Commentary for Friday, Jan 24, 2014 (www.golddealer.com) – Gold closed up $1.90 at $1264.50 going into the weekend and there was some interest above $1270.00 probably because of continued stock and rumor problems from the Pacific Rim but in the end traders were happy to take profits. Also keep in mind that if problems persist in developing markets the Fed might reconsider tapering which would be good for gold.
The overnight market in gold got very flat above $1260.00 so where is the momentum or follow through? There is none at the present meaning Thursday’s rally was short covering and more technical than the beginning of something bigger. Or is gold just resting into the weekend?
The interesting question is whether stocks will continue their decline. The stock market is sitting on a pile of profits as we return to pre-financial collapse levels. And like gold, euphoria is also dangerous for stocks. If the well-disposed stock market players decide to cash in and move to the sidelines it could be very good for gold considering it is now an outside market.
Pushed lower by unrelenting bad news including more taper and better US economic news the idea of hedging dollars in gold bullion is passé for now. And believe me this is total speculation but there is an important point. Regardless of better news out of the EU I am worried about those still very high unemployment numbers in England.
I guess the better than expected stock performance in the US and Europe could be forward leaning. Meaning stocks have been moving higher because of anticipation but a small hiccup in the Chinese model caused the entire Pacific Rim to tremble.
Really how much of this paper improvement is huff and puff and created by government intervention in the money supply? And what will be the result especially in the emerging countries when the money spigot is closed?
I don’t really know but my pretty thin scenario of a flight out of paper would support current gold prices. I guess patience is necessary before cashing the check but if gold worked its way above $1300.00 everyone and their brother would take it more seriously.
For now gold is getting no respect but like stocks every asset class has its day in the sun.
Finally let’s say all of this is just wishful thinking because the weekend is near. How many professionals will short this market if the gold picture brightens just a small amount? The answer is zero because even though the short contingent has been very strong of late they can change sides in second and right before your eyes the bulls are back in charge. Buy the way, the story that India will ease gold restrictions was just a rumor yesterday but strong enough to be posted by a very large English gold dealer. And some believe it was the primary reason gold jumped higher in price Thursday forget about the Chinese problem. I mention it only in passing to illustrate how much tension there is in gold, right under the surface even when news generally is negative.
Silver closed down $0.24 at $19.74 and the physical market remains quiet even with all the hype about new silver coins coming out for 2014.
Platinum was down $35.00 at $1428.00 and palladium was also weaker off $11.00 at $735.00. This weakness in both metals might be another industrial reflection of no confidence in worldwide recovery.
In the Kitco News Gold Survey, out of 33 participants, 22 responded this week. Thirteen see prices up, while five see prices down and four see prices trading sideways or are neutral. Market participants include bullion dealers, investment banks, futures traders and technical-chart analysts. Last week participants were bullish. As of noon EST, February Comex gold prices were up $10.90 on the week. Erica Rannestad, senior analyst, precious metals demand at GFMS group of Thomson Reuters, listed a few reasons why she sees higher prices. “Seasonal demand may pick up – Chinese New Year is on Jan. 31. Options expiration on Jan. 28 is providing some upward pressure to prices. In the New York futures market, open interest has been coming down on higher volumes – likely of some participants closing out short positions. The contract roll is also taking place, with around 13 million ounces of open interest still needing to be rolled forward or closed out,” she said. Those who see weaker prices suggested that gold could digest some of its recent gains and pull back before deciding on its next direction. Those who are neutral are waiting for the Federal Reserve’s Federal Open Market Committee meeting to conclude before jumping back in. “I’m neutral heading into next week, with all eyes on the FOMC. Technically, gold looks solid, and the rumors out of India regarding a relaxation of import restriction on bullion, and some inflows into GLD (exchange-traded fund) are supportive. We see the Fed tapering by $10 billion again next week, although the language may take on a more dovish tone in light of the weak nonfarm payroll (numbers) earlier this month,” said Jordan Eliseo, chief economist, ABC Bullion.
The walk-in cash trade was very slow today which is curious. The phone business was also poky which could mean the public is still not on board.
The GoldDealer.com Activity Scale is a “4” for Friday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Tuesday – 5) (Wednesday – 6) (Thursday – 4) (Friday – 4). The scale is 1 through 10 and we believe this is a reliable way to “sense” real bullion business.
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