Commentary for Thursday, July 18, 2013 – Gold closed higher today up $6.70 at $1284.60 apparently liking the way our Fed Chairman is handling questions about the improving US economy in front of the US Senate. What a great venue, Bernanke knows what he is trying to accomplish and for the most part Congress asks questions trying to either be helpful or create political theater and in both cases the real answers to their questions are over their head. I am not saying they are not informed but the questions they ask have so many moving parts the simple response to a complicated question is designed more to make everyone feel at home than to come to grips with an economic principle.
What a job…but no thanks. Chairman Bernanke will soon retire and his usefulness during a time of extreme danger will not be fully appreciated for the next decade. His short term objective has not changed as far as quantitative easing is concerned but he has taken a new approach to the explanation. The successful bond buying program will not change until the data indicates a change is necessary and this new talk about the old model seems to be more market friendly as the DOW continues higher.
Gold is only 9 days away from lows so one cannot say that we have found a bottom but its shorter term technical picture continues to look more encouraging. The real question however is whether or not this recent strength probably the result of firm QE talk is the real deal or just another bear market trap. Still there are many who believe gold is just cheap and want to take advantage of buying because the precious metals fit into their life view.
Silver was down $0.04 today at $19.37 with physical action increasing at the store but keep in mind that the hard core buyers (90%, bars, US Monster Boxes) represent only about 13% of silver’s overall demand. A strong economy is the best thing which could happen to this market and with the now stronger DOW and better US metrics today’s silver price might seem like a bargain after the struggling recovery moves into high gear. Also of some interest is that much of our larger than normal silver bullion position has been sold across the counter so the buying public remains interested.
Platinum was up a quiet $2.00 today at $1413.00 and palladium was higher by $12.00 at $746.00. Palladium has been on a tear lately up 13% with talk that the Russians (normally sellers) have turned buyers.
Once again Kira Brecht (Kitco) is right on the money: The Fed “Exit Strategy” Faces A Delicate Dance In the Months Ahead – “The recent volatility in U.S. stocks, U.S. bonds, the dollar and gold reveal the delicate dance the U.S. Federal Reserve must navigate in the months ahead as it embarks on its so-called “exit strategy” from the extraordinary monetary policy accommodation that we’ve seen in various forms since 2008. It is likely going to be a bumpy ride. The Fed gives some guidance, the markets react and interpret. The Fed comes back to clarify. There will be a heightened focus on economic data. Slower-than-expected numbers could delay the start of tapering. While stronger-than-expected data could speed up the pace of tapering. There are a lot of rocky waters ahead for the markets as the Fed begins its “Great Unwind.” A big slide in the U.S. dollar this past week, bolstered nearby gold futures to solid gains on the week. With gold traders firmly focused on the U.S. dollar for short-term direction, upcoming housing market data could be key for both the greenback and gold. The U.S. housing recovery has been one of the brighter spots in the overall economic recovery. But, recent comments from the Federal Reserve suggesting that tapering or a reduction of its monthly asset purchases intended to stimulate the economy have sent long-term U.S. Treasury rates and mortgage rates higher. Since mid June, the yield on the U.S. 10-year note climbed from 2.09% to as high as 2.72% in early July. That’s a big move in a short period of time, which in turn pushed mortgage rates higher as well. Gold traders looking for short-term plays and entry and exit points will want to keep a close eye on housing data reports. On Tuesday July 16, the NAHB housing market index is due for release, while Wednesday July 17 ushers in the mortgage applications report and the housing starts and building permits data. There is already some anecdotal evidence that the sharp bump up in mortgage rates was an unwelcome surprise to would-be home buyers. Jeet Dutta, economist at Moody’s Analytics noted “a sudden sharp spike in long-term rates could potentially discourage home buyers.” With the housing market finally gaining traction if a rising rate environment begins to stall that out, it could have some negative economic ramifications. There’s a lot of moving parts to the watch in the weeks ahead for the U.S. economy, the Fed and the gold market. And, it may not be a smooth ride. Gold traders participating in short-term plays need to stay finely attuned to U.S. economic data, which will drive U.S. dollar action. Bottom line? Weaker-than-expected economic news is dollar bearish, gold bullish and vice versa. Short-term gold traders need to stay nimble.”
Walk in trade and phone business remains quiet and I don’t expect much change this week as Bernanke continues to calm the waters. Thanks for reading and enjoy your evening. These markets are volatile and involve risk: Please Read Before Investing
Written by California Numismatic Investments (www.golddealer.com).