Commentary for Tuesday, Dec 2, 2014 – Gold closed down $18.80 today at $1199.30 throwing a bit of cold water on yesterday’s rally. This market is the perfect storm for rattling everyone’s nerves because there are a number of longer term trends being looked at carefully.
The physical market seems solid at these lower levels – but not inspiring. This is exactly the right play for both India and China in that too much activity interrupts their longer term accumulation plans. The Times of India reported that gold imports into India are at their highest level in 41 months reaching 39 tonnes. Lower prices and the wedding season are cited as reasons for the increase – this pop in demand despite the fact that import restrictions are still in place. It was hoped that new leadership in India was going to lower or eliminate tariffs but that has not been the case. The circumstance of lower prices in India is just what the population wanted because unlike the Western speculator owning real gold for this culture defines wealth.
At any rate the king of the race continues to be the dollar which obviously is not good for gold. The Dollar Index today opened around 87.95 and of this writing is trading around 88.67 – this is massive for a one day move and took all the air out of the pop to higher ground yesterday.
Still the tea leafs remain cloudy and that’s the reason we are still hovering around $1200.00. The short players are still licking their chops and looking for another round of negative news to push gold off the short term cliff.
Oil could have been that technical key today but we saw some strength around $65.00 a barrel as prices for WTI Crude rose to around $69.00. Oil commentators have also not been kind – some claiming today on CNBC that “$100.00 oil is dead” and the shale buzz is quickly fizzling. All of this is just buyer’s remorse because all that quick money in oil is fading but the talk creates friction for gold. Remember the cheaper oil gets the more money everyone has to buy more goodies as gas trends lower and the less case one can make about increasing future inflation.
So what about Europe? A mixed bag again creating economic doubt – England’s economic picture disappoints today as some claim recent talk about an interest rate hike from the Bank of England will be postponed according to MarketWatch.
Anything which supports continued quantitative easing in Europe supports gold. There was recently some thought that a dragging European economy would stall the US recovery but this has now been pretty much discounted. So you now have counter-forces in play – the new European QE (a plus for gold) verse rising US interest rates (a negative for gold).
And what about the Russians – falling oil prices and sanctions are cited as reasons for the official expectation that their GDP will decline by 0.8% this year. Another reason which supports continued printing of fiat currency to “to help” in the economic recovery.
See what I mean? This is why trading strategy is more pin-pointed if that is possible. The winds and tide change – perhaps even dramatically on the short-term so tension remains.
In the longer term I think most expect further weakness in gold but like I am fond of saying over coffee “just how much lower do you expect gold to move considering these already discounted levels”?
The US Mint today announced they have sold out of US ½ oz Gold Eagles. Keep in mind that last month they also suspended the sale of US Silver Eagles 1 oz. And the Canadian Mint is now slow on delivery of their 1 oz gold and silver Maple Leafs.
I don’t know what to make out of either case – demand is not staggering especially going into the holiday season so these fits and starts may just be the ending of 2014 production and the preparation for 2015.
Silver closed down $0.25 at $16.40 in quiet trading.
Platinum was off $24.00 at $1217.00 and palladium was down $5.00 at $803.00.
This from Jeff Clark (Casey Research) – Bottom-Fisher’s Blunder – There’s a subset of investors who see the big picture for gold, believe in the fundamental case, and have the means to buy, but are holding off because they think gold is headed lower. By waiting, they believe they’ll get a better price.
With all due respect to those of you in that camp, I think that’s a mistake.
If one is convinced gold will be cheaper a week or a month from now, it might seem prudent to wait to buy. But obviously no one knows if gold is headed lower or if it’s already bottomed. So don’t kid yourself: you may or may not get a better price.
And premiums don’t stay the same. The US Mint raised the price it charges authorized silver purchasers by a substantial 50¢ after that metal’s last big retreat. The price retail silver buyers received was not as attractive as they thought it would be.
But these issues miss the bigger point. Here’s what I think is perhaps a better way to view the subject, along with a solid strategy to handle the dilemma…
Gold Is Not an Investment – It’s Insurance – “A dollar is worth only 70¢ now,” my dad once told me as we worked in the back yard. “And they say it’ll only be worth 50¢ in a few years.”
It was the mid-1970s. I was helping my dad build a dirt road to our barn, and he wasn’t happy. Not about the hard work or humidity, but from what was happening to the dollar. Inflation was starting to kick into high gear, grabbing headlines that even a girl-chasing teenager could understand.
I remember being appalled by the thought of going to the store and having the clerk demand $1.30 for an item marked $1. Knowing what I know now, my thinking wasn’t that far off.
Our local paper ran a story of a blue-collar worker who had stuffed wads of dollars into the back of his gun cabinet early in his working life. The money was discovered by the family after his death. While saving money is good, the duck-hunter equivalent of “Family Mattress Bank & Trust” won’t keep your money from depreciating; the stash of $10s and $20s had lost over half its purchasing power since he’d hidden it some 30 years earlier.
About the same time the gun locker was being lined with legal tender, both of my grandfathers—unbeknownst to me at the time—bought some gold and silver coins for me and likewise stored them away. I inherited them a few years ago—and the purchasing power of the coins is still the same as it was 30 years ago, despite the price fluctuations along the way.
If gold were an investment, it might be prudent to see if you can get a better price. But it’s not. It’s lifestyle insurance. It’s an alternate currency that will withstand the inevitable fallout of government excess, the start of which grows closer by the day. It is purchasing-power protection—protection that you and I may use sooner than we’d like.
You might argue that you always try to get the best price when you buy auto insurance and life insurance. That’s true—but the difference is that you shop among different brokers for the best price; you don’t put off the decision because you read somewhere the insurance industry might lower its rates at some point in the future. So, what to do?
Don’t “Buy” Gold – Accumulate It – Neither you nor I nor anyone else knows exactly when the very best price for gold will occur. Since gold is an increasingly critical form of insurance in today’s world, the thing to do is to take a portion of your dollars earmarked for gold and buy some now at the current low, but keep some powder dry for the next potential dip. That way you’ve got a good price in case the bottom is in, but you still have some cash available if the price falls lower. Then buy another tranche next week or next month or quarter—whatever suits your cash flow and financial plan—but make it a regular occurrence until you have the full allotment you want.
I cringe when I hear people say they’re waiting for a better price. What if the market takes off higher or simply stops falling—then what?
Don’t look to buy all at once. Buy in tranches. It’s how large investors, institutions, and central banks (and Casey Research editors) buy.
If you haven’t already, start your accumulation plan today. In a short period, you’ll have a nice stash of hard assets purchased via dollar cost averaging—i.e., at the best cost basis you could hope to achieve.
The walk-in cash trade was fairly steady today despite the fact that it’s pouring rain in LA today. And the phones were also steady all day so it would seem the public likes lower prices. Still I believe the recent volatility has placed a damper on things going into the holiday season.
The GoldDealer.com Unscientific Activity Scale is a “6” for Tuesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Tuesday – 3) (last Wednesday – 3) (Thursday and Friday – closed) (Monday – 6). 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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