Commentary for Thursday, May 21, 2015 – Gold closed down $4.50 at $1204.40 on the Comex today in lackluster trading. The overnight market in both Hong Kong and London was slightly weaker and this downward bias carried over into domestic trading. All in all though there was little attention paid to gold today and little follow-through from yesterday’s FOMC dovish interest rate guess.
Gold’s close today ($1204.40) remains above its 50 Day Moving Average ($1189.00) but below its 100 Day Moving Average ($1211.00) and below its 200 Day Moving Average ($1217.00) – so momentum continues to slow.
We remain however above the important $1200.00 mark and the longer the Fed delays that interest rate hike the better support we will see for this narrow trading range going back to October of last year between $1150.00 and $1300.00.
The feel of the physical markets across the counter is lethargic. It reminds me of typical and boring summer months when in the old days dealers would schedule vacation time. It is not that there is nothing going on – there is business but there is no buzz. And larger dealers are once again complaining to each other – that is always a good sign for a slow market.
The recent gains by ISIS in Syria was never mentioned and created no buzz on the trading floor. They now control half of Syria in a crippling civil war which threatens stability in the Middle East. And gold drifts gently lower, amazing.
Silver closed up $0.02 at $17.11.
Platinum closed down $5.00 at $1151.00 and palladium closed down $1.00 at $776.00.
London, 18th May 2015: The World Platinum Investment Council (WPIC) today announces the publication of its third Platinum Quarterly – the first independent, freely-available, quarterly analysis of the global platinum market. The report incorporates analysis of platinum supply and demand during the first quarter of 2015. Platinum Quarterly is a WPIC publication. It is based upon research and detailed analysis commissioned with, and conducted by, SFA (Oxford), an independent authority on the platinum group metals market.
Overview of key data presented in Platinum Quarterly:
The global platinum market remained in deficit during the first three months of 2015 with an estimated shortfall of 160 koz. Today’s report highlights a number of key drivers behind the continued deficit including:
• Increased jewelry demand as fabricators in China restocked following the Chinese New Year period and a decline in jewelry recycling levels in a weaker price environment.
• Total mining supply remained largely flat compared to the final quarter of 2014 as increased output in South Africa and Zimbabwe was offset by declines in other regions.
• Lower recycle supply as the fall in jewelry recycling exceeded the slight increase in auto catalyst recycling.
• Over the remaining quarters of 2015 supply is forecast to closely match demand. Total global supply of platinum was 1,835 koz during the first quarter of 2015, with total mining supply estimated at 1,385 koz.
• South African refined production continued to recover from the 2014 strike rising to 995 koz, up 2% from the final quarter of 2014.
• While supply from Zimbabwe increased 16% to 110 koz, supply from non-Southern African regions collectively declined 10% to 310 koz, both compared to the final quarter of 2014.
• Supply from recycling decreased 6% quarter-on-quarter to 450 koz and included a 3% increase in supply from spent auto catalysts from a weak final quarter of 2014. Supply was also impacted by a 23% fall in jewelry recycling following lower retail sales in China. Total global demand of platinum was 1,995 koz during the first quarter of 2015, up 75 koz compared to the final quarter of 2014.
• The first quarter of 2015 saw auto catalyst demand increase by 5% quarter-on-quarter to 825 koz, buoyed by increased European car sales and the roll-out of Euro 6-compliant catalysts.
• Platinum jewelry demand for the first quarter is estimated at 750 koz, as jewelry manufacturers increased inventory levels after the Chinese New Year.
• India continues to be a standout growth market for platinum jewelry with retail sales continuing to climb in the first quarter of 2015.
• ETF sales exceeded purchases in all the major investment regions in the first quarter of 2015 and reduced ETF holdings by 50 koz compared to the 30 koz reduction in the final quarter of 2014.
• Bar and coin purchases amounted to 35 koz in the first quarter of 2015, a similar level to the previous quarter. Today the WPIC also revises down its full year 2015 global platinum market deficit forecast to 190 koz from the 235 koz forecast at the end of 2014.
• The total supply forecast remains unchanged at 7,965 koz as higher projected mining supply is offset by a reduction in secondary supply from higher levels of auto catalyst recycling.
• The reduction in the demand forecast is primarily due to a downward revision to industrial demand in China based on lower predicted economic growth in 2015.
Paul Wilson, chief executive officer of WPIC commented: “Today we publish the third edition of Platinum Quarterly, which shows that demand growth in the first quarter of 2015 exceeded supply growth, increasing the deficit when compared to the last quarter of 2014. Demand from the automotive, jewelry and industrial segments are all expected to rise in 2015 when compared to 2014, with an increase in investment anticipated for the balance of 2015.”
To me the dollar is beginning to look flat – the Dollar Index over the past 3 days has been on a tear moving from 93.00 to 95.00. As of this writing it is 95.32 but it looks like it again wants to move sideways at least for now which takes some pressure off gold. Recent dollar strength has been helped because of the Greek debt crisis – if they default the euro will weaken thus further strengthening the dollar and capping any short-term runs in the price of gold.
I still believe we could see a significantly lower Dollar Index if the Federal Reserve does not raise rates this summer. But this position is now in the minority – most believe some type of token rate hike (0.025%) will be thrown into the pot – if for no other reason other than to test the waters. There are benefits – the stock market will survive they have made a ton of money in this zero interest rate environment. And when the Fed raises rates it will be in a better position to lower them should recession talks gain steam. The FOMC are smart but don’t forget they are working with a model which has never been tried before – and results could be unexpected.
So keep your guard up (gold bullion) and remain suspicious. Finally keep in mind that there is not near as much gold available to investors as the fiat money group would have you believe. I referenced that yesterday as some leaders in the physical world of gold claim even central bank holdings may be pledged and therefore not available. The world trade system relies on your faith in paper currency – which is fine but I like to remind everyone not to bet your complete financial future on un-backed paper currency.
This is our usual Chicago Mercantile Exchange report for Thursday, covering the last 5 trading days – so today, May 21, 2015 we are looking at the trading volume numbers for the “June” Gold contract: Thursday 5/14 (194,620) – Friday 5/15 (192,836) – Monday 5/18 (187,705) – Tuesday 5/19 (175,921) – Wednesday 5/20 (163,115). These numbers remain relatively high and we continue to trend lower.
A look at Reuters overnight – Clara Denina – Gold steadies as dollar falls, June rate rise prospects dim – LONDON, May 21 (Reuters) – “Gold steadied on Thursday as the dollar fell following minutes from the Federal Reserve’s policy meeting showing the U.S. central bank was unlikely to raise interest rates in June.
Spot gold was unchanged on the day at $1,209.04 an ounce by 1146 GMT, while U.S. gold futures for June delivery were up 0.1 percent at $1,209.60 an ounce.
“There is now good psychological support around $1,200, the chart picture looks promising after relatively unsurprising Fed minutes and I think the market is looking at what is going to come out later in the day including jobless claims,” MKS SA senior vice president Bernard Sin said.
Minutes of the Fed’s April meeting, released on Wednesday, showed policymakers believed it would be premature to raise interest rates in June. That view was widely held in the market following disappointing U.S. economic data over the past few weeks that weighed on the dollar, in turn helping gold hit a three-month high of $1,232.20 on May 14.
The minutes showed Fed officials pushing the prospect of a rate increase later into the year, further dampening appetite for the dollar, which fell 0.3 percent versus a basket of leading currencies.
“Gold will benefit from the Fed’s decision to postpone its rate hike and the bar for gold’s support level looks to be raised from here,” said Phillip Futures analyst Howie Lee.
Higher rates would increase the opportunity cost of holding non-yielding bullion.
Gold prices have struggled to break out of a $1,170-$1,230 an ounce range since mid-March, hamstrung by uncertainty over the timing of a U.S. rate rise.
“If gold manages to break above $1,220 decisively, we think a sustained rally in prices would probably materialize,” Lee said. The market was awaiting the release of weekly U.S. jobless claims and April home sales data, due later in the day. However, investor sentiment has turned bearish in recent days as prices have fallen from the three-month highs reached earlier this week.
Outflows in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, continue to undermine investor sentiment. Holdings of the fund fell 0.41 percent to 715.26 tonnes on Wednesday, the lowest in four months.”
The walk-in cash trade today was average to slow and we had to check to see if accounting paid the telephone bill. Things in general remain very quiet.
The GoldDealer.com Unscientific Activity Scale is a “ 2” for Thursday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 4) (last Friday – 5) (Monday – 5) (Tuesday – 5) (Wednesday – 3). 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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