Commentary for Wednesday, Nov 12, 2014 – Gold finished down $3.90 at $1158.90 after initially showing some strength on news that NATO reported troop movements and artillery fire in western Ukraine. The UN Security Council announced an emergency session but the rally was short lived probably capped by a stronger dollar.
Still the close was about $15.00 above the low close of this week so there is some safe-haven trading going on and while gold market news is generally negative there is enough going on worldwide to keep the short trade in line – at least for the present.
I would place overhead resistance for gold at $1180.00 and support at $1142.00 but the technical picture still belongs to the bears so expect further downside testing and a generally choppy market.
Silver closed down $0.05 at $15.61. I was talking to an aggressive buyer of US Eagle Monster Boxes this morning across the counter – his enthusiasm was refreshing – that what this market really needs now is follow through from the committed physical community.
Platinum was down $1.00 at $1205.00 and palladium was up $1.00 at $733.00.
To get a real idea of what gold will do on the shorter term let’s look once again at the dollar and oil. The Dollar Index (DXY) is best viewed first from the three month perspective – and it’s been very strong moving from a low of around 81.00 to a high above 88.00. This has obviously hurt gold and moved the dollar into the number one “safe-haven” choice in case of financial or geopolitical worries especially on the shorter term.
As of this writing the DXY is 87.64 so this rather steep ascent has been modified this week and we are seeing a somewhat choppy to flat dollar moving around 87.00. This will help gold on the short term but 87.00 is still at the higher end of its trading range and a strong dollar will cap possible gold moves to the upside even though gold is trading at a substantial discount to its high.
The one month chart of WTI crude oil shows a downward movement from above 85.00 to its present level of around $77.94. This market continues lower because of a world-wide oil glut and weaker oil also presents problems relative to the price of gold. Cheap oil supports low inflation – the Bank of England this morning claims the deflation scenario now common in Europe. So their interest rates will remain low – the pound moved lower and quantitative easing rules.
There is no doubt that the price of gold short-term is controlled by the paper market. The “short” action is now the game de jour and is supported by the two above points – but there is becoming a disconnect between the physical and paper markets.
What I call the “big” physical markets (Russia, China, and India) are steadfast buyers – they are careful buyers no doubt – waiting at times for lower prices. But make no mistake here – they will buy all they can over the years and in the end will have the biggest stack. This is an overlooked back-burner fundamental because the “tipping” point is difficult to figure. “When” will this slow accumulation stop being just a good deal for those who want to own gold and turn into a dynamic force which will push prices higher?
The “smaller” across the counter action is steady but unimpressive relative to a few years ago when gold was in the headlines. So those who are still committed gold bullion buyers are here to stay – they like the bigger players simply see today’s scenario as a bargain. To be sure they are in the minority – but real gold bullion owners have always been a small but committed lot.
Do I expect anything “big” in the way of a gold game changer? Probably not – I’m afraid we are in for a range bound market until paper money begins to circulate and the resultant inflation creeps back into the daily financial numbers.
A Russian incursion or the comments by ECB President Mario Draghi regarding more quantitative easing will set the stage. The Bank of Japan has already opened the monetary spigots beyond anyone’s expectation – the US is committed to a low interest rate policy for a very long time and Europe will also be giving away money because they are scared to death of deflation.
Sooner or later this will translate into inflation and gold will act the way it always does – move higher as fiat paper money moves lower. But don’t expect this anytime soon – for now stocks rule and everyone believes there will be no fiddler to pay for the latest monetary expansion.
This from Clara Denina (Reuters) – Russian central bank buys up domestic gold output as sanctions bite – Russia’s central bank has been forced to step up its gold buying this year to absorb domestic production that Western sanctions are making it hard for miners to sell abroad, and to boost liquidity in its foreign reserves, sources said.
Most Russian gold mine production is sold to domestic commercial banks, such as Sberbank or VTB, which can then sell the metal on to either the central bank or to foreign banks.
This year, sources say, foreign banks are holding off buying Russian gold after Western powers implemented sanctions against the country over the Ukraine crisis.
The central bank has therefore had no choice but take domestic mine production that cannot be sold to foreign banks, two sources said, and has bought most of the metal that commercial banks had available.
“This is one measure that the central bank has taken to go through this difficult period for commercial banks and most importantly to boost liquidity,” a source close to the situation said on the sidelines of the London Bullion Market Association annual conference in Peru.
While the sanctions do not expressly prohibit them from buying gold, Western banks are cautious over any business done with their Russian counterparts, sources said.
“So, it is likely that we could see a period of stabilization, when the question around sanctions is resolved, as the central bank will stop adding more gold to its reserves,” a second source added.
Russia has stepped up its gold buying significantly this year, data from the World Gold Council showed, adding nearly 115 tonnes of gold to its reserves in the year to date, against 77.5 tonnes in the whole of 2013 and 75 tonnes in 2012.
Central banks bought gold heavily during the financial crisis that followed the collapse of Lehman Brothers in a bid to diversify their currency reserves, adding 1,800 tonnes to their holdings in the six years to June 2014.
The Russian central bank has been the most active official sector gold buyer over the last decade. Its holdings have nearly tripled since the end of 2004 to 1,149.8 tonnes, making it the world’s sixth largest gold holder among central banks.
Earlier this month, CBR’s First Deputy Governor Ksenia Yudayeva said that the bank could use gold from its reserves to pay for imports, if needed.
“Central banks do not accumulate gold for no reason; you hold gold as part of your reserves to guard against these worst case scenarios,” Natixis analyst Nic Brown said.
“It would make sense that in a situation in which the Russians found their dollar reserves were no longer useful, for whatever reason, they would want to use alternatives, and the country has accumulated a large amount of gold in recent years.”
The walk-in cash trade was on the quiet side most of the day and the phones were quiet to average.
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