Gold Closes Soft and Quiet

Gold Closes Soft and Quiet

Commentary for Tuesday, March 3, 2015 ( www.golddealer.com) – Gold closed down $3.70 on the Comex today at $1204.00. And to say this market is “sleepy” might be an understatement. There is no buzz related to gold so we are back to “wait and see”.

Gold held its tight trading range despite tough talk from Netanyahu about the dangers of Iranian nuclear expansion. Still gold holds on either side of $1200.00 so physical demand is supportive (Europe perhaps) and this market while quiet does not seem like it wants to give up ground.

An alternative explanation for the rather firm gold market has been the interest rate cut in China which was made to help a slowing economy. The demand from that sector of the world has increased since the recent end to their official New Year.

The European Central Bank has begun to buy bonds in its effort to add liquidity to the European Union. The idea being that quantitative easing was semi-successful in the US and perhaps more currency floating around Europe will induce people to spend and business to invest.

Even with the temporary Greek bailout there are rumors of depositors draining their bank accounts in Greece. I’m not sure who wins here but a little gold under the mattress will at least calm the tension relative to banks going broke.

The 6 month gold chart is illustrative – and with a short study you will see why gold is so quiet. In the past 6 months gold has traded somewhere between $1300.00 and $1140.00 – throw out the highs and lows and the sweet spot seems to be something between $1180.00 and $1240.00. That is a $60.00 spread over 6 months of trading. So while gold can’t make up its mind – investors soon become complacent. As far as possible gold speculative money is concerned the stock market has performed admirably during the same 6 month period and stocks have paid handsome dividends. And on the short term it would seem this rather flat trading range for gold will remain in place until the next big financial scare. For sure this slow trading period is a good time to average down if you are in gold at higher prices but this has always been a negative argument to the American investor.

For now however it looks like we are going to have to get used to range bound trading and hope that the improved economy and higher interest rates does not encourage the short trade too much. Even the impassioned Netanyahu speech this morning blasting any short term nuclear deal with Iran as dangerous to the world did not move the gold price needle. Gold was down $4.00 before the speech and remained down for the Prime Minister’s entire presentation. This was surprising to me considering the Middle East is a powder keg and always a threat to the world financial system. His speech bordered on ominous and at any other time would have been worth $50.00 to the upside in the price of gold from the fear trade.

The 5 day crude oil chart is steady at slightly above $50.00 a barrel and the Dollar Index is mid-range on the trading day (95.39) seeing a low of 95.10 and a high of 95.57. The dollar is at 11 year highs against the euro so don’t expect any big move to the upside in gold.

Silver closed down $0.14 at $16.26. Finally some big action across the counter – there has even been some large trades of gold bullion for silver bullion. We are now within about $.50 of the lowest silver close this year – $15.75 on January 2nd.

Platinum closed down $2.00 at $1191.00 and palladium was up $1.00 at $831.00.

MarketWatch and Myra Saefong believe platinum could rise 18% by year end. She bases her conclusion on the fact that China has historically been an active platinum buyer when its price was near or below the price of gold.

This from Reuters – “U.S. consumer spending fell for a second straight month in January as households continued to cut back on purchases. Factory activity slowed in February and construction spending declined sharply in January, adding to signs that economic growth moderated early in the first quarter. Still, most analysts believe the Fed is on course to raise interest rates this year for the first time since 2006 amid a generally strengthening U.S. economy led by gains in its labor market. Janet Yellen's premium on consensus may lead to a Federal Reserve decision the chair hasn't yet endorsed, as a near majority aligns in favor of a possible June interest rate hike.”

The threat of higher interest rates in 2015 is a large roadblock for gold but only if the general trend is significantly higher. The talk of higher rates is old commentary at this point but there is not much out there as to exactly what the government has in mind so this may be a case of buy the rumor sell the fact in reverse.

How the government is going to balance higher interest rates against a world of near zero interest to encourage new quantitative easing programs remains to be seen. But this could turn out to be a psychological advantage for the physical gold market. A small increase in our interest rate might be a push for gold if the threat of really higher rates turns out to be a paper tiger.

I post the following from both David Stockman and Bloomberg because if it does not scare the bejeebers out of you – it should. The Keynesian economic machine continues now in Europe unabated and gold ignores all the moving parts. How long it will take before a second bull market in gold develops is difficult to say. I was sure the US quantitative easing program would produce another high water mark for gold but was proven wrong – at least for the present. Look at these numbers – the massive debt machine in Europe continues.

This from David Stockman (Contra Corner) – “In fact, the political foundation of the eurozone is already on its last leg—–as is evident in the utterly obsequious posture of the quasi-bankrupt governments of Portugal and Spain with respect to Greece’s pleas for relief. The latter were the most vociferous opponents of relief at the EC meeting— remonstrating even more Germanically than the Germans—–owing to the transparent fear that even a tidbit of justice for Greece would mean a swift ejection from the seats of power by their voters in favor of Syriza-style insurgents.

And now comes word that a third Greek bailout in the range of $50 billion is being cooked up in Brussels. And within this absurd new mountain of debt, approximately $17 billion of the subscription would be on the accounts of Portugal, Spain, Italy and Ireland.

C’mon! What remains of democracy in the EU will bring about a euro shattering crisis long before the deflation-bashing Keynesians and statists in Brussels and Frankfurt can figure out what is hitting them. Needless to say, when the eurozone does crack-up, today’s $2 trillion of negative yielding government bonds will undergo a spectacular collapse. It will become known as the bonfires of the subprime sovereigns.

Nor will the German issues among the 88 negative yielders escape the day of reckoning. German business—especially its independent mid-sized firms—is self-evidently a force to be reckoned with. But the German economy was only recently the sick man of Europe and its statist interventions and taxes are less onerous only compared to France and the rest of the enterprise-killing European social democracies.

At the end of the day, Germany has enjoyed a modest economic expansion since 2008 only because it has been able to export its high value industrial engineering and consumer performance products to the credit driven booms in China and southern Europe. As these egregious bubbles deflate – so will Germany’s red hot exports and temporarily superior economic growth trend.

The prospect that German’s export machine will stumble badly in the coming years in itself makes a mockery of the ludicrously low 35 bps yield on its 10-year bond. But the speculators who are piling into it anyway on the basis of Draghi’s impending big fat bid need to riddle us this. Who will get stuck with the multi-hundred billion eurozone bailout guarantees when the rest of the EU walks? To save its credit, the one word Berlin will not be declaiming is nein!

Mario Draghi will surely prove to be one of history’s greatest monetary villains and cranks. Back in July 2012, the euro was already will beyond rescue, and the PIIGS needed an exit – orderly or otherwise—from the debt chains they had undertaken during the original euro boom.

But in three destructive words, Draghi crushed price discovery for the duration. So doing, he led the eurozone into the insanity summarized in today’s Bloomberg post: David Goodman and Lukanyo Mnyanda at Bloomberg – “The European Central Bank’s imminent bond-buying plan has left $1.9 trillion of the euro region’s government securities with negative yields.

Germany sold five-year notes at an average yield of minus 0.08 percent on Wednesday, a euro-area record, meaning investors buying the securities will get less back than they paid when the debt matures in April 2020.

By the next day, German notes with a maturity out to seven years had sub-zero yields, while rates on seven other euro-area nations’ debt were also negative. While some bonds had such yields as far back as 2012, the phenomenon has gathered pace since the ECB’s decision to cut its deposit rate to below zero last year.

Even when investors extend maturities, and move away from the region’s core markets, returns are becoming increasingly meager. Ireland’s 10-year yield slid below 1 percent for the first time this week, Portugal’s dropped below 2 percent, while Spanish and Italian rates also tumbled to records.

“It is something that many would not have pictured a year ago,” said Jan von Gerich, chief strategist at Nordea Bank AB in Helsinki. “It sounds very awkward in a sense, but if you look at it more, the central bank has a deposit rate in negative territory, and there’s a huge bond-buying program coming. People are holding on to these bonds and so you don’t have many willing sellers.”

Bond Indexes – Eighty-eight of the 346 securities in the Bloomberg Eurozone Sovereign Bond Index have negative yields, data compiled by Bloomberg show. Euro-area bonds make up about 80 percent of the $2.35 trillion of negative-yielding assets in the Bloomberg Global Developed Sovereign Bond Index, the data show.

Germany’s seven-year yield declined three basis points, or 0.03 percentage point, this week to 0.019 percent as of 5 p.m. London on Friday. The rate reached minus 0.017 percent on Feb. 26, the lowest on record. The 2 percent note due in January 2022 rose 0.175, or 1.75 euros per 1,000-euro ($1,120) face amount, to 113.545. The nation’s 10-year rate fell four basis points from Feb. 20 to 0.33 percent and touched a record-low 0.283 percent on Thursday.

As part of the ECB’s 1.1 trillion-euro quantitative easing plan, the central bank will buy government bonds due between two – and 30-years, including those with negative yields, President Mario Draghi said in January. Policy makers may flesh out more details when they meet in Cyprus on March.

The ECB is trying to avert a deflationary spiral in a region that’s been hobbled by a sovereign debt crisis and two recessions since 2008. Investors have accepted having to pay euro-area governments to lend to them as the Frankfurt-based central bank lowered its deposit rate, the charge levied on lenders to park excess cash at the ECB overnight, to minus 0.2 percent in September.

The region’s bonds were further boosted this week as euro-area finance chiefs approved an extension of financial aid for Greece. The nation’s three-year yields, which reached 21.91 percent on Feb. 10, the highest since Greece restructured its debt in 2012, fell 224 basis points this week, to 14.39 percent.”

The walk-in cash trade was steady today – not hurried and the phones were just average.

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