Gold Fails the Test Moving Lower over Higher Interest Rate Expectation

Gold Fails the Test Moving Lower over Higher Interest Rate Expectation

Commentary for Thursday, Jan 29, 2015 ( www.golddealer.com) – Gold on the Comex today closed down $31.30 at $1254.60. This sharp move to the downside was not unexpected but the trigger was interesting considering the FOMC did a nice job of tiptoeing around the interest rate question yesterday.

So down $31.30 sounds big for one day's trading but remember these markets have been trading flat for several weeks looking for direction – flat trading creates mischief. And even the FOMC minutes did not provide enough real information for the traders to push one way or the other.

Yesterday afternoon the gold market still looked like it was in limbo – trading did not feel heavy – just almost drifting with little real bias. And in fact even the numbers looked promising – up 8.6% on the year.

This from MarketWatch – "In economic news, the number of people who applied for U.S. unemployment-insurance benefits plunged 43,000 to 265,000 in the week that ended Jan. 24, hitting the lowest tally in 14 years, according to Labor Department data released Thursday. The decline, the biggest since November 2012, was much larger than expected."

The above might be an important part of why the metals were weaker today. Yesterday we saw a mixed earnings bag with equities but today the employment picture reinforces the notion that the Federal Reserve is progressing on the jobs front – this leads to the chance that interest rates will be raised sooner than later.

This interest rate notion and the strength of the dollar are keys to gold's short term future.

Just what Wall Street thinks about interest rates is all over the street. After yesterday's FOMC emphasis on "patience" most commentary was slanted at no change in interest rates throughout 2015. That has been my position since Europe began to wobble.

Today with brighter job news the market is now running in the other direction – meaning that the Fed will act soon relative to raising interest rates. That is why the dollar moved higher and the precious metals moved lower.

The Dollar Index took off like a rocket after the drop in unemployment numbers was announced. It moved from a day's low of 94.33 to a day's high of 95.01 in two hours.

How all of this will play out remains to be seen because the markets in general are dyslexic. The Wall Street stock guys are suspicious – are stocks too high or will continued low interest rates fuel the boom well into 2015?

The precious metals traders are sitting on profit positions from the beginning of 2015 – so why not close out those long positions and book profits? That is why we got slammed today.

But I would not jump out the window just yet – watch gold's 200 Day Moving Average ($1252.00). Today's close of $1254.60 held the baseline so in my opinion you might be seeing a very nervous market reacting to short term "blip" information. The short trade ruled as short stops were triggered and the computers took over the casino. As long as the 200 Day Moving Average holds you could easily see a bounce back as the shorts cover.

In the bigger picture however today is typical as to why the physical gold market struggles. Gold simply can't show strength above $1300.00 even as Europe gets out the printing press.

And the investing public still likes the stock market even though price to earnings ratio are looking thin and hugely leveraged corporations borrow even more cheap money.

The best commentary I can provide on gold today is that it's early in the year. Mojo has been lost but there is probably not much downside considering the increased number of printing presses these days – so look for a continued bottoming pattern in 2015.

Silver closed down big today – off $1.31 at $16.75. This is entirely the paper trade running things as silver traders watch gold melt and cashed in their recent long positions. The public loves the physical market below $16.00 so there is not much downside here either – you will see physical buying pick up big time next week as things settle.

Platinum followed gold lower off $40.00 at $1217.00. With all of these fireworks remember to keep in mind the difference in price between gold and platinum. Platinum is trading for $37.00 less than gold – buy what you can find as platinum bullion product is getting thin. The latest from both the Aussies and Canadians is that they will begin producing more coins the first quarter of 2015 – so they say.

This from Associated Press – Greece Sets Up Clash with Eurozone Over Debt Measures – ATHENS, Greece (AP) — Greece's radical new government on Wednesday signaled the country would backtrack or scrap a series of budget measures its eurozone creditor nations had demanded in exchange for bailout loans.

The move fueled market concerns of a tough confrontation with eurozone countries, whose loans are keeping Greece from bankruptcy. Stock and bond markets in Greece plummeted.

Left wing Prime Minister Alexis Tsipras described the country's bailout budget commitments as "crushing and unobtainable," while his finance minister called the bailout agreements a "toxic mistake."

Previous governments in Athens had committed to achieving high primary budget surpluses — that is, surpluses that do not count the cost of servicing debt — in order to make the country's national borrowings more sustainable.

But Tsipras' Syriza party, which won a sweeping general election victory Sunday on a promise it would overhaul those earlier commitments, calls that target is unrealistic. He said his government would instead seek to balance the primary budget.

Instead of using the money to pay down debt, the money would be used to help the economy, he said.

"This a government of societal salvation and it has a very difficult task," Tsipras told his first cabinet meeting. "We want to negotiate the reduction of the debt and an end to conditions of choking austerity."

In Brussels, Jyrki Katainen, the vice president of the European Union's executive Commission, said Greek authorities are expected "to fulfill everything that they have promised to fulfill."

"The Commission must treat all the governments similarly. We don't change our policy according to elections," Katainen said.

The new Greek government, Tsipras said, was seeking "realistic proposals" on how to make Greece's huge rescue loans easier to manage and ways of dealing with the "humanitarian crisis" of mass unemployment and rising poverty.

The comments sent share prices plummeting as investors expected tough negotiations with eurozone creditors, who have insisted Greece stick to its promised reforms.

The Athens Stock Exchange's main index fell more than 7.5 percent, while the government's borrowing rates climbed, a sign investors are more worried that Greece might default. The rate on Greek 10-year bonds rose by a percentage point to around 10.5 percent.

As government ministers officially took up their positions Tuesday and Wednesday, they pledge to reverse key aims set out under the previous conservative government, including major privatization plans for the port of Piraeus and the Public Power Corp. utility.

New Finance Minister Yanis Varoufakis called the bailout agreement a "toxic mistake."

"Today we are turning the page on that mistake that cost human lives, that were lost or undermined," he said. He argued that the main problem was not that Greece received rescue loans, but that the required reforms focused on reducing debt rather than investing in growth. As a result, the money was thrown "into a black hole."

Eurogroup President Jeroen Dijsselbloem was to visit Athens Friday, the government said.

The walk-in cash trade was hectic today – mostly silver buyers although there were a few large gold sellers. The national phones were similar.

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

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