Commentary for Tuesday, Dec 16, 2014 (www.golddealer.com) – Gold closed down $13.30 at $1193.90 confirming yesterday’s weak aftermarket. Actually I was surprised today’s loss was not worse considering the collapse in the ruble which traded at 80 to the dollar.
The talk about revolution in Russia is nonsense – Putin will do just fine even with the collapse in oil and the sanctions. But the world should be careful about punishing what is seen as errant foreign policy.
Sanctions are a bit like quantitative easing – you may think you know what is going to happen – and then one day you wake up to the unexpected consequences.
Gold lower in spite of a weakening Dollar Index – as of this writing the Dollar Index is trading at 87.95 versus yesterday’s close of 88.43.
And WTI crude oil is now trading at $55.91 a barrel as opposed to $57.81 this time yesterday. This is one of the reasons I thought gold would be much lower today. Perhaps this downward move was muted because the dollar trended lower.
The following is also making everyone nervous. European stocks, Bund yields fall after weak German PMI – Dec 16 (Reuters) – “European stocks fell and German Bund yields hit a record low on Tuesday after data showed Germany’s private sector grew at the slowest pace in 18 months in December.
Markit’s flash composite Purchasing Managers’ Index (PMI), which tracks activity in the manufacturing and services sectors that account for more than two-thirds of the economy, fell to 51.4 in December from a final reading of 51.7 in November.
That was above the 50 line denoting growth for the 20th month running, but it was the lowest reading since June 2013 and far below levels seen earlier this year.”
And there is other data creating heat – China industrial activity shrinks in December, calls grow for more stimulus – Japan flash December manufacturing PMI rises to 52.1 from final 52.0 in November – China Dec flash PMI falls to 49.5, first contraction in 7 months.
Silver closed down $0.81 at $15.71. Public buying has picked up so the confirmed sweet spot for silver these days is less than $16.00.
Platinum closed down $18.00 at $1196.00 and palladium also closed down $18.00 at $784.00
This commentary by Peter Hug (Kitco) is typical of an experienced trader – Drift Ahead of Fed Meeting – “With most of the squaring probably done before the New Year, the metals have softened overnight on a slightly stronger dollar as investors again focus on the macro picture for 2015. The Fed meeting, beginning tomorrow and carrying through Wednesday, will again be the focus to determine any signs on when U.S. rates will begin to rise. I suspect the Fed may leave any change in language alone, before the holiday season, to maintain some relative calm. Keeping equity values buoyant to encourage the “feel good” spend is probably more important than re-adjusting Fed language to provide clarity for any tightening action. That said, volatility, as volumes thin daily, will continue to be the landscape for the next seven trading sessions. $1,202-$1,218 looks like a probable range for gold today.”
The notion that the Federal Reserve will soon raise interest rates is the next ghost in the long line of ghosts which plague the price of gold. By now everyone knows the theory – rising interest rates create a stronger dollar and push the price of gold lower.
The Big Four when it comes to the price of gold today are the dollar, oil, geopolitical uncertainty and economic stress. So any hints as to what the Federal Reserve may do between now and Wednesday is important. Like always they will release information after the COMEX close on Wednesday so expect some turbulence in the gold aftermarket tomorrow.
The real conundrum the Fed faces however is whether they can get away with raising interest rates without derailing our economy. Any financial stall here at home might also create trouble in Europe. So what to do? Like I said it’s dicey – and even a hint at higher interest rates will drive gold to the lower end of its trading range. At the present that means we could test $1150.00 once again – but even Santelli on CNBC this morning quipped that the window for raising interest rates by the Federal Reserve may have passed given the present state of uncertainty relative to Russia and Europe. We will have to be patient – my bet – no big change but enough talk to calm the already jittery stock market.
In March of 2014 gold looked good above $1350.00 but since that time the bigger technical picture has not been encouraging. In fact that picture has not looked good since the summer of 2012 – but gold bullion advocates have been looking for a bottom during this long unwinding phase and have as yet not gotten traction.
To the real physical gold market (India – China – Central Banks) gold is cheap enough to increase their physical stake. Read this Dec 16th commentary by FXEmpire – “In India data showed that gold imports surged by over six-fold to USD 5.61 billion in November primarily due to a spike in demand during the marriage and festival season, raising fresh concerns of widening current account deficit. Imports of the precious metal stood at USD 835.83 million in the same month in 2013. Both Reserve Bank and government have been saying that CAD levels are comfortable despite an upward trend, but the huge jump in gold imports may cause fresh worries to them. Gold prices traded positive last week on account of technical buying after the metal crossed the $1200 mark. In the mid-week, gold prices rose by 2.29 percent to $1230.4 last Tuesday, hitting its highest since late October as cautious comments from U.S. Federal Reserve policymakers prompted a sharp pullback in the dollar. Weakness in the dollar index coupled with bad economic data from China and Japan lifted the safe haven appeal of the yellow metal. China’s imports dropped and Japan’s economy shrank more than initially reported in the third quarter on declines in business investment. Falling stock markets have prompted some investors to buy the metal as an alternative asset, while a drop in the greenback made dollar-priced bullion cheaper for holders of other currencies.”
But the American bullion buyer is more of a momentum player – not like the people in countries which are dedicated to physical gold. Americans want to see higher prices because ownership is strictly a matter of profit and until we can get that “bottoming” price traction the action here in the states will remain unconvincing.
Do I think gold will move dramatically lower? I’m sticking with my original trading range proffered some months ago $1050.00 to $1150.00. Those levels should bring plenty of worldwide physical buying regardless of what US speculators believe.
But this latest weakness also has an element of the short paper trade so I don’t expect the Fed’s news release this Wednesday will create much of a slam. Some perhaps but the short players will cover and lock in profits.
The walk-in cash trade was slow today as the rain continues to pound away at LA. The phones were also less than average – but typical for the holiday season.
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 – 3) (last Friday – 3) (Monday – 2). 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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