Commentary for Tuesday, July 30, 2013 – Gold moved lower by $4.40 today closing at $1324.00 marking time and awaiting further information from the Tuesday and Wednesday meeting of the FOMC (Federal Open Market Committee). Traders will be watching for any hint of Federal Reserve policy changes but nothing in terms of economic measures seems significant enough for Fed to change current injection of liquidity.
Money looks like it is beginning to loosen up and corporations have been aggressive with stock buy back programs. And as evidence of the recovery continues more money will begin to circulate. The reason inflation has yet to be a problem is that velocity of money has been small. Home prices saw a 12.6% rise this past year and watch the TV and radio ads begin to reappear claiming upside down “special” refinancing is not a problem and endorsed by the government. To follow will be the usual “put your equity” to work loan ads and “everyone” will make a fortune in the next real estate boom. By the time this is showing at a theater near you expect real inflation numbers and higher gold prices.
Silver was down $0.19 at $19.66 and across the counter action has slowed but the cash in and out market at the store is alive and well. The reason this particular part of the silver trade is interesting and is virtually never talked about is because it is difficult to track. An investor walks in with $5000.00 cash and walks out with a canvas sack filled with one ounce silver rounds. This happens all day along across the nation and yet is barely talked about because the action is not considered “big”. Actually this also points to one of the primary reasons silver bullion makes sense and that is its relative price is attractive to most everyone. In other words the smaller investor is just as likely to develop hard asset holdings which are private and defend against government edict as the large paper players which get all the press.
Platinum was down $5.00 at $1437.00 and palladium was down $16.00 at $728.00.
Since the end of June gold has improved its technical position ($1200.00-$1350.00) encouraged by the notion that quantitative easing would not be soon modified. But this market has been flat the last few days with very close trading ranges and the curve looks like it wants to straighten out meaning its upward bias has moved to a sideways action. This may be nothing more than further consolidation or be the early warning signs of the Fed again talking about slowing down the $85 billion a month bond buying program.
This government largess must come to an end at some point but not according to the Fed until employment improves and economic recovery is more certain. All of this extra money is considered “free” at the moment because inflation numbers are low but again if your “inflation” case is driven by the CPI (Consumer Price Index) you may cry foul.
This index is often followed by core CPI numbers which excludes food and energy supposedly because these numbers are too volatile. If all of this makes sense to you as a fair and accurate way of judging inflation you should work for the Fed.
At any rate I believe gold has already factored the reduction in the $85 billion program because when this reduction begins (rumor/September) it will probably be something of a gradual deceleration meaning they might move from $85 to $65 billion and see how this affects interest rates. Sorry for all the “maybes” but there you have it confusion on a stick even though gold seems relatively tame at the moment this is only temporary.
This from Allen Sykora (Kitco) is worth reading: UBS: Chinese Gold ETFs ‘Should Be Kept On The Radar’ – UBS describes the first two gold-exchange-traded funds in China as undersubscribed but says they "should be kept on the radar" of market watchers in case momentum picks up. The HuaAn Gold ETF and Guotai Gold ETF began trading Monday, with prices falling slightly but transaction volume described as active, according to Chinese media reports. The funds reportedly raised a combined 1.6 billion yuan in their initial funding, which was lower than expected, Chinese media report. The country is one of the world’s two largest physical gold buyers, so analyst are watching to see if this appetite will extend to paper gold investments. Says UBS: "There was not much surprise that the first two ETFs launched in China were undersubscribed; as expected, the bulk of investors were institutional. Headlines two weeks ago noted that the missed funding targets were a result of investors wanting to see how things play out in the international bullion market first before increasing exposure to these gold ETFs further. Ultimately, it will take time for these products to gain traction across the broader retail customer base. ETFs in China currently get strong competition from banks’ gold-accumulation plans and offerings of other small retail products, which enjoy a wider distribution network. However, despite being a slow-starter for now, Chinese ETFs should be kept on the radar – these could easily pick up momentum as distribution channels improve and the Chinese gold market becomes more and more sophisticated over time."
This is yet another dimension of the still underdeveloped Chinese demand for gold. As their middle class further develops the demand for real gold will only increase and you will see yet another shift of real wealth move from the US and Europe to China. The two fundamental driving forces pushing this transformation are first, the creation of the middle class driven by their industrial formation which now has money to spend and the innate valuation of gold by the Chinese people. They really don’t need any convincing that owning metal is in their best interest they have been on board for a few thousand years.
Both walk in and phone trade today at the CNI Building were slow so the public is definitely doing more watching than buying or selling. And of course the big question still remains as to whether gold will hold the “above $1300.00” mark after the Fed begins to taper. I think the jury is still out here but one thing is sure the answer will not be too far away. Thanks for reading and enjoy your evening. These markets are volatile and involve risk: Please Read Before Investing
Written by California Numismatic Investments (www.golddealer.com).