Commentary for Tuesday, Oct 21, 2014 – Gold closed up a respectable $7.00 at $1251.00 as traders began to speculate that the Federal Reserve would push back interest rate hikes in an effort to further encourage a rather choppy economic recovery in the US. And at the same time the European Central Bank looks like it is encouraging its own brand of quantitative easing.
There were other factors which also supported gold – the Chinese Gross Domestic Product was higher by 7.3% which sounds huge but was the worst we have seen in 5 years but still better than economists had predicted. This convoluted story also lifted gold because the Chinese like to buy the physical product and a better GDP puts more money in their pockets.
The momentum players are also happier about gold as its price today moved above the 50 Day Moving Average ($1248.00) and traders are now watching carefully the 100 Day Moving Average ($1274.00). The 100 Day Moving Average at this point is big because anything above $1280.00 means there could be a serious attempt at the important $1300.00 level.
Some gold import numbers are also shiny – Russia imported 37 tons in September which is the 7th straight month of additions to their stockpile. China imports from Shanghai amounted to 68 tons for a two week period in October and Chinese gold demand is expected to be 2000 tons this year. India is also back in the game importing 95 tons in September.
Silver closed up $0.20 today at $17.50. We see steady accumulation with the low to mid-range buyer but not much in the whale size as yet. Silver has generally followed oil lower on fears of a global slowdown but keep in mind that real silver demand for bullion has reasserted itself many times under $18.00 and production of US Silver Eagles will slow down as usual at the end of the year as the Mint gears up for the 2015 dated coins. The gold to silver ratio is now 71.48 – so it favors trading gold bullion for silver bullion.
Platinum closed up $15.00 at $1283.00 and palladium was up $14.00 at $775.00. The difference between platinum and gold right now is $32.00 – this encourages trading gold bullion for platinum bullion which makes sense over the longer period.
This from Bloomberg (Nicholas Larkin and Debarati Roy) – Gold Climbs to Five-Week High on U.S. Rate Outlook – Gold futures rose to a five-week high as traders pushed back estimates for an increase in U.S. interest rates by the Federal Reserve.
Rate futures indicated the odds of a U.S. increase at about 47 percent by October 2015, down from 55 percent a week earlier. In September, Switzerland exporter 172.6 metric tons of gold, the most in seven months, customs data showed. That “ties in well with the pick-up in physical demand,” UBS AG said in a report.
Gold advanced in the past two weeks after U.S. policy makers cited slowing foreign economies as a risk to American prospects. St. Louis Fed President James Bullard said last week the Fed should consider delaying plans to end bond purchases. Officials are scheduled to meet on Oct. 28-29.
“There is a growing consensus among investors that the Fed will continue with the low-interest rate policy,” Phil Streible, a senior commodity broker at R.J. O’Brien & Associates in Chicago, said in a telephone interview. “Also, physical demand is expected to support prices.”
Gold futures for December delivery rose 0.6 percent to $1,251.90 an ounce at 11:31 a.m. on the Comex in New York. Earlier, the price reached $1,255.60, the highest for a most-active contract since Sept. 10. Trading was 10 percent above the average for the past 100 days for this time, according to data compiled by Bloomberg.
“A more dovish Fed view would be interpreted as gold friendly,” James Steel, an analyst at HSBC Securities (USA) Inc., said in a report. “The prospect for a weaker dollar near term may provide support for bullion.”
This question from a reader – you might find interesting: Do bullion premiums tend to behave more like a “fixed cost,” or do they usually vary in sync with the spot price?
For example, assume a bullion coin has a spot price of $10 and can be purchased for $1 over spot. If the spot price triples to $30, is the premium more likely to remain close to $1, or will it also triple?
Does the same hold true for the reverse transaction when a dealer is buying bullion from a client?
The answer to this may appear simple but can be tricky because premiums are controlled by the manufacturer but change frequently according to a dealer’s hedge position. Any given mint charges a percentage over spot – sometimes a few points but this percentage changes with the wind. Still as the value of gold moves higher the dollar value charged over spot will increase unless the mint decides to lower it premiums.
Now consider that if the public wants a particular bullion product and will not settle for a substitute – even though it’s the same ounce of gold – the higher demand will push premiums higher – not because the dealer is taking advantage but because he has to pay a larger premium to attract real physical material.
And as if the above is a bit incomprehensible also consider the notion of a premium collapse because large dealer often have price wars to attract larger market share or they have too much inventory and want to raise their buyback capital ratios.
So if markets are defensive – meaning more people are selling than buying it is possible premiums will move lower. And if markets are dear meaning the bulls are raging premiums might move higher simply because we are talking about the capital system.
None of this is set in stone but there are a few rules which might save you a few bucks. First, premiums are never fixed – they vary considerably and are always subject to change. This is important because you might figure a higher premium is worth the money only to find that when you are selling the premium has moved lower. So rule number one – compare bullion products before making a purchase – buying the generic or cheaper brand sometimes makes sense. Second, consider premiums more an indicator of what the public prefers at that moment – and not some kind of financial insight designed to make you a better trader. Third, the premium on any given bullion coin is always less important than the dealer’s buy and sell spread if you are looking for value.
Also from Bloomberg (Swansy Afonso and Pratik Parija) Gold Buying Rebounds in India on Diwali Jewelry Sales – Shweta Anand took half a day off work to get a jump on India’s jewelry shopping spree before the Hindu festival of Diwali, and she was looking for bargains.
“The best time to buy is before the shops get crowded,” said Anand, 27, as she eyed trinkets on velvet shelves at a store in Mumbai’s Zaveri Bazaar, India’s biggest jewelry market. “I buy some gold jewelry every Diwali. Last year, I bought earrings. This time, I am getting a chain as prices are lower.” She spent 30,000 rupees ($490) on a necklace.
Even after a two-week rally in bullion, domestic prices remain 7.4 percent lower than a year ago just as sales are set to climb for the festival and wedding season. India is the largest gold buyer after China. The All India Gems & Jewellery Trade Federation said fourth-quarter imports of the metal may jump 75 percent, which Barclays Plc said may support prices.
“The appetite for gold among physical buyers in India seems to have increased,” said Howie Lee, an investment analyst in Singapore for Phillip Futures Pte. “India’s attachment to gold is unlikely to break. This tradition has lasted for centuries. It’s a symbol of wealth or a form of investment, and the precious metal is deeply rooted in worship and culture.”
After import restrictions and a weak rupee led to a 34 percent drop in demand in the first half of 2014, purchases are set to improve in India, the world’s largest buyer as recently as 2012. Retail sales of everything from rings to pendants to necklaces may rise 30 percent to 40 percent during Dhanteras, the biggest gold-buying festival, said Rajesh Exports Ltd. (RJEX), a jewelry retailer and exporter. Dhanteras is celebrated today.
Demand Recovery – Diwali, the festival of lights celebrated by the country’s more than 800 million Hindus on Oct. 23, is considered an auspicious time for buying gold. Researcher CPM Group estimates the holiday generates about a fifth of annual purchases in India, more than any other time of year in a country with a long history of hoarding the metal. About 20,000 metric tons of gold are stashed in homes and temples, and Indians often inherit bullion in the form of ornaments or family treasure.
Jewelers in India, which represented 25 percent of global bullion purchases last year, are betting demand will be rekindled by four straight quarterly declines in domestic prices, the longest slump since 2004. The premium jewelers pay to suppliers over London prices has plunged to about $17 an ounce from $120 a year earlier, cutting costs for consumers.
Buying Surge – “Prices have fallen at the right time,” said Bachhraj Bamalwa, a director at the All India Gems & Jewellery Trade Federation, which represents more than 300,000 retailers and bullion dealers. Domestic demand will rise 15 percent to 20 percent over the three months through December, with imports reaching 175 tons to 200 tons, compared with 114 tons a year earlier, Bamalwa said on Oct. 15.
Gold traded in London touched $1,183.24 an ounce on Oct. 6, the lowest this year. Prices have tumbled 28 percent in the past two years as the Federal Reserve signaled an end to stimulus measures intended to revive the U.S. economy, while inflation remained in check. Even as low prices fueled a surge in physical demand in China, the appeal of the metal as a hedge has waned for investors. Holdings in exchange-traded products backed by gold have dropped 12 percent in the past year, helping to erase about $13 billion of value.
Bullion for immediate delivery traded at $1,250.86 today, while futures on the Multi Commodity Exchange of India Ltd. were at 27,551 rupees per 10 grams ($1,397 an ounce).
More Imports – In India, signs of a rebound in festival demand emerged in September. Bullion imports were valued at $3.75 billion last month, 450 percent more than a year earlier, the Commerce Ministry estimates. Shipments jumped as jewelers replenished reserves to meet demand, said Bamalwa, the federation director.
Indians purchase gold at festivals and for marriages as part of the bridal trousseau and as gifts in the form of jewelry. Demand will be 850 to 950 tons this year, compared with 974.8 tons in 2013, the World Gold Council estimates. An average of about 5 million weddings every year fuels demand for gold, regardless of prices, according to Prithviraj Kothari, managing director of Riddhisiddhi Bullions Ltd. in Mumbai. He estimates average purchases for a wedding at about 200 grams. The increase in demand from festivals and the wedding season “alongside the potential for a short-covering rally could see gold extend its gains,” Barclays said Oct. 13. “We believe the bounce is likely to be short-lived and remain cautious given the headwinds the macro-environment presents and would look for opportunities to sell into the rally,” it said.
Insatiable Appetite – The public’s insatiable appetite for gold raised concern for the government because almost all of the metal is imported, widening the current-account deficit and weakening the rupee. India last year raised import taxes three times to 10 percent and introduced a rule obliging shippers to supply 20 percent of their cargo to jewelers for re-export.
The import curbs sent gold demand for jewelry and investment down 34 percent to 394.4 tons in the first six months, World Gold Council data show.
After the curbs throttled imports and cut the deficit to about $32.4 billion in 2013-2014, compared with a record $87.8 billion a year earlier, the government in May eased controls to allow more trading houses to bring in gold. The government may consider re-imposing some curbs after Diwali as imports surged in the past couple of months, Finance Minister Arun Jaitley told ET NOW television yesterday, the Press Trust of India reported.
Asian Buyers – Cheaper bullion may spur buyers in Asia, according to UBS AG. Prices at or below $1,200 will attract physical buyers and be seen as favorable by investors, UBS analysts Edel Tully and Joni Teves said in a report on Sept. 30. A rush to buy will not materialize unless prices fall closer to $1,100, they said.
Demand in Asia has declined this year after jumping in 2013, when global prices plunged 28 percent, the most in three decades. Consumption fell 16 percent in the second quarter to 963.8 tons, the World Gold Council estimates. While China was the top buyer in 2013, demand in the three months through the end of June fell 52 percent to 192.5 tons, less than the 204.1 tons purchased in India, council data said.
The metal will extend losses into 2015 as the dollar rallies, Morgan Stanley said on Oct. 8, listing the commodity among its least-preferred metals. Average prices will decline each quarter, reaching $1,165 in the three months through September, the bank said.
Jewelers are also hoping that steps taken by Prime Minister Narendra Modi, who was elected in May, will help revive growth in Asia’s third-largest economy and provide a boost to sales.
Harvesting Gold – “There’s a positive feeling in the economy after the Modi government came to power,” said Rajesh Mehta, chairman of Bengaluru-based Rajesh Exports. “For a reasonably long time, demand was subdued, and that pent-up demand will come in now at these price levels.”
A good crop will also help gold demand in India, where 833 million of the 1.2 billion population depend on agriculture for their livelihood. Rural India represents 60 percent of the nation’s gold consumption. After a weak start to the monsoon season, which limited planting, food-grain output will be 120.3 million tons compared with 129.2 million tons a year earlier, the Agriculture Ministry estimates. Cotton production will jump to a record 40 million bales of 170 kilograms each.
For Lynette D’Souza, a 30-year-old dentist in the western Indian state of Goa, the lower gold price means she can buy more with the 100,000 rupees she’s budgeted on a gift for her brother, whose wedding is scheduled next month.
“I was initially planning to gift my brother a honeymoon package to Southeast Asia, but I realized that people don’t value other gifts as much as they value gold,” D’Souza said in an interview on Oct. 14. “Years from now, they will still have the gold. It is also an investment.”
The walk-in cash trade was just average today – not busy but steady. The phones were on the quiet side until about 11:00 AM and then all the incoming lines lit up like a Christmas tree! It’s funny about how the public reacts in the gold business. The market has been steadily upward since we bottomed in the $1180.00 range – then we stalled around $1240.00 – I was suspicious because there are plenty of reasons to believe gold was oversold and the rebound would be strong – so why the stall at $1240.00? Then interest rate speculation pushed the market to 5 week highs – but the market was only up $7.00 ($1251.00) and technically gold must show strength at $1280.00 and higher to gain any respect – but all of a sudden the public decides its time to test the waters and the phone lines were jammed.
The GoldDealer.com Unscientific Activity Scale is a “3” for Tuesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Wednesday – 3) (last Thursday – 4) (last Friday – 5) (Monday – 5). 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.
Email confirmation using a PDF File when buying or selling is functional. It also includes the various forms of payment and includes bank wire instructions. And you can now see your actual invoice or purchase order on your computer screen.
When you buy or sell please check to see if we have your current email on file and that your computer will accept our email (no spam).
About shipping information – when buying or selling your rep will walk you through your current mailing information. Thanks for keeping us up to date if you have moved.
Our four flat screens downstairs with live independent pricing (BullionDesk.com) are a big hit with the cash trade. Live pricing moves all the buy/sell product prices on a real time basis. Yes – you can visit the store with cash and walk away with your product. Or you can bring product to the store and walk away with cash. When buying from us remember if you exceed $10,000 in cash (the real green kind) a Federal Form is necessary.
In addition to our freshly ground organic coffee offered visitors throughout the day we have added cold bottled water, cokes and Snapple. We have also added fresh fruit in a transparent attempt to disguise our regular junk food habits.
Like us on Facebook, follow us on Twitter @CNI_golddealer and check out our gold newsletter
Thanks for reading – your friends at GoldDealer.com. Enjoy your evening and we appreciate your business.
Disclaimer – The content in this newsletter and on the GoldDealer.com website is provided for informational purposes only and our employees are not registered financial advisers. The precious metals and rare coin market is random and highly volatile so it may not be suitable for some individuals. We suggest before deciding on a course of action that you talk with an independent financial professional. While due care has been exercised in development and dissemination of our web site, the Almost Famous Gold Newsletter, or other promotional material, there is no guarantee of correctness so this corporation and its employees shall be held harmless in all cases. GoldDealer.com (California Numismatic Investments, Inc.) and its employees do not render legal, tax, or investment advice.