Commentary for Friday, April 17, 2015 – Gold closed up $4.90 at $1202.90 on the Comex today – looks like light safe haven buying because of troubles in Greece, Iran, Russia and Yemen.
In the old days a slate like that would have been worth $50.00 easy to the upside – today it creates a yawn and a few bucks.
Numbers released today like the Consumer Index and Consumer Sentiment were not that bad but the reaction was negative – how about this headline – DOW Wipes Out 2015 Gains.
Still a great deal of confusion on interest rates – the Federal Reserve remains split on when to raise rates – this rattles gold. I’m sticking to my guns – not this summer as prescribed by some but there will be a small rate increase by our last quarter.
And if I am wrong it won’t matter because the rate increase will have already been figured into the price of gold. I am becoming more convinced that the real indicator of price direction will be a combination of dollar strength and real overseas physical demand. US demand for real bullion products will be thrown into the pot as a sweetener.
The dollar continues to be the big driver relative to the price of gold. The Dollar Index today was relatively steady for a few hours on the open around 97.70 then dipped suddenly to the 97.00 level. Within an hour the Dollar Index recovered all of its losses and was steady again around 97.59.
Considering that gold moved from $1198.00 to above $1205.00 overnight in Hong Kong and then flattened out at the higher end of its small trading range I would suggest the dollar is influencing the price of gold today but other factors are at play. There has to be some safe haven buying in Europe – perhaps because of the Greek scare.
And there is some small amount of optimism in the trading ranks – gold could actually move higher next week according to Kitco survey participants. Still this market looks lethargic – it seems happy enough at the current higher trading levels but may still be looking for a big reason to break one way or the other. So the usual admonition remains – be patient. Until gold breaks above $1220.00 we are still just playing around – wondering what the Fed will do.
Silver closed down $0.04 at $16.22. It’s also just playing around at these levels – what silver needs right now is something which will overpower this tag team match between it and gold. There is little in the way of fresh information and the physical market has lost its buzz because prices are once again not seen as cheap enough.
Platinum closed up $8.00 at $1188.00 and palladium was higher by $3.00 at $782.00. And rhodium spot has recently dropped to $1135.00. Platinum is $36.00 less than gold making for a nice trade if you are so inclined and keep in mind that platinum is more an industrial metal than a known physical investment choice – the public still does not get platinum bullion. If they did platinum would be over $2000.00 an ounce. The reason platinum has fallen from grace is the worldwide economic slowdown.
Our Patented Employee Survey – Gold’s Direction Next Week?
Of course it’s not really patented but we do have some fun along the way. This is what the GoldDealer.com employees think – 6 believe gold will be higher next week – 3 think gold will be lower and 3 believe it will be unchanged.
Our Patented Customer Survey – Gold’s Direction Next Week?
Like the employees our customers were given three choices – up – down – unchanged. We limited the survey to a random sampling of 100 transactions – unscientific but worth considering because these people took action: 39 people thought the price of gold would increase next week – 45 believe the price of gold will decrease next week and 16 think prices will remain the same.
Precious Metal Closes & Dollar Strength – April 13 – April 17
This from Zero Hedge – LSE’s Lord Desai Warns: Gold-Backed SDR Is Quite Likely to Happen – Tyler Durden: “As many are increasingly coming to terms with the ‘obvious failure of fiat currency’, the inevitable question arises “what next?”
Earlier this year, we discussed the possibility of a Chinese- or Russian-currency backed by gold, amid the increasing calls (domestically and abroad) for an end to USD Reserve hegemony; but this weekend, as Bloomberg reports, Lord Meghnad Desai, chairman of The Official Monetary and Financial Institutions Forum, stated that IMF Special Drawing Rights (SDR) should contain some gold to help stabilize the currency.
As Bloomberg reports, “A bit of gold” could help stabilize SDRs, Lord Meghnad Desai, chairman of Official Monetary and Financial Institutions Forum, says at precious metals conference in Dubai.
“We could ask that gold be nominated as part of the SDR. That is one thing I think is quite likely to happen”. This will be easier if China increases its official gold holdings.
The Coming SDR Gold Standard – Sometimes what at first appears to be conflicting information is anything but, and what was originally considered to be opposing forces or ideals can quickly become unified for the greater good.
There has been much discussion and division over whether the world was moving towards a multilateral super-sovereign reserve currency by way of the Special Drawing Right of the International Monetary Fund or towards a new gold standard by which all currencies would be valued once again on gold.
Positions have taken up defense on both sides and all waited to see which side was going to be right. Were the BRICS countries going to overthrow the western banking cabal? Was the US dollar going to inflate into oblivion? Was the SDR going to become the new reserve currency? Was a new gold standard going to be implemented instead?
So many questions with no clear outline or determinations on what exactly was going to happen.
I have contested all along that the SDR was going to become the super-sovereign reserve currency of the emerging multilateral financial system. The supporters of a new gold standard have found this idea unworkable because gold is considered to be the only method of creating stability within the larger architecture of the global financial system.
But what if everyone is right? Or more correctly, what if all the obvious points and leverage of each potential system can be utilized to create the larger macro stability from which the multilateral will inevitably emerge?
In the post Renminbi is Already a De Facto Reserve Currency, I discussed how the Chinese currency was being internationalized and would be added to the SDR basket valuation.
This basket is currently made up of four currencies, being the US dollar, the Japanese yen, the Euro, and the British pound. Adding the renminbi to the basket is both important and necessary for any changes to the global financial architecture.
But this theory has never accounted for the importance obviously placed on gold and the manipulation and mass movement of the precious metal which has taken place over the last few years. No doubt the gold moving east has a lot to do with balancing old sovereign bond debts and building up reserves to support the renminbi denominated contracts which have just begun at the Shanghai Gold Exchange.
But this doesn’t fully explain the demand by other countries for gold, such as Russia and India, or even Germany demanding its gold back from the United States. But neither does a gold standard fit the facts as all participating countries and economies have stated in official publications and speeches that a new gold standard is unworkable and the SDR provided the best opportunity moving forward to balance the financial structure of the world. I have attempted to explain and describe how the BRICS countries are aligned with the larger macro mandates of the SDR multilateral system and do not plan on overthrowing the western banks. It is in fact a situation where the western and eastern banks are all controlled by the Bank for International Settlements.
It is interesting that over the last few days even certain conspiracy theorists which have been promoting the overthrow of the western banking cabal are now stating that the BIS and its central bank system will remain.”
I am either getting old or these back and forth markets are making me punch-drunk – read this Benali post and ask a question: in all the years the Federal Reserve was pushing quantitative easing they were at the same time saying that when the crisis was over they could reverse the process. Is Bernanke (who I have great respect – without him the financial collapse could have happened) now saying the $4.1 trillion makes no difference – pay it back or not?
This post from Sarah Benali (Kitco) – Large Fed Balance Sheet: How Bad Could It Be? – Ben Bernanke – (Kitco News) – One of the consequences of the 2008 financial crisis was that it forced the Federal Reserve into expanding its balance sheet, and that is not necessarily a bad thing as the central banks prepares to normalize its monetary policy, according to one former chair, turned blogger.
In his latest editorial on the Brookings Institute website, former Fed chair Ben Bernanke argued that although the central bank’s reserves are not expected to fall back to pre-crisis levels, it should still be feasible for the Fed to unwind its balance sheet and return to using interest rates as its primary monetary policy instrument.
“The principal objection to a permanently large balance sheet financed in part by a reverse repo program appears to be a concern about financial stability. The worry is that the availability of reverse repos would facilitate runs,” Bernanke said in his option piece.
He added that concerns about unwinding quantitative easing are misplaced, “in that the Fed’s ability to tighten monetary policy at the appropriate time will not require that it sell assets or rapidly reduce the size of its balance sheet.”
According to Bernanke, arguments made against a large balance sheet can be countered by just taking note of a few observations.
“First, the overall increase in liquidity in the financial system that would be the result of a larger Fed balance sheet would probably itself be a stabilizing factor, so that the net effect on stability is uncertain,” he argued.
“Second, if private-sector entities ran to Fed liabilities, there are actions the Fed could take after the fact to mitigate the problem, including not only capping access to reverse repos but also recycling liquidity, for example, by increasing lending to banks (through the discount window) or to dealers (through repo operations),” he added.
Bernanke also noted that runs can happen regardless of whether the reverse repo program exists, as seen during the financial crisis.
He said a more direct way to minimize the risk of or incentive for runs is through “regulatory action,” adding that although runs are a major concern, getting rid of the Fed’s repo program “alone seems an inadequate response.”
Bernanke even questioned whether or not the case for keeping the balance sheet larger than before has been adequately explored, and argued that a Fed with bloated reserves should not affect the Federal Open Market Committee’s ability to change monetary policy stances as needed.
“[A] potential advantage of a large balance sheet is that it facilitates the creation of an elastically supplied, safe, short-term asset for the private sector, in a world in which such assets seem to be in short supply,” he argued, adding that the Fed was created, in part, to provide “an elastic currency.”
“Although reserves in the banking system are not expected to return to pre-crisis levels for some years, the Fed has a number of instruments—including its authority to pay interest to banks on their excess reserves, as well as the ability to offer reverse repurchase agreements that effectively allow nonbanks to deposit at the Fed at a fixed interest rate—that should allow it to manage short-term interest rates effectively,” he explained.
The former central banker noted in his blog that he is not trying to make suggestions as to how large the Fed’s balance sheet should ultimately be, but rather simply to open the topic up for discussion and “encourage further public debate.”
Aside from being a distinguished fellow in residence with the Brookings Economic Studies Program and its Hutchins Center on Fiscal and Monetary Policy, Bernanke was appointed Thursday as a senior advisor to Citadel. Bernanke served as Fed chair from February 2006 to January 2014.
The walk-in cash trade was average and the phones were typical of this week’s action – not dead but not much buzz considering the large political and economic shifts right under our noses. This market may just be tired and looking for a place to rest.
The GoldDealer.com Unscientific Activity Scale is a “ 2” for Friday. The CNI Activity Scale takes into consideration volume and the hedge book: (Monday – 4) (Tuesday – 5) (Wednesday – 2) (Thursday – 2). 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”.
Our “activity” is better understood from a wider point of view. If the numbers are generally increasing – it would indicate things are busier – decreasing numbers over a longer period would indicate volume is moving lower.
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