Commentary for Wed, June 4, 2014 – Gold closed down $0.30 today at $1244.00 so trading remains extremely quiet as lack of fresh news is putting traders to sleep. Tomorrow we will see what the European Central Bank has on its mind but because this subject has been talked to death my bet is that not much will happen relative to gold.
Gold struggles against a backdrop of an economy which continues to sputter – but improve and stocks continue to make money for owners. The technical picture still belongs to the bears but as long as the $1200.00 is supported by the physical market we will continue to see a defined trading range. And when considering the physical market China gets all the attention but CNBC this morning talked about how India could outpace even China in the next few years.
Still this up and down movement does not make many happy – except perhaps the totally committed who believe the rise in the price of gold is guaranteed. Spec money which used to be all over gold is now looking elsewhere but there are signs of inflation beginning to stir and we are back to “who knows what will happen” with the European Union.
I would not discount problems in the EU because while their bond yields of smaller countries are not dire their financial problems are structural and have not been fixed. Of course all of this is not enough firewood to move gold over the important $1400.00 but there is enough smoke to keep trader’s attention.
Silver was also quiet closing up $0.03 at $18.76 and given the current physical trade you might need another $0.50 to the downside to create bigger action across the counter. You really are already in that sweet spot for silver bullion but when a market is defensive it sometimes take a little extra discount to get the ball rolling as they say.
Platinum closed unchanged today at $1433.00 and palladium was also unchanged at $836.00. The trading of gold bullion for platinum bullion has slowed down but I continue to see this trade as excellent.
Our Exchange Traded Fund Totals is presented each Wednesday and includes platinum and palladium. What all ETF’s are doing as defined by total ounces – gained or lost will provide an independent idea of market thinking on the short to medium term.
All Gold Exchange Traded Funds: Total as of 5-28-14 was 55,092,010 ounces. That number this week (6-4-14) was 54,890,136 ounces so over the last week we lost 201,874 ounces of gold.
It might also be interesting to note that in 2013 the record high holdings for all gold ETF’s was 85,112,855 ounces. In 2014 the record low was 54,799,910 ounces.
All Silver Exchange Traded Funds: Total as of 5-28-14 was 628,654,430. That number this week (6-4-14) was 631,020,076 ounces so over the last week we lost 2,365,646 ounces of silver.
All Platinum Exchange Traded Funds: Total as of 5-28-14 was 2,801,166 ounces. That number this week (6-4-14) was 2,784,523 ounces so over the last week we lost 16,643 ounces of platinum.
All Palladium Exchange Traded Funds: Total as of 5-28-14 was 2,812,537 ounces. That number this week (6-4-14) was 2,915,063 ounces so over the last week we gained 102,526 ounces of palladium.
From Ambrose Evans-Pritchard – Global watchdogs rattled by lack of fear in the markets – A storm alert today from Simon Derrick at the Bank of New York Mellon. He cites three warnings from leading central bankers, all alarmed by the remarkable disregard for risk in the equity, credit, and currency markets.
The Bank of England’s Deputy Governor Charles Bean says the lack of volatility is “eerily reminiscent” of the run up to the financial crisis in 2007-2008. Investors are turning a blind eye to a large fact: that central banks are intent on extricating themselves from QE and emergency policies come what may, and this is going to be a painful experience.
Italy central bank Governor Ignazio Visco issued a similar warning on Friday: “Volatility on the financial markets in the advanced economies has subsided to well below the historic norm, reaching levels that in the past sometimes preceded rapid changes in the orientation of investors.”
In America, Dallas Fed chief Richard Fisher has been warning for several weeks that the decline in the VIX index measuring volatility is an accident waiting to happen. One almost has the impression that he is itching to inflict some “two-risk way” into markets to shatter this complacency.
Mr Derrick says dash for yield is all too like the last stage of the carry trade just before Russia and East Asia blew up in 1998, and again in the summer of 2007 when investors seemed to lose all fear. Both episodes ended with a bang, at first signalled by a surge in the Japanese yen.
Today’s warnings feels very like those of the ECB’s Jean-Claude Trichet at Davos in January 2007 when he told investors to brace for trouble. He said risk spreads had been compressed to dangerously low levels, though the boom was of course to run on for many more months.
Greek 10-year yields ultimately traded at just 26 basis points over German Bunds. Anybody who held on to those Greek bonds lost roughly 75pc.
Willem Buiter, a former UK rate-setter (now at Citigroup), was even blunter at the time. “Current risks are ludicrously underpriced. At some point, someone is going to get an extremely nasty surprise.”
My own view is that ever rising equity prices today are incompatible with ever sliding bond yields. The two markets are each telling a different story about the state of the world.
I notice the heroic efforts to justify this on the grounds that falling inflation raises real incomes and profit margins. To which one can only say that falling inflation – and therefore falling nominal GDP growth – also lowers the forward trajectory of equity prices, at least compared to what they were assumed to be. Investors are latching on to one part of the story they like, but ignoring the other part.
Split personality in bonds and stocks can happen for short periods. This rarely lasts. One or the other is going to face reality before long.
I love to read Pritchard because of his unparalleled insight and his wry sense of humor. But the real point of this latest posting is to call attention to the fact that “there really may not be anyone home” when it comes to your financial safety. Even after the 2008 collapse. You would think that after the preposterous idea of selling property based junk bonds as “safe and secure” investments to nuns – Wall Street would have learned something about propriety or human decency. But when it comes to cutting up public money it seems there is no limit to the possibilities as long as the maker of the Rube Goldberg is not held personally responsible.
So my reading friends make sure a portion of your treasure is saved from the “what’s going to happen next” debacle which will blindside everyone a la the above Pritchard comments. Although CNBC noted this morning that GM is again making sub-prime loans and the banks and being “pushed” to do something with all the cash they are sitting on so the smart money believes they too will soon be further out on the loaning limb.
Paul Bedard, the Washington Examiner’s “Washington Secrets” columnist – Influential financial publisher and former presidential candidate Steve Forbes is out with a new warning that the U.S. faces an economic catastrophe due to the Federal Reserve‘s loose dollar policy, and returning to a strict “gold standard” is the only way to avoid disaster.
In Money: How the Destruction of the Dollar Threatens the Global Economy — and What We Can Do About It, Forbes blames President Obama‘s money team for the stagnant economy, high prices, declining mobility and big government.
“[The Fed’s] vastly misguided monetary policies are now setting the stage for a new economic and social catastrophe — one that could rival the financial crisis and horrors of the 1930s,” he wrote in the book co-authored by Elizabeth Ames.
Just like many financial conservatives have advised in the past, notably former Reps. Jack Kemp and Ron Paul, Forbes said that economic prosperity can come only if the dollar is linked to gold and not printed willy-nilly at inflated rates. “The best way to achieve monetary stability: linking the dollar to gold,” he wrote in the book out today. “The Fed should have only two tasks: keeping the dollar fixed to gold and dealing quickly and decisively with panics,” he wrote, according to excerpts provided in advance to Secrets.
Forbes has long been a leading conservative voice on the economy, and his latest book is likely to revive calls for a gold standard.
“The refusal of many in the policy establishment to entertain the idea of a return to a gold standard is based on astounding ignorance about just what a gold standard would mean and how it would work,” he wrote in the new book. The book is extremely critical of the Fed, especially former Chairman Ben Bernanke and current Chairwoman Janet Yellen. “The Federal Reserve must stop trying to run the banking system and the economy.”
Instead, the power of the Fed should be restrained, he said. “In an ideal world the head of the Federal Reserve would be no more important than the director of the Office of Weights and Measures inside the Department of Commerce.”
Among the economic problems Forbes blames on the Fed’s monetary policies:
— The U.S.’s weak economic recovery.
— Slower long-term growth and higher unemployment.
— High food and fuel prices.
— Declining mobility, greater inequality and the destruction of personal wealth.
— Increased volatility and currency crises.
— Larger government with higher debt.
— Lower levels of business innovation and entrepreneurship
The walk-in trade at the building was steady but not setting any records. We did see a few large sellers of gold bullion but had no problem moving these “big boy” trades so this market remains a battle ground between the bulls and bears.
The phones were relatively busy with small to moderate action which favored silver bullion products. Like I have been saying lately – the small price swings in the metals are really only part of the story as the physical market is active for both buyers and sellers. Finally, one of the big advantages sellers have in this defensive market is cash liquidity – there is no waiting for your money.
The GoldDealer.com Activity Scale is a “6” for Wednesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Wednesday – 6) (last Thursday – 6) (last Friday – 7) (Monday – 7) (Tuesday – 6). The scale (1 through 10) is a reliable way to understand our volume numbers.
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