Gold Continues Lower on Technical Selling

Gold Continues Lower on Technical Selling

Commentary for Tuesday, Sept 9, 2014 (www.golddealer.com) – Gold closed down $5.90 today at $1246.80 reinforcing yesterday’s technical loss and encouraging short paper sellers. So my original thought looks good in that gold will again test $1240.00 in the short term. If this holds it would be a bullish double bottom these past 6 months – but keep in mind gold traders are getting more pessimistic.

The lowest price of the year (2014) for gold was seen on January 2nd ($1225.00) and today’s close ($1246.80) is within $3.00 of the June 2nd low close ($1243.70) so support has been eroded but I would not be jumping out the window just yet.

Obviously the technical picture belongs to the bears but until there is a beach of $1240.00 support you may see a short-covering rally and a bit of bargain hunting at these depressed levels.

Keep in mind that anyone still watching the gold market in light of the very strong dollar and a successful stock market would be considered a solid – long term player.

And so perspective is in order – and perhaps another martini. Remember the US suspended the debt ceiling until next March. And a very successful billionaire claimed on CNBC this morning that the US will lose control of interest rates sometime in the next 5 years in an attempt to quite out of control inflation. Granted 5 years is a long time span but these kind of guesses are not a science and the Federal Reserve itself wants to stop quantitative easing for two reasons: (1) it realizes we are now facing diminishing returns – meaning you could have made a case that in the beginning this flood of money helped the economy but today further fiat money may not produce similar results. (2) they don’t want the return of inflation to get out of hand so less is better now rather than sweat a possible “out of control” scenario at a later date.  

Finally relative to the price of gold – traders are just like everyday folks – they worry about everything and fear is a big driver. When the market is negative the psychology is more negative than necessary or even prudent if you are a long term buyer.

If you are worried about recent losses in gold don’t lose any sleep over the situation. If you are really worried lighten up your position – but leave your core position intact. Bear raids like this one pass and I think you will find also present bargain basement prices.

Silver closed down $0.05 at $18.84 – can’t say we are seeing any rush into silver bullion so the public remains cautious. No large positions – either buying or selling these past few days but there has been steady accumulation by regular customers in smaller units. 

Platinum was off $11.00 at $1387.00 and palladium was down $26.00 at $860.00. Rhodium remained unchanged at $1290.00.    

Will real gold demand provide needed price traction? India’s Diwali begins October 23rd and the festival is celebrated for five continuous days, where the third day is celebrated as the main Diwali festival or ‘Festival of lights’. This is the biggest of all the Hindu festivals and celebrates a number of things like kindness, charity and peace. Most believe buying gold for this festival will push the physical demand higher.

Traditionally mid-October to mid-November has been the beginning of their gold buying season so look for this to cushion the deteriorating technical picture for gold – which leads me back to an earlier comment relative to gold. Yes the technical picture for gold belongs to the bears but this “push/pull” generally leading lower shorter term will soon catch some traction as the physical demand picks up. We are all wondering if the $1200.00/$1250.00 will turn out to be the bottom of this protracted consolidation – but no one really knows for sure so for now buying weakness in smaller amounts makes sense.     

Contrast the difference between Reuters last night and the close of business today:

SINGAPORE, Sept 9 (Reuters) – Gold hovered near its lowest in three months on Tuesday after sharp overnight losses as the dollar traded at 14-month highs against a basket of major currencies, dimming the metal’s appeal as a currency hedge.

     * Spot gold was little changed at $1,255.20 an ounce by 0028 GMT. The metal closed down 1 percent on Monday, after earlier hitting $1,251.24 – its lowest since June.

    * The dollar was boosted after a Federal Reserve study on interest rates and as the sterling was pressured amid ongoing jitters that Scotland could vote to secede from the United Kingdom.

    * A research from the San Francisco Federal Reserve noted that investors are pricing in a lower trajectory for interest rate rises than members of the Fed itself.

    * A stronger greenback makes dollar-denominated gold more expensive for holders of other currencies.

    * An independent Scotland could lay claim to a part of the United Kingdom’s 310-tonne gold reserves if votes go in favour of the "Yes" campaign this month, with ownership of Britain’s bullion hoard up for negotiation along with other assets.

    * Investors were also eyeing developments geopolitical tensions over the Ukraine crisis. Russia signalled on Monday it might ban Western airlines from flying over its territory as part of an "asymmetrical" response to new European Union sanctions over the Ukraine crisis.

    * In news from the physical markets, the U.S. Mint said it will cease accepting dealer orders for its American Eagle platinum bullion coins after Oct. 1 as demand tumbles, and plans to make fewer platinum coins for investors next year.

    * Top buyer China is back from a holiday on Tuesday, and premiums on the Shanghai Gold Exchange will be watched to gauge the strength of buying interest in the market.    

    * Scotland’s threat to secede from the United Kingdom knocked the British pound to a 10-month low against the U.S. dollar on Monday and sparked weakness in major stock markets already uncertain as to whether a cease-fire in Ukraine would hold.

This second Reuters was posted after the domestic market close today:

(Reuters – Tang and Denia) – Gold prices fell below $1,250 an ounce on Tuesday, as technical selling sent prices to a three-month low as the U.S. dollar rose and investors worried that the Federal Reserve and other central banks would hike interest rates earlier than expected

Gold’s drop and the dollar’s rally also weighed heavily on other precious metals, sending silver below $19 and platinum prices to a seven-month low.

The U.S. currency rose for a fourth session, hitting a 14-month high against the euro on optimism the U.S. economy is growing in line with expectations that the Federal Reserve may begin raising interest rates next year.

More than 12,000 lots in the benchmark COMEX December contract changed hands in the 20 minutes between 12-12:20 p.m. (1600-1620 GMT), after a drop below $1,250 support triggered a bout of stop-loss orders, traders said.

"Some traders have given up on gold as the $1,250 level represents the line in the sand for many traders. Also, geopolitical risks also appeared to be fading for now," said Phillip Streible, senior commodities broker at RJO Futures in Chicago.

Spot gold was down 0.5 percent at $1,249.70 an ounce by 12:27 p.m., having earlier reached a fresh three-month low at $1,247.45.

A dollar rally also sent gold prices down 1 percent on Monday.

U.S. COMEX gold futures for December delivery were down $3.80 an ounce at $1,250.50.

Among other precious metals, palladium was down 2 percent to $860, having earlier hit a one-month low at $852.30. Palladium investors took profits after prices rallied to 13-year high earlier this month.

Platinum fell 0.8 percent to $1,380.23 an ounce, having reached a seven-month low at $1,376.60. Silver was down 0.2 percent at $18.95 an ounce.

Read this portion of a recent article written by David Stockman’s (Conta Corner) – always worth reading if you don’t mind thinking outside the box. “Jobs Friday”: Why Bubblevision Misses The Epic Failure of the Labor Market – “Since Bill Clinton’s last month in office there has been a 3 million or 5% shrinkage of breadwinner jobs. There is nothing like this in modern history, yet the Jobs Friday revelers have always been oblivious to that economically debilitating trend—a harsh reality which massively dwarfs the seasonally maladjusted, continuously revised, heavily imputed and guesstimated monthly noise that is the essence of Hampton Pearson’s summary.

Even when you look at the growth in part-time jobs outside the HES-Complex, the pattern has been volatile and tepid on a trend basis. During the “recovery” since the Great Recession ended in June 2009, for example, most of the gain has consisted of “born again jobs”. That is, two-thirds of the 3.7 million part-time job gains reported since June 2009 were first generated during the Greenspan housing bubble. Needless to say, they were then wiped-out during the Great Recession plunge—- only to be slowly recouped in the 61 months since then as “born again” jobs represented as new hires.

Stated differently, Bernanke boasted in February 2004 that the US economy had entered a period he was pleased to term “The Great Moderation”. But it didn’t exactly work out that way—since just four years later he claimed the nation’s economy stood at the gates of the Great Depression 2.0.

Bernanke’s lack of clairvoyance, however, is not the point here. At least by the lights of the monetary central planners in the Eccles Building, the 14 year since the turn of the century were certainly intended to represent a great moderation. That’s why twice during that period they flooded the financial markets with unprecedented liquidity—–a maneuver designed to flatten the cyclical bottom and ignite the rebound.

Yet what did it do for the non-HES labor market?  It did not arrest the trend decline in breadwinner jobs in the slightest. And even in that bleak corner of the economy that I have labeled the part time economy there has been a net gain of just 21,000 per month over the past 14 and one-half years.

That bears repetition. During a decade and one-half, the US economy has managed to generate only 21,000 part-time jobs per month outside the HES Complex. So it might well – I truly wondered how these people keep putting on their party hats month-after-month.

In the first place, even if you believe that prosperity can be sustained by the vaunted “shop until they drop” American consumer, the pattern shown above doesn’t get the job done by a long shot. The periodic rebirth of a modest quotient of part-time positions paying $20k per year will support robust consumption spending in the current GDP reports only at the expense of ballooning credit losses and over-time work for the repo man down the road.

Apart from this obvious non-starter, there are three specific facets of the American economy’s complete dependence on the HES Complex for job growth that are deeply troubling, but have perennially escaped the notice of the Jobs Friday commentariat.

First, nearly all of these jobs are “fiscally dependent” owing to direct government spending, loans and tax expenditures. At present, total government expenditures for Medicare and Medicaid, for example, amount to $1.2 trillion annually and account for well-more than 50% of health service delivery, but upwards of 90% in some areas that are jobs intensive. The 3.3 million jobs in nursing facilities, for example, are almost completely funded by Medicare and Medicaid.

Likewise, the number of home health care jobs has soared by 700k and nearly doubled since the year 2000, but this sector is also heavily dependent upon the two big government programs. At the same time, the tax expenditure each year for employer-based health coverage and individual tax credits and deductions is upwards of $200 billion, meaning absent these underlying fiscal subventions—- health care expenditures and employment gains would be far lower.

Even in the education sector where 13.6 million jobs were reported for August compared to 11.6 million in January 2000, 75% of this pick-up was in higher education, not K-12; and it goes without saying that the boom in higher education is the direct result of $1.2 trillion in student loans and $40 billion annually in direct grant programs financed entirely by Uncle Sam.

On the margin, all of this fabulous fiscal support for the HES Complex consists of borrowed money—-since if there actually were a balanced budget law that required today’s taxpayers to foot the cost of government rather than the unborn taxpayers of tomorrow, the first thing to be cut would be the giant subsidies being collected by the health and education cartels. In any event, governments are now bumping up against “peak debt”, meaning that the stupendous flow of fiscal resources to the HES Complex is beginning to abate sharply, resulting in a unmistakable slowing in the rate of so-called job creation.

During the Greenspan Boom between 2000 and 2007, for example, the monthly rate of job  creation in the HES Complex was 51,000. During the Great Recession that slowed to 43,000 per month; and during the 61 months of recovery since then it has dropped further to just 28,000 per month. In short, the American jobs machine—-tentative as it has been for the past 14 years—-has essentially rested on a fiscal mirage that is now reaching it waning days.

The second disability follows—namely, that HES Complex job growth has nothing to do with monetary policy. There is no way, shape or form by which the Yellen Fed’s focus on the labor market, and its determination to keep the lunacy of zero interest  in place for what will be 78 month running through mid-2015, actually stimulates activity rates and jobs in the HES Complex.

Overwhelmingly, the hospitals, doctors offices, outpatient clinics, nursing homes, for profit higher ed diploma mills and just plain old public education system do not borrow large amounts of money to operate. They do not care whether the money market interest rate is zero or 5%.

The credit market transmission mechanism for Fed policy is over and done, anyway, because the household sector has reached peak debt, as shown below.  But the obvious point is that the HES Complex was never dependent upon cheap interest rates and booming debt creation in the first place. It was about fiscal transfers all along.

In short, the Fed has managed to grow it balance sheet from $500 billion to $4.4 trillion during the period encompassed by the charts above—-and the overwhelming Keynesian rationale has been saving and creating jobs.  Yet the only net jobs created in the US economy during this period had absolutely nothing to do with this manic spree of money printing. Would that one of Janet Yellen’s vaunted “dashboards” carried a reminder to that effect.

Finally, there is the issue of productity and paying our bills as a nation.  We import about $2.5 trillion per year. That giant inflow of consumer products, capital goods and raw materials has to be paid for out of exports of goods and services— or the shortfall must be borrowed from the rest of the world.

The Keynesian money printers, of course, counsel not to worry, because foreigners are eager lenders to an American nation that has lived beyond its means for 30 years. According to Greenspan, Bernanke, and any random Wall Street economist you might happen to choose, the peasants of Asia who have come out of the rice paddies to earn a meager living in the slave factories of east China have an irrational penchant to over-save and thereby accommodate the $12 trillion debt of the US household sector.

Needless to say, that’s a fairy tale. Sooner or later, the American economy will be forced to import only what its earns in foreign sales and services because the export of excess dollars and debt by the Federal Reserve will be brought to a halt as the global central bank race to the bottom enters its final phases.

In this context, there has self-evidently been no recovery in goods production. As of last Friday’s report, the number of jobs in construction, manufacturing and mining (including energy) had hardly budged from the recession bottom and was down nearly 25% from the level of January 2000.

So at the end of the day, the HES Complex does not help the US economy pay its way. Essentially, America has been creating jobs only by borrowing from the rest of the world—–more than $10 trillion on a balance of trade basis during the last 30 years.

And most certainly, this is a structural barrier to real economic growth and job creation that the revelers on Jobs Friday have never even remotely bothered to note.”

The walk-in cash business today was steady but not hurried – the same was true for the phones. This can be seen in the averages – a 3 or 4 or 5 represents steady business. Not hot by any means but steady and the majority of these transactions are purchases – so the public remains engaged.

The GoldDealer.com Unscientific Activity Scale is a “4” for Tuesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Wednesday – 3) (last Thursday – 5) (last Friday – 3) (Monday – 4). 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 evening.

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