Commentary for Tues, Aug 5, 2014 – Gold closed down $3.70 at $1284.90 under pressure from a strong dollar and positive economic information. The overnight market in Hong Kong was relatively flat but weaker prices in London carried over to the domestic market as gold approached its 200 day moving average ($1284.00). And then it hopped around bouncing again over $1292.00 in a short-covering rally sparked by a nervous stock market both here and in Europe.
So this market remains froggy – a new technical term I just made up.
As we pointed out yesterday gold must hold its 200 day moving average to maintain this defensive position or technically the bears will test $1240.00 support.
Silver closed down $0.40 at $19.79 moving below $20.00 for the first time since June 18th. Look at all three moving averages (50 – $20.32 / 100 – $19.92 / 200 – $20.20) and you will see today’s close ($19.79) is below all three signaling a much weaker paper market. So we have entered the sweet spot when it comes to silver bullion and I expect sales will pick up dramatically supporting this lower level.
Platinum closed down $10.00 at $1456.00 and palladium was off $7.00 at $848.00. The Rhodium paper market continues to trend higher ($1310.00). We are selling the popular Baird Rhodium bar 1 oz for $1430.00 which includes free shipping and insurance and sales have remained strong for a few weeks now.
Yesterday we had some fun with the US Silver Eagle 1 oz so I thought today we would look more carefully at her big brother. The US Mint sells US Gold Eagle production to dealer distributors who in turn make sure the public is treated fairly even if your intention is to purchase a small number of coins. The pricing structure is fiercely competitive – which can easily be seen because the delivered price to consumers between major sellers is very close nationally.
The reason these beautiful coins trade for close to their content is because the US Mint produces large numbers by design. These are bullion coins plain and simple and so are easy to figure each day as prices will reflect the changes in the gold paper market.
The approximate number of 1 oz US Gold Eagles minted between 1986 and 2013 was 16,899,516 – so in 28 years the Mint has produced almost 17 million gold coins.
The first thing you should conclude is that these coins are not rare in any sense so the attempt by telemarketers to convince the uninformed should fall on deaf ears. No matter how you cut it the 1 oz American Gold Eagle is as common as grass. And this is how Uncle Sam wanted it when he decided to get into the gold bullion business in 1986.
Closely watching monthly productions levels for the 1 oz 2014 American Gold Eagle offers valuable insights into public demand for this issue.
The following numbers will give you an idea of monthly production since the beginning of the year – Jan (262,500) Feb (85,000) Mar (52,000) April (101,000) May (73,000) June (84,000) July (57,000).
Keep in mind the US Mint treats the production of the US Gold Eagle as a business. They don’t want too many out there and at the same time they don’t want too few.
So they monitor closely the public demand and try to get it “just right”.
Because of this you can monitor Mint production numbers and get a reasonable idea if the market for this most popular bullion coins is “hot” or “not”.
Look at January production numbers at over 200,000 coins relative to the rest of the year and you would rightly conclude people were very interested in this bullion coin as we began 2014.
Production for Feb and March however fell considerably and while April recovers somewhat it is still about half of the production we saw in January. May, June and July were steady so you could conclude that public demand was also fairly steady. And so was the price of gold which varied between $1240.00 and $1320.00 (80.00) during that time frame.
Also of some importance if you are interested in the real physical market is the fact that even though gold is now out of favor – being down some 30% from its all-time high – the production of the popular American Gold Eagle 1 oz has not collapsed and seems fairly consistent which means the buying public may have reached some sort of equilibrium point. All good signs that while we may not have seen a bottom – we may be close and this portends good news for the longer term player.
Finally this summer slowdown in production is not limited to US Mint products.
SINGAPORE, Aug 5 (Reuters) – The Perth Mint’s sales of gold and silver dropped to a three-month low in July, as increasing optimism about global economic growth curbed appetite for the precious metal. The Perth Mint runs the only gold refinery in Australia, the world’s second-biggest gold producer after China. Sales of gold coins and minted bars nearly halved to 25,103 ounces in July from the same period a year ago, data available on the mint’s website showed. Silver sales totaled 577,988 ounces last month. Gold and silver sales in July were the lowest since April. Gold prices fell over 3 percent in July as strong economic data hurt gold’s appeal as a safe-haven asset. Data from the U.S. Mint showed that gold coin sales in July fell about 40 percent from a month ago.
This from Mike Myers (Everbank) – Is The Fed Repeating The Mistake It Made In The 1990s? – “In 1996, Alan Greenspan, who was the head of the Federal Reserve at the time, gave his famous “irrational exuberance” speech. During the speech, he posed the following rhetorical question:
“But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions? And how do we factor that assessment into monetary policy?”
Greenspan was talking about the roaring bull market of the 1990s. From 1991 to 1996, the stock market more than tripled in value. So, many analysts interpreted the speech as a warning that stocks were overvalued and no longer reflected economic fundamentals.
At first, investors got nervous. The New York Times even published a story with the following headline: “Stocks Worldwide Dive As Greenspan Questions Euphoria.” But, as you can see in the chart of the Nasdaq index below, investors ignored the warning. Following the speech, the stock market rallied another 300% before crashing when the tech bubble burst.
I tell you this story because Janet Yellen, the current Fed chief, recently had her “irrational exuberance moment” when she warned about the current stock market valuation. Yellen Has Her “Moment” Last November, when asked her opinion about a possible stock market bubble, Yellen said: “Stock prices have risen pretty robustly, but you would not see stock prices in territory that suggest…bubble-like conditions.” At the time, she also said there was little evidence investors were “reaching for yield.”
Since then, the stock market, as measured by the S&P 500 index, has gone up another 11%. And, Yellen now seems to be changing her opinion. A couple of weeks ago, the Fed released its biannual report to Congress. Here’s an excerpt from the document: “Signs of risk-taking have increased in some asset classes. Equity valuations of smaller firms as well as social media and biotechnology firms appear to be stretched, with ratios of prices to forward earnings remaining high relative to historical norms.”
Some analysts are now interpreting this as a warning similar to Greenspan’s. How should readers of the Daily Pfennig® newsletter interpret Yellen’s recent comments? I think we can understand better what exactly this Fed announcement means by looking at what happened in the late 1990s.
Actions Speak Louder Than Words – You see, while Greenspan was warning that the stock market was overheating, he was also giving investors a huge incentive to take more risks. From February 1996 to October 1999, the Fed expanded the money supply by about $1.6 trillion, which represented 20% of Gross Domestic Product (GDP) at the time.
In the mid-90s, a time when the stock market was already exploding, the Fed cut interest rates from 6% in 1995 to 4.75% in 1999. With money in the bank paying a lower interest rate, lots of investors decided to move their cash into the stock market, where everyone seemed to be making a fortune. My point is that actions do speak louder than words. In the 1990s, it didn’t really matter that Greenspan was warning about bubbles. What mattered was that investors had a huge incentive to speculate.
Something similar is going on today. It doesn’t matter that Yellen is warning about valuations in certain sectors of the stock market. With the Fed promising interest rates to remain close to zero until mid-2015, investors again have a huge incentive to speculate.
For example, they are also taking excessive risks in junk bonds. And, the Fed is aware of the problem. Here’s another excerpt from the Fed’s biannual report: “Issuance of speculative-grade corporate bonds and leveraged loans has been very robust, and underwriting standards have loosened. For example, average debt-to-earnings multiples have risen, and the share rated B or below has moved up further for leveraged loans.”
In other words, the Fed knows investors are desperately seeking high yields. More than half of the junk-rated loans in the U.S. this year lack typical lender protections, such as limits on the amount of debt borrowers can amass relative to earnings. Issuance of new leveraged loans so far this year totals $226.7 billion. This is on pace to surpass the record $358.3 billion of new loans in 2013, according to data compiled by Bloomberg.
The fact that investors are taking excessive risk and reaching for yield shouldn’t be a surprise. Interest rates have been close to zero for six years. The truth is investors are simply reacting to the Fed’s easy monetary policies just as they did during Greenspan’s tenure. We shouldn’t expect verbal warnings to slow bubbles, excessive leverage and potentially bad investments. So, we could see a replay of the late 90s, when easy money policy helped create a bubble in the stock market. As long as investors have incentives to speculate, it appears they will.”
The walk-in cash trade was much more active today than Monday – with some rather large silver bullion purchasing which is typical when the price of silver falls below $20.00. The damage to silver today was substantial in that it did not hold up as well as gold. Interestingly there were a few rather large gold bullion sales today across the counter. So the real physical cash trade remains mixed.
The GoldDealer.com Activity Scale is a “3” for Tuesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Wednesday – 2) (last Thursday – 2) (last Friday – 2) (Monday – 2). The scale (1 through 10) is a reliable way to understand our volume numbers.
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. Beginning today we have also added fresh fruit in a transparent attempt to disguise our regular junk food habits – which seem to grow when things get this quiet.
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Thanks for reading from your friends at GoldDealer.com and enjoy your evening.
Our popular product today was the 1/4 oz American Gold Eagle.
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