Commentary for Monday, April 28, 2014 – Gold closed down $1.90 today at $1298.90 in a market which had a small downward bias in Hong Kong and London then sold off domestically but recovered nicely before trading was closed for the day. In this price mix pending home sales came in at up 3.4% relieving some fears that housing was slowing. The Russian problem continues to either push or support gold and the new President Obama sanctions are mild and mostly focused on Putin insiders. This is good because hitting Russia in the pocketbook will only further degrade the European Union.
Silver closed down $0.10 at $19.58 and while silver whales are at sea the smaller investor remains in the silver investment picture. We delivered a few rolls of American Silver Eagle 1 oz coins to such an investor Friday. No big deal – happens all over the country but this fellow took these two rolls in his hands and said, “For me this is the best investment in world right now!” His voice held such conviction that I added a few hundred ounce silver bars to my stack and I have not been buying lately.
Platinum was off $5.00 at $1418.00 and palladium was also down $11.00 at $800.00 and rhodium was down $20.00 at $1080.00. Feel free to buy all you can at these distressed prices. The Australian Platinum Platypus 1 oz coin and the 1 oz Baird Rohium Bar sold well today.
So what about the so called “pull-back” in China and the resultant move in the price of gold? Most believe because China takes up a big part of the picture relative to gold a change in the industrial arm of China might not bode well for gold. It has always been my feeling that because China is on a mission such ups and downs are only temporary and this morning Steve Schwarzman (Blackstone CEO) said on CNBC that with Chinese growth rates of above 7% a pivot to 6% should not cause undue concern. The Chinese will eventually pay their citizens more as they move from a cheap exporter to something in line with a 21st Century middle class because today their citizens are ranked 100th in the world. They don’t make them any smarter than Schwarzman and while he did not mention gold I could not help but think how nicely this places the Chinese gold tradition in the hands of their working class. I have mentioned this before and will reiterate that as the Chinese begin to consume their wealth the price of gold will move steadily higher.
There have been some signs (not big, but steady) inflation will be returning to the gold equation. This morning the LA Times headline – Price of electricity may continue to rise – “One recent study predicts the cost of electricity in California could jump 47% over the next 16 years, in part because of the state’s shift toward more expensive renewable energy. “We are now in an era of rising electricity prices,” said Philip Moeller, a member of the Federal Energy Regulatory Commission, who said the steady reduction in generating capacity across the nation means that prices are heading up. “If you take enough supply out of the system, the price is going to increase.”
I appreciate that part of this case is predicated on a shift to renewable energy and not traditional inflation driven pricing. But I’d also add that even at this there are millions of ways this big jump in electrical prices (for whatever reason) will drive the price of manufactured goods higher, the result being that inflation continues to be a big threat.
FOMC Expected To ‘Stay the Course;’ Gold May React Less Than Most Meetings (Allen Sykora – Kitco) – The U.S. Federal Open Market Committee is expected to largely stand pat when a two-day policy meeting wraps up on Wednesday. If so, this could mean a limited reaction for prices of gold and other precious metals, at least compared to past meetings, analysts said. That would mean the metal mainly could make a big move if there were some sort of major surprise. Central bankers begin a two-day meeting on Tuesday and conclude Wednesday, with a post-meeting statement scheduled for release at 2 p.m. EDT. “They are probably going to stay the course,” said Phil Flynn, senior market analyst with Price Futures Group. After a meeting wound up last month, the Fed scaled back the bond-buying program known as quantitative easing by another $10 billion, as expected. Members’ forecasts for the future of short-term interest rates were seen as more hawkish than anticipated, however, as was a comment from Fed Chair Janet Yellen at a press conference in which she suggested rates could start rising six months after the end of QE. Since, however, Fed commentary has been deemed more dovish than initially thought after the last FOMC meeting, with Yellen characterizing the labor market as still soft. Also, minutes from the last meeting, released earlier this month, showed policy-makers feared that their collective interest-rate forecasts might overstate the pace at which eventual tightening likely would occur, assuming the economy recovers sufficiently. “I don’t look for much (new) to happen at this meeting,” said Frank Lesh, broker and futures analyst with FuturePath Trading. Economists and market participants look for the $10 billion-per-meeting tapering to continue. “Communications from the FOMC suggest that asset purchases are on track to step down in a steady way between now and the end of the year unless there is some drastic change in activity and/or the outlook,” said a research note from Nomura’s economic team. Most observers do not expect any major changes to the Fed statement or forward guidance. Brown Brothers Harriman said the Fed meeting likely will be a “non-event,” with markets anticipating that the first hike in short-term rates likely is still more than a year away. Markets anticipate one of the few changes to the Fed statement might be that the U.S. economy has picked up after a slow start to the year, Lesh and BBH said. “But it’s not enough to change or alter the course of the Fed at the moment,” Lesh said. Added BBH: “The next FOMC meeting … will be more important than this week’s meeting, which may be as close to a non-event as these things can be. Forecasts will be updated, and Yellen will hold a press conference in June.”
The walk-in cash trade was steady today not hurried with plenty of time for an extra cup of coffee. By the way if you visit us in person we also offer free cokes, Snapple and bottled water so ask away if you are thirsty. The phones were relatively light and it did not feel like a busy day but the Activity Level came in at a respectable 5.
The GoldDealer.com Activity Scale is a “5” for Monday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Tuesday – 5) (last Wed – 7) (last Thursday – 6) (last Friday – 5). The scale (1 through 10) is a reliable way to understand our volume numbers.
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