Commentary for Friday, July 10, 2015 ( www.golddealer.com) – Gold closed down $1.50 at $1157.50 on the Comex today settling into the lower end of its current trading range.
It would seem Greece is back from the brink of financial disaster but not much. At least everyone is talking again so that’s worth something and the Chinese stock market route is also improving so the financial markets are less stressed today. Even our stock market rose on news that another Greek debt deal is in the making.
This takes some tension off the upcoming weekend. And if Greece does survive and remains in the European Union it will be good for gold – the reasoning being there is yet another reason to inflate the euro so payback is cheaper.
Gold was somewhat weaker going into the weekend. This in spite of a dollar which was soft – look at the Dollar Index. The spread today was 95.45 through 96.40 – it is now trading around 95.89 so we are off the lows but weaker on the day.
Still with all the physical action, the US Mint running out of American Silver Eagles (temporary), the suspension of NYSE trading earlier this week, the Greece debt debacle, trouble with the Iran nuclear deal, a pleasant pass by the Federal Reserve when it came to the expected interest rate hike, the collapse in the price of copper and oil, and the near catastrophe with the Chinese stock market – pause – gold ranged from $1152.40 through $1172.90 – a mere $20.50 top to bottom. Not exactly a ringing endorsement of safe-haven buying.
Gold looks more like a defensive market waiting on something to happen – perhaps an interest rate move but after listening to Yellen today it does not appear to be right around the corner. Perhaps a market capped by a stronger dollar but the dollar might also be trending lower.
The counter trend however maintains physical demand. This is measurable – our overall activity is up 40% this month from the past few months this week alone. It remains to be seen if we will continue this pace but the public likes lower prices.
The big event of this week was the retest of March lows at $1148.00 for gold and $14.70 for silver – both held so while these markets remain technically weak the physical demand remains strong. Let’s call this the “uncertainty factor” or “insurance factor” in the world markets.
The Chinese factor also carries weight but this “slowdown” has been on the table many times before and so is discounted somewhat – the idea being that as the Chinese economy slows – the country creates less demand for industrial metals such as copper, nickel, silver, platinum and palladium. But the Chinese stock market has rebounded by 10% in the past two sessions partly as a result of policies implemented by their government to stem the tide. One such restriction was to stop sales of stocks by executives in companies for at least six months.
At this point it will pay to keep an eye on crude oil – this past month we have moved from $62.00 a barrel to $52.00 a barrel – this is significant. This will eventually save you money at the pump but that is not the point – a generally lower price of oil will further the feeling that the consumer is getting a better deal and will perhaps spend more money as a consequence. It also helps with the inflation picture and provides more the Federal Reserve with more latitude. Actually the last time oil moved dramatically lower they did not spend they saved – so the fear of recessional pressure is still on the working class mind. But lower oil in general improves the economic possibilities, which detracts from safe-haven choices.
Silver closed up $0.12 at $15.46.
Platinum closed up $10.00 at $1032.00 and palladium closed up $12.00 at $649.00. Rhodium moved higher by $20.00 at $820.00 (some activity here – rhodium in my mind is too cheap) especially with Europe getting some traction and growing problems with Russia.
Our Patented Employee Survey– Gold’s Direction Next Week?
Of course it’s not really patented but we do have some fun along the way. This is what the GoldDealer.com employees think – 5 believe gold will be higher next week – 4 think gold will be lower and 3 believe it will be unchanged.
Our Patented Customer Survey– Gold’s Direction Next Week?
Like the employees our customers were given three choices – up – down – unchanged. We limited the survey to a random sampling of 100 transactions – unscientific but worth considering because these people took action: 45 people thought the price of gold would increase next week – 43 believe the price of gold will decrease next week and 12 think prices will remain the same.
Precious Metal Closes & Dollar Strength – July 6 – July 10
This from Mike Meyer (Everbank) – Three Reasons Why the Fed Might Not Hike Rates This Year – Writer Laurence Peter once said, “An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today.”
This may sound like a joke, but it’s not. Economists are simply not very good at forecasting. In 2008, for example, the consensus from forecasters was that not a single economy would fall into recession in 2009. Instead, we had the greatest global recession in decades.
The Fed is no exception. Just look at their gross domestic product (GDP) forecast over recent years. David Stockman, former economic advisor to Ronald Reagan, points out that economic growth has been consistently weaker than the Fed’s range of expectations known as “central tendency.” Let’s take a look.
The Fed’s Projections Have Been Consistently Wrong – The Fed has been consistently too optimistic on its forecasts. And, it looks like 2015 may be just another year of missing the mark. For the first quarter, the Fed was forecasting growth of 2.6% to 3%, but actual growth came in at -0.2%.
Given the Fed’s expectation of robust growth at the beginning of the year, most economists were expecting the Fed to hike interest rates in June. Of course, that didn’t happen because the economy has been much weaker than expected.
Despite a disappointing first quarter, the Fed has been consistently telling the market it will likely raise rates at some point this year. Last month, Fed chief Janet Yellen said, “I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate target and begin the process of normalizing monetary policy.”
And, more recently, she said, “it’s clear from our summary of economic projections that the economy will grow, the labor market will improve.” Only she forgot to mention that their projections are almost always wrong. So, we shouldn’t be surprised if the Fed doesn’t keep its promise of hiking rates this year. Let’s take a look at three factors that could force the Fed to delay its first rate hike until next year.
#1) U.S. GDP Growth Has Disappointed – The U.S. economy is not really booming. The manufacturing sector has been struggling with a strong dollar, which makes U.S.-made goods relatively more expensive overseas. Last quarter, for example, spending on construction, machinery, and research & development fell at a 2% pace – the worst reading for the category since 2009.
Inflation, as measured by the Consumer Price Index (CPI), also remains weak. If we don’t see a significant pick-up in growth, the Fed could very well delay its first rate hike until next year.
#2) Low Liquidity Increases the Risk of Turmoil in the Bond Market – There’s something fishy going on in the bond market. New regulations implemented since 2009 have prevented banks from making markets in a number of fixed income assets, leaving fewer buyers and sellers of bonds.
As a result, bond holdings are becoming concentrated in the hands of fund managers. This increases the risk that liquidity will vanish in a sell-off. According to the Bank for International Settlements, “the growing size of the asset management industry may have increased the risk of liquidity illusion. Market liquidity seems to be ample in normal times, but vanishes quickly during market stress.”
Bond yields have already jumped from 1.7% to 2.3% this year. If the Fed raises interest rates, we could see a sharp drop in the price of bonds. That’s a big problem because that kind of volatility could easily spill over into equities, leading to overall market turmoil.
The bottom line is these concerns about a lack of liquidity in the fixed-income markets could sideline any Fed action this year.
#3) Rate Hike May Trigger Crisis in Emerging Markets – Expectations of a rate hike in the U.S. and the resulting U.S. dollar strength have already hurt growth in emerging markets. That’s especially true for countries such as Brazil, India, Indonesia, South Africa and Turkey, which all depend on attracting global capital flows to finance themselves.
The International Monetary Fund (IMF) has recently warned that the Fed’s impending interest rate hike poses a considerable risk to global markets. Mitsuhiro Furusawa, an IMF deputy managing director, recently explained the risk of market disorder: “Once market sentiment shifts – possibly triggered by normalization – yields could sharply increase and capital flows could reverse.”
The consensus right now is that the Fed will hike rates in September. But, as I showed you today, there are plenty of reasons for the Fed to delay its plan. For investors, this is important because if the Fed doesn’t hike rates, we could see a sharp drop in the U.S. dollar and a recovery in precious metals and other non-dollar assets.”
The walk in cash trade was very busy – not crazy but busy enough to create a few lines at the back door – as usual we apologize for the wait. There were a few large sellers but mostly the public continues to buy. The phones were steady – also mostly buyers in the small to mid-range.
The GoldDealer.com Unscientific Activity Scale is an “ 8” for Friday. The CNI Activity Scale takes into consideration volume and the hedge book: (Monday – 7) (Tuesday – 9) (Wednesday – 8) (Thursday – 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 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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