Commentary for Monday, April 13, 2015 ( www.golddealer.com) – Gold closed down $5.30 at $1199.30 today reacting to a stronger dollar as traders look for hints as to the next Federal Reserve move relative to interest rates.
Dollar strength continues to send gold to the woodshed. The daily Dollar Index shows a strong move to the upside but then cools off – so for a better picture the 5 day chart rules. The Dollar Index has moved from around 97.00 to 100.00 over the past week and is trading around 99.49 as of this writing – so for now gold is facing a big uphill battle.
On the other hand MarketWatch claims the gold traders are watching for any hints as to what the Federal Reserve will do with interest rates. “Looking ahead, Aslam said major events this week that can “bring more clarity in terms of a Fed rate hike decision” are reports on producer prices and retail sales on Tuesday as well as speeches by the FOMC members, including Fed President Jeffrey Lacker on Wednesday and Fed Vice Chairman Stanley Fischer on Thursday.
Expectations for a Fed rate hike later this summer are keeping a lid on gold futures. A move toward higher rates is seen supporting the dollar and pushing up bond yields. Higher U.S. bond yields can be a negative for gold, since the commodity offers no yield.
But strategists at Bank of America Merrill Lynch contend near-term pressure on gold could soon give way to a bull market once the Fed finally pulls the trigger on rates.
Government bond yields across much of Europe are near zero or in negative territory, a factor seen as supportive of gold since a yield of zero is superior to a negative yield. “Despite falling and negative rates in large parts of the world, a sustained rally has so far not happened, because the Fed has remained steadfast on normalizing policy rates, with all the implications this has, for instance on the U.S. dollar,” the B. of A. Merrill strategists wrote.
They argue the U.S. economic recovery, however, isn’t as robust as thought and that the Fed’s policy tightening will be delayed and relatively muted, which will then allow gold to break out of its recent range and rise to $1,500 an ounce by 2017.”
Silver was off $0.09 at $16.28. This market has been off and on again but regular physical buying across the counter seems steady in the lower $16.00 range and heats up on dips below $16.00. The mints of the world continue to produce new bullion products and the public continues to be interested in the various new Monster Boxes available.
Platinum closed down $17.00 at $1153.00 and palladium was off $4.00 at $771.00. The new Canadian Platinum Maple Leaf 1 oz is back in stock – a beautiful bullion coin.
This from Barbara Kollmeyer (MarketWatch) – The worst for gold may be over: Bank of America Merrill Lynch – On the heels of a 2.1% loss for gold last week and news that hedge funds have gone way short, gold bugs could perhaps use some cheer. Enter analysts at Bank of America Merrill Lynch who say the worst days for the precious metal may be over.
In a note to clients Monday, metals strategist Michael Widmer notes how gold prices GCQ4 have stabilized this year thanks to steady physical demand from emerging markets — China and India absorbing mine and scrap supply — which has helped compensate for investor selling. In the future, he says, that balance will sway in gold’s favor:
“We believe that physical demand from emerging markets will gain further clout in the medium term as countries get more affluent, suggesting the worst may be behind the gold market.”
Of course, he says, don’t expect all smooth sailing from here. For now, investors in developed markets remain marginal buyers and gold tends to be bought and sold around macroeconomic “themes.” In 2013 rising nominal rates and falling inflation expectations — the ultimate bear pit for gold — led to major portfolio adjustments running against gold. Unfolding normalization of the global macro economy and implications for rates/inflation should keep a few headwinds going, Widmer says.
But while those headwinds remain, he doesn’t see a repeat of 2013 happening. That’s because natural interest rates are falling for several reasons and because inflation expectations should gradually pick up along with global growth. And as B. of A. Merrill Lynch recently pointed out, gold and oil prices are correlated, and longer-dated oil prices look cheap on several measures, which Widmer says backs up their view that gold prices should be bottoming. Therefore the return of volatility seen in 2013 is not likely.
Echoing some of B. of A.’s thoughts, Julian Phillips, in his Gold and Silver Market Morning note, explained just why those Asian buyers are so important to gold, and less fickle than their western counterparts. Asian buyers are not all about short-term and short-term profits, trusting gold and silver as long-term investments, and only buy when they feel the price has dropped too much, he says. They are fully confident in the long-term and rarely sell for profit reasons alone, so buying is “persistent and on-going.” Phillips argues the technical picture remains positive for both gold and silver.
Hedge funds cut bullish gold bets for the first time in six weeks in the week to July 15. Commodity Futures Trading Commission data show short holdings jumped over 30%, which was the biggest rise in 7 weeks. Just you wait. GotGoldBlog sees gold and silver as resilient and thinks “mercenary swap dealers with the most and largest gross short positioning for gold” are vulnerable to a short squeeze, if the position is right.
“…at some point, gold and silver are going to catch a tail wind strong enough that those attempting to prevent runaway breakouts could be overwhelmed. It is in such cases that the trader community on the COMEX becomes its most cutthroat and merciless,” says GotGoldBlog.
The walk-in cash trade was on the slow side today and the phones were just average. There was no real buzz on either front.
The GoldDealer.com Unscientific Activity Scale is a “ 4” for Monday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Tuesday – 4) (last Wednesday – 4) (last Thursday – 4) (last Friday – 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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