Commentary for Wednesday, July 2, 2014 – Gold closed up $4.30 at $1330.70 so a virtual repeat of yesterday’s action. We are now approaching – with little fanfare – 2014 highs for gold ($1379.00).
The gold market seems steady with very close trading in the overnight Hong Kong and London markets. There was some slight weakness in the domestic markets perhaps because of payroll information or Yellen comments but gold recovered nicely and continued to gain some ground.
Still the range top to bottom was small – perhaps $5.00 so I would not draw many conclusions. Gold’s 30 day chart seems to say the bulls are still in charge but I would like to see some sort of pull back (profit taking) and then confirmation to higher levels.
This week is short and we are going into a three day US holiday which means banks – Wall Street – and mail will take a short holiday. Because the rest of the world is not taking much time off and because the international situation remains troublesome I imagine we won’t see any short players until early next week. But make no mistake about it there is some short term profit which might move to the sidelines. The trading however remains thin – perhaps subject to shenanigans – so any pop in prices one way or the other should be taken with a grain of salt.
Silver closed up $0.18 at $21.25 again in thin trading and judging for silver bullion sales across the counter – the US buyer is paying more attention to the upcoming fireworks on Friday.
Platinum closed down $3.00 at $1511.00 and palladium was up $3.00 at $856.00. For the record rhodium sales in the form of the 1 oz Baird bar continue – this seldom visited portion of the Platinum Group Metals (PGM) is receiving more attention but is still ridiculously cheap in my opinion – so it might be time to consider a bullion diversification.
All Gold Exchange Traded Funds: Total as of 6-25-14 was 54,802,124. That number this week (7-02-14) was 55,267,911 ounces so over the last week we gained 465,787 ounces of gold.
It might also be interesting to note that in 2013 the record high holdings for all gold ETF’s was 85,112,855 ounces. In 2014 the record low was 54,773,273 ounces.
All Silver Exchange Traded Funds: Total as of 6-25-14 was 626,744,082. That number this week (7-02-14) was 625,467,493 ounces so over the last week we lost 1,276,589 ounces of silver.
All Platinum Exchange Traded Funds: Total as of 6-25-14 was 2,844,731 ounces. That number this week (7-02-14) was 2,850,144 ounces so over the last week we gained 5,413 ounces of platinum.
All Palladium Exchange Traded Funds: Total as of 6-25-14 was 2,980,096 ounces. That number this week (7-02-14) was 3,020,756 ounces so over the last week we gained 40,660 ounces of palladium.
REUTERS – “HSBC Global Research raised its 2013 gold price forecast and said physical demand is becoming a major driver for the yellow metal.
The bank lifted its gold price outlook for this year to $1,446 per ounce from $1,396, and kept its 2014 forecast unchanged at $1,435 an ounce. Spot gold was trading at $1,330.66 at 17:36 GMT on Thursday.
“Physical demand for jewelry, coins, and bars from China, especially, are supportive and becoming a key driver,” HSBC said in a note on Thursday. The bank said investment demand for gold will remain weak as gold’s use as a safe haven ebbs. Expectations that the U.S. Federal Reserve will reduce stimulus measures will continue to weigh on the gold market, HSBC said. “We expect gold’s near-term direction to be highly data dependent and is likely to be volatile.” The prospect of a stronger U.S. dollar as a result of Fed tightening is likely to present headwinds to further gold rallies, the bank said.”
Physical demand for gold has always been its trump card but I thought the $1435.00 gold forecast for 2014 was worth another look. Considering we are into the second quarter of 2014 I would say this HSBC guess is very bullish. Much more positive than I would have expected given recent volatility. Granted they hedged their bets somewhat with the stronger dollar comment as a result of Federal Reserve tapering but if gold moved into the $1435.00 range gold sentiment would be back on its feet.
The next big overhead line to overcome for the average buyer would be the $1600.00 level established in the summer of 2011. And for this kind of move we will need a real game changer (inflation – high oil – physical demand coupled with new spec money into the ETF funds). It is not enough to simply claim the money supply is out of control and therefore gold must move higher. The money supply is being pushed higher by the Fed every month but it’s going into the bank reserves. Our actual money in circulation actually mirrors that of the EU as far as growth is concerned.
China is really the poster child for wild money growth and it does not seem a blow up over there is in the cards anytime soon. But the hidden problem is the debt to GDP (Gross Domestic Product) ratio for the modern world.
The debt to GDP ratio for Japan is 210% which means for every dollar their economy produces they owe $2.10. Let’s pretend you are a country and produce $100,000.00 a year in goods and services while carrying a credit card balance of $210,000.00.
See the problem? This evolution of the “carry” debt will eventually lead to a game changer for gold. Either some sort of debt default will create higher prices or interest rates will have to keep at near zero to support the system. When either happens the now current overhead resistance ($1600.00) which has been capped for the past 4 years will be replaced with a new bull market and this next time around will surprise even gold enthusiasts.
This from Allen Sykora (Kitco) – RBC’s Gero: Traders Reluctant To Be Short In Comex Gold During Short Trading Week – “Comex gold is higher, with U.S. traders reluctant to hold short, or bearish, positions during a short trading week ahead of the three-day Fourth of July weekend, says George Gero, vice president and precious-metals strategist with RBC Capital Markets Global Futures. Also, he says, many bears may have been surprised by escalating Russia-Ukraine tensions, events in Iraq and recent news of North Korea test rocket launches. He also cites potential for inflationary pressures from a lower U.S. dollar, low interest rates and higher food and energy prices, with many funds finding themselves “underinvested in gold.” A strong stock market meant some funds moved out of gold in the first half of 2014, and “now beginning the second half, funds are taking a second look,” Gero says. He adds that open interest, which is the number of open positions at the end of the business day, has been improving. As of 9:20 a.m. EDT, Comex August gold was $6.20 higher to $1,328.20 an ounce after peaking overnight at $1,334.90, its most muscular level since mid-March.”
Note the phrase “open interest” in the Gero commentary. Open interest is watched by traders as a kind of “interest meter”. Open interest is not volume but the number of people with positions which remain open at the end of the day. So if folks with an interest remain committed on a paper trade there may be some information which is new and so actionable. If “open interest” numbers increase some traders believe this is a confirmation that higher prices may be in the offering.
So I looked to CME for “open interest” numbers on gold. If you compare the number for gold (May – 2014 – 380,825) to the number for the next month (June – 2014 – 404,291) you can see why Gero sees that the “interest meter” is moving in the right direction.
A reminder about our live product screens – remember to use your F5 key (refresh) each time you want a live price quote – if you do not refresh your quote will not be current.
The walk-in cash trade and the phones continue quiet. Typical of the summer months even though the relative price of gold is trending higher.
The GoldDealer.com Activity Scale is a “3” for Wednesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Wednesday – 3) (last Thursday – 2) (last Friday – 2) (Monday – 3) (Tuesday – 4). The scale (1 through 10) is a reliable way to understand our volume numbers.
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