price of platinum was twice the price of gold. So if you are looking for a bargain it really does not get much better than this – we are seeing some trading of gold bullion for platinum bullion but not what I would have suspected given the discount.
The premium on US Platinum Eagles is high because the US Mint is still not producing coins – if they resume production (unlikely) the premium will obviously move lower.
The US Mint charges distributors about 5% over melt for new production so under normal circumstances the consumer would expect to pay between say $70.00 and $80.00 over spot for the American Platinum Eagle 1 oz delivered.
But with no US Mint production the premium over melt had moved to around twice that number – and even at that not much material is trading hands. If you walked in to trade a 100 Gold Eagles for 100 Platinum Eagles you would wake up inventory control. And there is no dealer in country that would take a 200 coin trade without making 10 telephone calls to avoid shorting coins they cannot purchase at any price.
Here is a peculiarity about the current platinum bullion market – no dealer regardless of size is inventorying a large number of American Platinum Eagles – because the premium is so high. They are selling probably in anticipation of US Mint production – it’s just how dealers think.
This from Neils Christensen (Kitco News) Gold Market To Remain Range-Bound Following Conclusion Of FOMC Meeting – The gold market is once again testing the lower end of its trading range as the Federal Open Market Committee (FOMC) meeting kicks off day one of its two-day monetary policy meeting.
Although there are high expectations that the central bank will answer questions as to when markets can expect a “lift off” of interest rates, some analysts say that investors should brace for some disappointment, which will keep gold firmly within its range.
Ole Hansen, head of commodity strategy at Saxo Bank, said he expects gold will continue to bounce between resistance at $1,230 an ounce and support at $1,150 an ounce. He added that the market is expecting the first rate hike to come in September and doesn’t think that is going to change following Wednesday’s monetary policy statement.
Hansen added the central bank will probably be a little bit more optimistic that the U.S. economic recovery is back on track and will acknowledge the economic data is improving after a dismal first quarter. However, uncertainty is still relatively high so Fed Chair Janet Yellen will not be in a hurry to raise rates too soon.
“The Federal Reserve will do their utmost best to not put a date on the first rate hike so they have some flexibility,” he said. “The economy is improving but it’s not booming.”
Bernard Dahdah, precious metals analyst at Natixis, agreed that this meeting is not going to have much impact on gold as the market focuses on the September FOMC meeting. He added that Yellen, during her press conference after the release of the monetary policy statement, is going to walk a fine balance, limiting her forward guidance and quantifying her comments.
“The central bank doesn’t want to create unwanted volatility,” he said.
Bart Melek, head of commodity strategy at TD Securities said that he could expect the Fed, in recognizing improving economic conditions, could signal that its Fed funds rate will move higher in September. However, he added that he is not expecting to see much reaction in the gold market as this outlook is already priced in.
“Even if they lower the forecast for the year, they could acknowledge higher growth in the third quarter and fourth quarter and that means they will be more than happy to raise rates,” he said.
Not only will market participants examine the monetary policy statement for clues of the first rate hike in nine years but they will also pay close attention to central banks updated economic forecasts and interest rate projections – also known as the dot plots.
Economists at Nomura said that they are expecting the economic projects to be lowered as a result of the weaker-than-expected first-quarter growth. They also say that the dot-plots could show a drop in interest rate expectations. However, they add that the dot-plots will show at least two rate hikes for 2015.
“With a forward-looking outlook for growth, labor markets and inflation that is broadly in line with the Committee’s prior expectations, we do not expect the FOMC to signal a major shift in the expected trajectory of monetary policy,” they said in a recent research report. “During the post-meeting press conference, we expect Chair Yellen to continue to stress the data-dependent nature of future policy moves and that the pace of tightening will likely be gradual once normalization begins.”
Melek noted that gold could see an initial bounce on weaker than expected growth forecasts, as some participants might see that as a signal the Fed is not ready to raise interest rates; however, those gains could easily be erased following Yellen’s press conference as she balances a pessimistic forecast with optimistic comments.
“Unless we get a significant economic downgrade, they are going to be raising rates sometime this year,” he said.
Looking ahead, Hansen said that with a September rate hike expected to remain on the table following Wednesday’s meeting, gold prices could be closer to a bottom. He explained that investors have been pricing in an eventual rate hike and with the light at the end of the tunnel, gold could see a bit of a relief rally.
Higher interest rates could put more focus on interest expectations and investors could start to question if the Federal Reserve will be behind the inflation curve, which would be positive for gold prices.
“Higher interest rates doesn’t necessarily mean lower gold prices, that is just a too simplistic view of the market,” he said. “The current assumption is that the new rate hike cycle won’t be aggressive and as long as the market believes then it removes some of the uncertainty that has plagued the gold market.”
The walk in trade was busy today and we are seeing a few whale sellers – usually when this happens most in the trade would claim some sort of capitulation – meaning the public is just tired of this “up” and “down” market and wants out – perhaps another sign we are at or nearing a long-term bottom.
This does not mean that gold and silver are ready to “skyrocket” – the always usual line from telemarketers looking to part you from your money. By the way I will have a new insight into an old telemarketing IRA scam in tommorrow’s newsletter – if you are shopping around the internet looking for a “nice” telemarketer to help you with gold investment be careful.
For some reason when things get quiet there are as many gold fraud schemes around as when markets are hot.
Unfortunately the gold business in many ways reminds me of the popular series “ Deadwood”.
You must do your diligence before the fact – after the fact you and your bankroll may part company. And believe it or not the “old schemes” are just as popular today as they were in 1880 – and just as prevalent.
In the past 30 days our customers have been approached with at least two classics.
The first being investment in a developing gold mine – my advice – if you are interested in investing in a gold mine pick a mining company which trades on Wall Street. Direct investment always leads to tears.
The second was the old “secret buyer” trick (located in China, these days) – it’s amazing how many people still listen to this story.
I was polite in both cases but after 34 years of “gold stories” it is sometimes difficult.
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