Commentary for Friday, July 12, 2013 – Gold closed down $2.30 at $1277.80 going into the weekend in quiet trading after a decidedly upward week (plus $65.00). This market was helped by comments mid-week by Chairman Bernanke countering the most recent talk of early tapering and reinforcing his patented “highly accommodative monetary policy”. A key factor which allows Bernanke to pursue this policy is low inflation and in particular a lack of fear of inflation. The PPI (Producer Price Index) announced today is up 0.8% last month as year on year numbers come in at 2.5%: so inflation isn’t as benign as most might believe and continues to grind away at purchasing power.
Silver closed down $0.17 at $19.77 and while I can’t say there are any big-boy buys at the present there is also no big investor selling either.
Platinum closed down $4.00 at $1410.00 and is experiencing supply problems. Palladium was higher by $6.00 at $722.00 finishing the week up $46.00. In the 10 years from 2000 to 2010 platinum averaged a 95% premium to gold.
And now the famous Kitco survey and for some inexplicable reason they still have not placed me on their speed dial: (Kitco News) – There is no outright majority of opinion on the outlook for gold price direction for next week, with participants in the Kitco News gold survey split, although there are a few more participants who forecast higher prices than those who see weaker prices or are neutral. In the Kitco News Gold Survey, out of 36 participants, 25 responded this week. Of those 25 participants, 12 see prices up, while seven see prices down and six see prices moving sideways or are neutral. Market participants include bullion dealers, investment banks, futures traders, money managers and technical-chart analysts. Last week survey participants were split in half equally, a rare occurrence. As of noon EDT Friday, prices on the week were up about $66 on the week. Since May 13, 2011 when the survey started, participants have been right 44% of the time, as of June 28. Until Nov. 23, survey participants had more than a 50% accuracy rate, suggesting that since then there has been a change in the trend for gold. Participants who see higher prices said they expect the current bounce in gold to continue. Some suggested short covering, where traders who previously sold positions buy them back to exit the trade. It’s well known that speculative traders hold hefty short positions in the Comex gold futures market and some participants said if the bounce in gold prices continues, these speculators will likely be forced out of the market. Darin Newsom, senior analyst at DTN, said technical chart factors suggest some strength for gold. “Weekly stochastics for the August contract have seen a bullish crossover below the oversold level of 20%, indicating a turn in the secondary (intermediate-term) trend,” he said. Those who see weaker prices said gold struggles when it comes close to the $1,300 area. Kevin Grady, owner of Phoenix Futures and Options, said he’s looking for prices to go lower ultimately. “We could trade to $1,300, but I think we’re going to start to see these mines starting to hedge. There are a lot of uncomfortable conversations going on now. If we get to $1,321, which was the support when we had the first big break, I think we’ll start to see some hedging coming in. So far we haven’t,” he said. The participants who see prices going sideways or are neutral said after this week’s strong rally, it’s possible that gold could tread water in a range. “Put me down for ‘unchanged’ which really means — in the absence of some powerful news — anything between $1,250 and $1,300,” said Jeff Nichols, managing director, American Precious Metals Advisors, and adviser to Rosland Capital.
Rising Lease Rates Show Demand For Physical Gold Remains Strong By Neils Christensen (Kitco) – Although investor demand for gold remains weak, retail investors and industries continue to pay a premium to buy the physical metal now. On Tuesday, one-month lease rates for gold hit a four-year high and rose to 0.3%. According to some analysts, the lease rate is important because it is an indication of industry demand. Jewelry stores will lease gold, which is backed by the future sales of their products. Mining companies will also borrow gold at the lease rate and then pay back the loan with future production. Peter Hug, global trading director at Kitco Metals, said the rise in lease rates is an indication that the jewelry industry is gearing up in anticipation for the Christmas holidays. According to some analysts, the rise in the lease rate is an indication that demand remains strong for physical gold despite a massive influx of the precious metal. Martin Arnold, director of research at ETF Securities, said that demand in Asian, particularly India and China, has been the key driver in taking the supply out of the marketplace. He said in their research, they have been monitoring three factors: the Shanghai Metals Exchange, gold imports into Hong Kong and sales at major jewelry stories in China. “There is still a lot of physical demand in China,” he said. Martin added that because high prices in the last few years created a void in the marketplace and now prices are lower, people are starting to fill that void. Although most of the demand is from Asia, Martin said there is the potential for increased buying of physical gold in Europe as countries continue to deal economic uncertainty. He added people are scared that they are going to lose their jobs and their wealth. “Buying gold bars is an easy way for people in the street to know they have got some wealth,” he said. Keith Weiner, president of the Gold Standard Institute USA and CEO of Monetary Metals, has been watching the physical market closely and said factors like backwardation, the rise in lease rates and low inventories in Comex vaults is an indication that buyers are becoming more aggressive in the marketplace. “The scarcity has risen to the point where I would be hesitant to bet against gold,” he said. Weiner said although prices dropped from lack of investor interest, he wouldn’t expect prices to fall much lower as demand for physical bullion will continue to support the market. “Gold is transferring out of the investment vehicles and into the hands of people who will hold it permanently as a source of wealth,” he said. Bill Baruch, market strategist at iiTrader.com, said that although prices could fall lower in the near term, it appears that $1,200 is a value level for investors. “It’s seen as a value area to hedge against risk and economic uncertainty,” he said.
Walk in business today was on the slow side and phone action was just average so my bet is that the public liked this snap-back consolidation action. The technical picture for gold is improved and the psychology of this market is better but still fragile meaning one big down day will put a frown on everyone’s face. So caution rules but there is definitely less pessimism for now. Like us on Facebook and follow us on Twitter @CNI_golddealer. Thanks for reading and enjoy your weekend. These markets are volatile and involve risk: Please Read Before Investing
Written by California Numismatic Investments (www.golddealer.com).