Commentary for Wednesday, Nov 5, 2014 (www.golddealer.com) – Gold closed down $22.00 at $1145.40 – the lowest level we have seen since early 2010. This weakness is the result of continued dollar strength – the Dollar Index was up 0.51% – and the result on momentum selling which carried over from yesterday.
There was also a physical anomaly according to ZeroHedge – a massive sell order which occurred in the normally quiet overnight markets which amounted to 13000 contracts of gold which hit the Japanese market which makes the 5th night in a row of heavy selling. This last sale amounts to $1.5 billion dollars in gold – all at once. In my mind this is not the best way to get liquid but it’s interesting to note that this is not the first time this selling tactic was used in the overnight market.
So the dollar is stronger and pushing gold lower – but what about the yen and euro? Keep in mind that gold in dollar terms is behaving badly – but in euro or yen terms it looks like a much better deal as both of these currencies move lower because of renewed quantitative easing.
The only approach to this kind of market is through value investing so let’s look at the discounts now offered: All of the following numbers are based on the 2011 peak / gold saw a high of $1888.00 and is now trading at $1145.40 so we have seen a 40% discount. Silver’s high was $48.00 and is now trading at $$15.45 so we have seen a whopping 68% discount. Platinum saw a high of $1873.00 and is now trading at $1210.00 a 36% discount. The high for palladium was $905.00 and today is trading at $758.00 a 16% discount.
Also another short warning – look at the 30 day chart for gold and you will see we have moved from $1250.00 (Oct 21st) to $1145.00 (Nov 5th) so this $105.00 move is profit in the short paper trade. This creates a hair trigger meaning any sign of a reversal will create a short-covering rally which will produce that bounce higher.
Silver closed down $0.52 at $15.41 and I can say there was a rush to buy silver bullion on its initial recent weakness – but this market too has caught investors by surprise. Few in the physical community thought prices would ever get this low but now that they have there is some caution.
Platinum closed down $14.00 at $1210.00 and palladium was off $33.00 at $758.00. Car sales have been strong both in China (20 million cars so far this year) and US (on pace for 16.5 million cars) so why we are seeing continued lower prices is a mystery.
Here is our usual Wednesday report on the movement of all physical Exchange Traded Funds
Gold Exchange Traded Funds: Total ounces as of 10-29-2014 was 53,085,658. That number this week (11-05-14) was 52,762,293 ounces so over the last week we dropped 323,365 ounces of gold. It might also be interesting to note that in 2013 the record high for all gold ETF’s was 85,112,855 ounces. In 2014 the record low was 52,762,293 ounces.
All Silver Exchange Traded Funds: Total as of 10-29-14 was 633,910,050. That number this week (11-05-14) was 633,762,667 ounces so over the last week we dropped 147,383 ounces of silver.
All Platinum Exchange Traded Funds: Total as of 10-29-14 was 2,710,205 ounces. That number this week (11-05-14) was 2,742,262 ounces so over the last week we gained 32,057 ounces of platinum.
All Palladium Exchange Traded Funds: Total as of 10-29-14 was 2,994,198 ounces. That number this week (11-05-14) was 3,055,397 ounces so over the last week we gained 61,199 ounces of palladium.
I was reading the latest from David Stockman relative to Bill Gross – a great article on why Congress is off the mark and the job’s problem will continue to haunt us. After the post this following caught my eye from one of his readers – now remember this is from a regular citizen – voicing an opinion.
“It appears that the economic “leadership” of the banking and financial sector is completely addicted to cheap interest loans to further their businesses at the cost of the general economy.
This runs parallel with the goals of Congress, and the executive, which is to finance the massive and growing federal debt with cheap debt service.
However, as all drug addictions, this one shares a catastrophic end with all the rest. As debt service rates are kept artificially low, the Treasury continues to borrow more in funding massive deficit spending by the government. A level of federal debt which could be serviced by normal sovereign interest rates (3% plus the rate of inflation) no longer could be serviced without massive increases in taxes and decreases in government services. The heroin trap has been exercised and now we are in the hole which Richard Fisher warned us about in 2011.
The Fed now simply has to lie to justify cheap interest rates forever; the investment banks simply have to continue arbitraging ZIRP loans for sovereign debt with a positive yield, and the middle class can no longer save to start a new business, to send their kids to school, to amass a down payment on their first house, or to provide for their retirement.
The Washington elites have now destroyed the basic fabric of a free society by disincentivizing saving and thus investment in the hands of the middle class.
What imbeciles have we sent to Congress to allow this to happen? Where are all those brilliant Senators and Congressmen who we’ve sent to protect our civil rights, preserve our freedoms and permit a robust economy? Either they have no knowledge of how things work, and thus should not hold office, or know how things work and are so corrupt they should not hold office. In either case, this will not end well.”
I believe this is the source the reader used in his reference to Richard Fisher – New Republic – Danny Vinik – Inflation Hawks Have Been Wrong for Years. Should We Listen to Them Now? – Richard Fisher, the president of the Dallas Federal Reserve, has an op-ed in Monday’s Wall Street Journal warning that the Fed’s current policy risks sparking high inflation. “Given the rapidly improving employment picture, developments on the inflationary front and my own background as a banker and investment and hedge fund manager,” Fisher writes, “I am increasingly at odds with some of my respected colleagues at the policy table of the Federal Reserve as well as with the thinking of many notable economists.”
This isn’t the first time Fisher has been at odds with his colleagues. When the Fed undertook “Operation Twist” in 2011, Fisher was one of three members of the Federal Open Market Committee—the committee that decides Fed policy—to dissent. He’s also been the committee’s staunchest inflation hawk, and Monday’s op-ed was just the latest of many warnings Fisher has issued over the past few years about supposed forthcoming inflation. Here are five examples since 2011:
1. April 8, 2011: “Having done our job, I see many risks to the Federal Reserve overstaying its position. There is the risk that we might breach our duty to hold inflation at bay.”
2. September 27, 2011: “I might conclude by sharing my concerns about the prospect of temporarily allowing more inflation as a means of unlocking expansion in final demand…[O]nce unleashed, inflation combines with stagnation to make stagflation, the most painful of all combinations for the poor, for workers, for job seekers, for bond and stock holders and for businesses trying to navigate the economy.”
3. April 10, 2012: “I’m just reporting what I hear on the street, which is a real concern that with our expanded balance sheet, we are just a little bit in an ember of what could become an inflationary fire.”
4. September 20, 2012: “I do not see an overall argument for letting inflation rise to levels where we might scare the market. We have seen a sharp rise in inflation expectations. If you let this get out of hand, then I think we will have a market reaction.”
5. June 4, 2013: “I argue that the Fed is, at best, pushing on a string and, at worst, building up kindling for speculation and eventually, a massive shipboard fire of inflation.”
So take Fisher’s predictions with a grain of salt. More than anyone else on the FOMC, he has been wrong about the economic implications of Fed policy.
But that doesn’t necessarily mean that Fisher is wrong this time. There areanecdotal signs that wage growth may pick up in the fall, potentially leading to higher inflation (though not a “shipboard fire of inflation”). Last week, though, the Consumer Price Index came in at 2.1 percent. Without food and energy, it was just 1.9 percent. The Fed’s favorite measure of inflation, the PCE Deflator, rose just 1.5 percent in the past year, well under the central bank’s 2 percent target.
If wage growth picks up suddenly, these measures could surge upward, but that’s a big if. Fisher and his fellow inflation hawks (like CNBC’s Rick Santelli) want to tighten policy now to make sure that inflation stays under control. But doing so would mean blocking real wage growth for workers, something they haven’t seen in more than a decade. On the other hand, Fed Chair Janet Yellen, who has the best record of forecasting the economy out of any of her Fed colleagues, wants to keep monetary policy on its current trajectory and adjust it if inflation increases. In the meantime, she will allow wage growth to happen and continue, rightly, to ignore inflation hawks like Fisher and Santelli.
The walk-in cash trade was busy all day and so were the phones. Basically the story is the same – there are few large sellers of bullion at these lower levels – there is plenty of action in the small to mid-size range but no whale as yet.
The GoldDealer.com Unscientific Activity Scale is an “8” for Wednesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 5) (last Friday – 5) (Monday – 8) (Tuesday – 8). 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 very busy and see a low number – or be very 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 – perhaps a week or two. 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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