Commentary for Thursday, Jan 9, 2014 – Gold closed up $4.00 to at $1229.30 in continued consolidation but going out of its way as far as non-commitment is concerned. Still we are trading above significant support and I suppose with my Christian nature I should be grateful. And the ECB today reiterated the fact that they would continue their easy money policy and low interest rates for an extended period of time. So the US, the ECB and Japan continue to use the same monetary playbook while I wonder how all this paper creation manages to fly under the radar.
Gold continues to experience the “news drag” typical of a bearish market looking for a bottom. Bears are in charge but I would be suspicious of talk which is too negative: the reason being that recent bear raids have not been successful. (MarketWatch) “Initial jobless claims dropped by 15,000 to 330,000, traders await Friday’s nonfarm payrolls data for the latest monthly view on the employment situation. Naeem Aslam, chief market analyst at AvaTrade expects the report to be strong “and this could trigger a sell off for gold,” as aggressive tapering of the Federal Reserve’s bond-buying program “could be hitting the tapes earlier than expected.” Bank of America Merrill Lynch on Thursday chopped its gold price forecast by 11% , now expecting $1,150 an ounce in 2014 on concerns about a lack of buyer interest. “If investors stopped selling gold, prices could stabilize around $1,200/oz. Yet, this is not our base case and a more likely scenario is for investors to continue reducing their exposure. Our models suggest that this could take prices down to $1,000/oz,” said Michael Widmer, a strategist at Bank of America Merrill Lynch, in the research note.”
These scenarios create a heavy trade in gold but ignore the dynamic physical market in China and India. Regardless of press the short players fear the possibility of a bottoming gold market down some 30% from highs. So the pricing waters remain murky especially short term and price will be driven by fresh news either in the physical realm (positive) or financial realm (further tapering would be negative). Consider that the tapering story has been around forever and might already be absorbed into the price of gold.
Silver was up $0.15 at $19.66 and physical action remains subdued. Not even a comment from Rumor Dave about something nefarious.
Platinum was up $5.00 at $1419.00. President Mugabe of Zimbabwe has issued a Jan 18th deadline for plans for a platinum refinery in his country. Zimbabwe produced about 400,000 ounces of platinum last year but Zimbabwe President wants the metal processed in his country. I believe his position is that he will not move the ore out of the country and so he wants a refining plant. The absence of that metal would put a strain on platinum supply. Strong worldwide car and truck sales have recently pushed platinum to a 15% premium over gold and between 2000 and 2010 platinum averaged a 95% premium over gold and these are positive metrics.
Palladium closed down $2.00 at $736.00. We have seen recent activity in the physical palladium market which is worth watching. My order of preference is platinum, rhodium and then palladium and Standard Bank has some positive news: “Palladium is steady, ignoring the downward pressure being exerted on the other precious metals. This does not come as a surprise, given that the correlation between gold and palladium and even between platinum and palladium has been very low over the past 24 months. The correlation between gold and platinum since the start of 2012 has been 0.78 (using weekly data). However, the correlation between gold and palladium has been -0.42, and only 0.15 between palladium and platinum over the same period. This is consistent with a palladium market which, in relative terms, is tighter than say either platinum or gold.”
Yesterday I mentioned the Fed’s FOMC minutes release. This is more details from Neils Christensen (Kitco): CIBC: No Major Revelations in FOMC Minutes – “Avery Shenfeld, senior economist at CIBC World Markets, says he did not see any new revelations in the minutes from the December meeting of the Federal Open Market Committee. “The size of the taper appeared to be a compromise across widely ranging views of what was appropriate, although ‘many’ wanted to go cautiously. Only a ‘few’ wanted to lower the unemployment threshold for a rate hike to 6%, but most did want to convey that the FOMC’s current forecast involves waiting until well after the jobless rate hit the announced 6.5% threshold. All of this fits with what we heard in subsequent speeches,” he says. Moving forward, Shenfled says the key question will be how the Federal Reserve will address higher Treasury yields since the tapering announcement at the December meeting. “Our reading is that they were not quite as worried about a 3% 10-year handle as they were back in September, for example, in light of better data, and are therefore not going to unleash bigger verbal guns against it until we are at least at 3.25%. We will therefore be adjusting our yield targets somewhat higher in light of that elbow room,” he says.”
These comments are interesting because they highlight just what a “work in progress” tapering has become. There are so many wheels moving which might change the outcome that the overall damage relative to gold remains uncertain.
And exactly how they will continue and keep interest rates low remains to be seen. But eventually the tapering will continue and create further pressure on gold prices. Whether this negative is overcome by inflation, physical demand or some other unforeseen event is also a question to ponder. I tend to be in the minority in that I feel gold and silver are always good to own regardless of price. But there are many commentators who believe that both gold and silver are just another trade. Profit is the only thing that matters and ownership is not important. Only time will tell who is right on this position.
The walk-in cash trade was steady today and the phones were busy with new orders. Note the comment “new orders” which means we are beginning to create new accounts. This trend might be significant because recently most of the action has been coming from established customers or referrals.
The GoldDealer.com Activity Scale is a “3” for Thursday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Friday – 3) (last Monday – 7) (last Tuesday – 9) (last Wednesday – 3) (Thursday – 3). The scale is 1 through 10 and we believe this is a reliable way to “sense” real bullion business.
On the New Site: Comex closing prices are working and posted (upper right hand corner of the home page) and now are included on individual landing pages. Live pricing works and the change function is also working (halleluiah). The consumer can now use a perfect pricing model to choose the right bullion product anytime we are open. Changes on the GoldDealer.com continue: The Bullion link is now operational meaning like the old site all products are shown in the old order and on one page. Both the bid an ask price will soon be displayed and all premiums are displayed on the product landing page. Live Chat is doing well and new customers can set up their own encrypted accounts. The automatic email confirmation (buying or selling) is now working.
Thanks for your patience. We have implemented many of your suggestions and the list is still growing so let us hear what you want. Most of these changes will be implemented over the next several months and thanks for your comments.
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