Commentary for Thursday, Nov 6, 2014 – Gold closed down $3.10 at $1142.30 in a quiet session which saw the overnight Hong Kong and London market hover right around $1145.00. In today’s gold session prices did touch yesterday’s low ($1137.00) before correcting higher. So the market looks like it is resting but there is some testing by the short paper contingent.
All of this as the dollar continued its upward strength – the Dollar Index today was stronger by 0.4% as it moved into the 87.80 region on comments by EU President Mario Draghi that he would act if necessary. The “act” he is talking about is of course the mechanism by which QE will be formalized within the European Union. It is amazing that it only takes a few sentences from Draghi to push the euro one way or the other – last week he wanted to add 1 trillion euros to the ECB balance sheet.
Yet a plan on how the EU will create money out of thin air is still not clear. An even looser monetary policy will push the euro lower and support the dollar which on the short term is not good for gold. But from the European perspective the price of holding gold bullion might look a great deal better than holding a currency which might go into the trash heap.
Oil continues to be an important component relative to the price of gold. Crude has moved to recent lows of $77.00 – interestingly shale producers in the US claim they are still profitable at these levels and look forward to increasing production in the next year or two.
Silver closed down $0.02 at $15.39 and these recent lows might be turning into a sweet spot for silver bullion investors.
The US Mint announced yesterday the sale of the 2014 American Silver Eagle 1 oz has been stopped for the time being because demand has depleted their normal production runs. This does not mean they won’t be producing more 2014 dated coins before the end of the year – but it does mean supply is limited and normal distribution will be interrupted. This sounds a bit on the ominous side but is actually normal for this time of year because it takes a while to change the date and get ready for 2015 production.
So expect a shortage and delayed delivery – also expect a higher premium over spot – this too happens each year because as the steady supply of 2014 Silver Eagles comes to an end the capitalistic system imposes a premium hike between dealers.
This supply/demand hiccup will last until the 2015 dated coins hit distribution channels early next year so I would not chase the popular Monster Box if the premiums surge. In the last few days we have moved from $2.45 over spot to $2.90 over spot. Will the premium continue to increase? This is really impossible to guess because the “premium” or amount over spot is really more a function of public demand.
When silver was hot the premium over on the US Silver Eagle 1 oz moved to as high as $7.00! Granted this is extreme – lately premiums have been in the $2.50 range but we could see the premium on Silver Eagles easily move above $3.00.
I am more of a “generic” buyer myself – if the premium of any silver bullion moves too high I just chose another silver bullion product which is more reasonable.
This is called a “scramble” in the trade – and it’s also happening with $1000 face 90% silver bags, 1 once silver rounds and Silver Philharmonics. Normally a large dealer orders one ounce rounds in groups of 20 or 30 thousand coins at any given time.
Today we had to settle for orders of 10,000 rounds. Why? Because prices are so cheap – and as the public buys the bargains the supply lines run thin. It’s not that silver is rare in any sense – it’s not – but manufactures are just like any other business. They won’t produce what they can’t sell in a reasonable amount of time – so when price drops and demand spikes – shortages appear. Not to worry – everyone will be taken care but this pricing dynamic is important to understand.
Platinum closed down $12.00 at $1198.00 and palladium closed down $5.00 at $753.00.
FOCUS – Strong car sales, SA troubles set palladium price up for bull run – By Ian Walker, London 04/11/2014 – Palladium could be set for a near-term bull run on growing vehicle sales in the US and China as well as supply-side difficulties.
Spot palladium has performed well in recent trading sessions even while gold has declined, FastMarkets analyst William Adams said, but it remains oversold given the strength of its fundamentals and growing demand for vehicles, in which palladium is crucial in catalytic converters in petrol-driven cars.
The metal was last toying with $750 – at $757/763 per ounce, it was down $25 on Tuesday’s close but up from $716 at the start of the year. Still, it remains far off the August peak of $911.50.
“While gold is under pressure, palladium may struggle to attract follow-through buying,” Adams said. “If gold stabilizes, I think palladium will be where gains will be seen.”
He is bullish on the near-term outlook for palladium, seeing a double bottom in place on the metal’s technical charts.
Palladium fell nearly $200 to an October low of $729 from its August high despite strong world vehicle sales demand and chronic labor and power issues with South African producers before rebounding.
“This recovery confirms that despite the $170 washout in palladium between September and October, investors remain positive on the metal and are keen to rebuild positions at these lower levels. The preference for palladium is evident,” UBS’ Edel Tully said in a note.
China’s estimated sales of more than 20 million cars so far this year is close to a record for the country, helped by the rapid rate of urbanization in the country, which is predicted by the UN to be around 77 percent of China by 2025. Its population will be around 1.4 billion by 2030.
In May this year, the Chinese government announced plans to take off the road by the end of 2014 some six million cars that fail to meet emission standards, driving up the demand for new vehicles and therefore for palladium for auto catalysts.
As well, Beijing’s “National IV” emissions standards, introduced in June, are more stringent than the previous iteration, capping carbon monoxide emissions for petrol-driven cars at 2.29 grams per kilometer and nitrogen oxide emissions at 0.082 grams per kilometer.
Vehicle sales have eased slightly in recent months – the pace of year-on-year growth was above 10 percent earlier in 2014 – but demand from developing economies remains a key factor for the metal.
Sales in the US, also predominantly a petrol-based vehicle market, are also robust, with 16.46 million vehicles sold on a seasonally adjusted annualized rate (SAAR) basis to October and 2014 likely to be its best year for automobile sales since 2007.
Light vehicle sales in the US in October totaled 1.281 million units, an increase of 2.8 percent on the September total and up 6.1 percent in year-on-year terms.
Lower gasoline prices – down 20 percent since the end of June and below $3 per gallon for the first time in nearly four years, the American Automobile Association (AAA) says – are making car purchases more attractive.
Crude oil prices hit have their lowest levels in four years – light sweet crude (WTI) oil futures on the Nymex are now firmly below the $80 per barrel level after starting the year at $98, while Brent is around $84 per barrel, down from $110 at the beginning of 2014.
And with the end of quantitative easing in the US and probable increases in interest rates from next year, consumers will be looking to make purchases prior before ultra-cheap financing deals are taken off the table.
On the other hand, supply-side issues and a deepening deficit in PGMs are also supporting prices. Supply this year had already been hit by the five-month strike in South Africa by the country’s platinum miners that ended in June.
In September, Standard Bank estimated that 530,000 ounces of palladium production was lost due to the strikes and predicted the global market for the metal will remain in deficit until at least 2016. It pegged the global palladium deficit at 1.65 million ounces this year, 1.43 million ounces in 2015 and 1.88 million ounces in 2016, even as production in South Africa returns to capacity.
As well, South African power producer Eskom is struggling to keep the power on, threatening the output of many of the country’s miners.
Norilsk’s approach to Russia’s central bank to buy up to $2 billion of its palladium to guarantee the supply of the metal to its customers during the years of shortfall, if approved, would alleviate fundamental tightness in the near-to-mid-term.
It also suggests that earlier reports that the bank’s stocks of the metal were close to exhaustion were wide of the mark – but would not address the underlying issue of slower supply growth relative to demand.
Norilsk’s production currently accounts for around 40 percent of the global palladium market.
Chuck Butler (Evergreen) points out something most everyone ignores about deficits. The US Trade Deficit with China just hit a new record high. In September we exported a measly $9.3 billion in goods to China – while we imported $44.9 billion in goods from China. Somebody help me to understand here how we can, as a country, grow stronger when we buy more things than we sell? We only get poorer as a nation.
Chicago Mercantile Exchange reports for the last 5 trading days – so we are looking at the trading volume numbers for the December Gold contract: Thursday 10/30 (210,415) – Friday 10/31(300,192) – Monday 11/03 (129,435) – Tuesday 11/04 (134,878) and Wednesday 11/05 (261,115). These numbers are very large relative to recent volume – lots of activity – indicative of recent downward pressure on gold.
The walk-in cash trade was busy all day and so were the phones. The walk in action today however centered on silver bullion – what we had available for cash transactions. We always hold a large silver bullion position so it’s just a matter of choosing between similar products.
The GoldDealer.com Unscientific Activity Scale is a “4” for Thursday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Friday – 5) (Monday – 8) (Tuesday – 8) (Wednesday – 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. 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.
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