Commentary for Friday, Aug 15, 2014 (www.golddealer.com) – Gold closed down $9.40 at $1304.50 and things could have been much worse as in early trading it touched $1292.00 before turning around over the Russian/Ukraine encounter.
The trading day was actually a bit crazy although you would not see it in the numbers. Producer Prices showed only a small gain so a generally negative gold market moved to the downside – breaking through its 50 Day Moving Average ($1303.00).
The initial confusion over what happened to the Russian convoy supported prices but even confirmed news of confrontation between Ukraine and Russia only stopped the route. Gold finally rallied but the delay left traders wondering – even though gold managed to move above its 50 Day Moving Averages – for the record the close is what counts on averages.
Silver closed down $0.38 at $19.49 – seen as now cheap there is some pick-up the physical selling across the counter.
Platinum closed down $12.00 at $1458.00 and palladium closed up $8.00 at $849.00. Rhodium was up another $25.00 at $1475.00 and sales of the Baird 1 oz Rhodium bar are solid.
Shorter term on gold – look beyond the Russian crisis – the weekly jobless claims is moving higher not lower supporting gold but the dollar at six month highs has capped upward movement. The US is percolating but Europe is not…this will prompt more overseas money to seek a safe haven – whether this turns out to be gold remains to be seen.
But if the recent past is a guide they will not – seeking bonds instead. This might be confirmed because of ridiculously low bond yields – even junk is cheap meaning demand is strong.
From the World Gold Council – Gold Demand Trends / Second Quarter 2014 – (1) Jewelry demand broadly in line with 5-year quarterly average, long-term uptrend still in place. (2) Investment demand up 4% to 235t, gold flows retreat from 2013 extremes. (3) Technology demand saw a modes drop of 3%, substitution persists. (4) Central Bank net purchases continue uninterrupted, total 118 tons in Q2. (5) Increased mine supply leads to 10% growth in total Q2 gold supply to 1,078t.
Another good question from a reader – “What is your opinion of Harry Dent’s position on metals? He seems to be the only one out there with this opinion.”
Harry Dent’s position – basically that gold is in a deflationary spiral and we are witnessing the end of a giant gold bubble is plausible. Gold could simply continue lower if you believe there is no connection to the massive influx in “new currency” (quantitative easing). After all in the last big “up-cycle” (1980) it took gold some 20 years to recover and finally make new highs. My personal position however is less nuanced – gold is much more than just a way to make or lose money depending on price direction.
Even if you could guarantee me gold was moving lower I would still want to own gold bullion because it provides me with ultimate in cash insurance. And I get the perfect foil against government overreach tossed in for free.
I don’t think the US will implode – why should it? I don’t really buy the hyper-inflation argument either but want the physical bullion in my safe deposit box because there is something comforting about not having to depend on fiat currency. In the end remember that real gold bullion is the only financial asset that does not create a counter liability held by another party. This alone is all the argument I need relative to holding gold bullion for the long term.
Inflation and Oil – Using the government’s own statistics (Consumer Price Index) the inflation rate for 2011 (3.0%) – 2012 (1.7%) – 2013 (1.5%) and finally an annualized 2014 (2.1%) seems tame but consider that for the last two years we are heading higher and the inflation rate for 2007 (4.1%) before the financial crash was enough to get gold’s attention pushing prices towards $1000.00.
John Williams Shadow Government Statistics – calculates inflation the same way it was done in 1990 and comes up with a fairly steady figure of about 6% during those same years. If you use the same source and cite his 1980 based alternate our inflation rate looks more like 10%.
So what to believe? I would suggest something in the middle is probably closer to the truth. CNBC this morning cites the stock of a half dozen better fast food places (Panera, Papa John’s, Wendy’s) as moving lower – cause – higher food prices, a prime inflation red flag.
The most recent trend in the price of crude oil has been lower but if you look at the larger view the price of crude over the last 5 years has moved from about $70.00 to $100.00 supporting the higher inflation numbers offered by Williams.
I think the majority of readers would agree that while gold bullion may be taking a nap for now – the key to the next bull leg of this still developing market will not be triggered by war and mayhem. These are transitory safe havens – but by the old forces which caused problems in the past – the inflation/oil connection.
This from Bloomberg News will provide some pause for bulls on the short term but such stories have been quoted many times before – most claiming that industrial growth in China must slow and so gold demand will shrink. This is a new twist however – a crackdown on corruption.
I actually worried about this when I read the Bloomberg headline but thought better of it after a few minutes. China is still much like Chicago was during prohibition – counterfeiting is given a pass by the government – intellectual property rights are trampled daily – and manufacturing is built on corrupted officials. A crackdown on corruption you say? I would take the “over” anyday – at least for the next 20 years.
Gold Demand in China Slumps 52% after Buying Frenzy Subside – Gold demand in China shrank in the second quarter as consumers in the biggest user bought fewer bars, coins and jewelry amid a clampdown on corruption and as the buying spurred by last year’s price slump wasn’t sustained.
Purchases in Asia’s largest economy plunged 52 percent to 192.5 metric tons in the three months to June from a year earlier, contributing to a drop in global consumption, the London-based World Gold Council said in a report today. Every Asian economy tracked by the producer-funded group bought less bullion in the period, apart from Taiwan, as demand across the biggest consuming region shrank 46 percent to 470.9 tons.
While gold’s tumble into a bear market in April last year spurred a purchasing frenzy that helped to push China’s demand above India’s, the pace of buying dropped this year. The data added to signs of slowing bullion consumption in Asia as banks including Goldman Sachs Group Inc. expect prices to resume losses. President Xi Jinping stepped up an anti-graft drive in China this year, hurting demand for luxury goods.
“The data confirms our view that Chinese gold demand will stay relatively weak compared with 2013, which only serves to drag gold prices lower into the second half,” said Barnabas Gan, an economist at Singapore-based Oversea-Chinese Banking Corp.
Precious Metal Closes for this week – Aug 11 through Aug 15 – 2014
Gold Silver Platinum Palladium
Mon $1308.50 $20.06 $1472.00 $874.00
Tues $1308.80 $19.87 $1472.00 $878.00
Wed $1312.80 $19.81 $1470.00 $881.00
Thurs $1313.90 $19.87 $1470.00 $886.00
Fri $1304.50 $19.49 $1458.00 $894.00
So which way is gold going next week? This is what the GoldDealer.com employees think – 8 believe gold will be higher next week – 3 think gold will be lower and 2 believe it will be unchanged.
To this we are adding something interesting – a real survey on what our customers think about the gold market next week.
Like the employees they were given three choices – up – down – unchanged. We limited the survey to a random sampling of 100 customers – unscientific yes but worth considering because these people actually took action: 35 people thought the price of gold would increase next week – 27 believe the price of gold will decrease next week and 38 think prices will remain the same.
The walk-in cash trade was crazy today even though the markets were down. The phones were sometimes busy and sometimes not – mostly all buyers although there have been a few large gold bullion sellers as well.
The GoldDealer.com Activity Scale is a “4” for Friday. The CNI Activity Scale takes into consideration volume and the hedge book: (Monday – 2) (Tuesday – 2) (Wednesday – 2) (Thursday – 3). 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. 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. And it does not help that the world famous Randy’s Donuts is just down the street.
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Thanks for reading from your friends at GoldDealer.com and enjoy your weekend.
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