Commentary for Tuesday Oct 1, 2013 – Gold closed down $40.50 to $1286.00 over a number of factors including the beginning of the federal shutdown. What was interesting today is the confirmation that markets tend to move in the direction that surprises the biggest number of participants.
So much for the “safe haven” crowd who figured a government shutdown would be good for the metals. It is significant that gold closed just above the August 6th low ($1283.00) and it was also interesting that recent big gold buyer China is quiet and enjoying a week-long holiday.
Silver closed down $0.53 at $21.12 which still seems in cheap territory and we did see some sales of $1000.00 face 90% bags so reduced premiums count. The US Mint announced there would be no interruption in their deliveries as a result of the shutdown so they are getting their required funding somewhere (maybe they can just make more money and don’t need Congress).
Platinum closed down $27.00 at $1383.00 and palladium was down $8.00 at $718.00. Both GM and Ford are doing great and can’t make cars fast enough so why is platinum lagging especially with unresolved mining problems?
The drop in gold prices was substantial and probably the combination of two factors: (1) The falling market was severe enough that it set off further computer sell orders and created a “pile-on” or panic result (All overdone in my mind but it is what it is and so without significant follow through Wednesday I expect a short-term bounce in prices); and (2) There is the idea that this sell-off created a deflationary whiff on the trading floor driven by the notion that a government shutdown would stop or at least slow down federal funding. I think this is nonsense but paper traders can operate in the metaphysical realm and their senses are sometimes subject to complete abstraction so do not discount any rumor real or imagined.
Gold was steady in overnight trading, but when the US actually began to close services over the Republican gambit used to derail health care funding, commodities in general headed lower and gold followed.
I actually place less emphasis on this reasoning than most because if you look at the broader technical picture in gold this market was just looking for a reason to head lower and up jumped the so-called funding crisis.
A government shut-down is not the end of the world but it is expensive: According to the Huffington Post Business “The price of political incompetence? About $300 million per day. That’s how much a government shutdown will cost the U.S. in lost economic output, according to an analysis from IHS Global Insight. As Bloomberg notes, that’s less than a fraction of a percent of nation’s $15.7 trillion economy, but it’s not an insignificant amount of money.”
But on October 17th a much bigger problem presents itself: the debt ceiling. This of course creates more tension because theoretically the government could default but this result is nonsense. I don’t want to sound glib but the US creates money out of thin air so creating more by increasing the debt ceiling is no big deal regardless of what our Congressional friends have to say.
And how did the public act to lower prices in gold? The phones rang off the hook beginning at 8:30 California time and remained steady all day so cheaper prices in gold finally created a big pop in demand. My unscientific survey of actual customers found virtually no sellers and buyers were of every stripe and size. No particular whales but solid 6 figures and lower prevailed so cheaper prices are good in the physical world.
According to Reuters – “China’s central bank is planning to increase the number of firms allowed to import and export gold and will also ease restrictions on individual buyers of the precious metal, according to a draft policy document issued on Monday.”
Does this sound interesting to anyone concerned with what China and India might be doing in the physical market?
This comment from a reader is encouraging: “Wow, maybe I am becoming kind of a “kook” in my old age. I am 66 and have been fully retired for 3 years. I absolutely believe that our American dollar is going to fail. I also believe that the Chinese are going to make a run at making the yuan the world reserve currency. When I was a kid we were very poor. Now I am comfortable. A couple of times a month I trade paper currency for silver and gold. I just do not see much risk in having 15% or 20% of your net worth in physical gold and silver. For me, I am just trying to protect my life style in case the dollar fails, and the United States does in fact admit that we cannot repay our debts. I have received very good service in buying gold and silver from your firm. Thank you. SR”
This is the type of buying which makes the most sense to me because this fellow makes 4 important points: (1) The Chinese are making a run at something which involves gold. (2) He regularly trades paper for gold. (3) He does not see much risk with up to a 20% position. (4) He receives good service. All of this is straightforward so no tricks or pressure selling or overpriced junk disguised to be in your best interest. Simple and a great investment comment in dangerous financial times.
Both walk in cash business and phones were buzzing today but the pace was not hurried. I suspect this drop in prices caught everyone by surprise and many will be watching carefully for tomorrow’s action. My almost famous LA Physical Business Number is as follows (note the change to a running weekly tally): (Mon: 3 – Tues: 5). For those who have asked this scale is based on combined volume numbers and anything over “5” is relatively busy.
Phase One of our new golddealer.com web site will soon be complete and includes a new look along with live pricing. It will also include Live Chat and you will be able to set up your own customer account. Look for further interface improvements before year end which make accounting, shipping and tracking easier (check to see if we have your email in the new system).
If you visit CNI in person look for the new flat screens with live feed and graphs (gold, silver, platinum and palladium). This will drive our bullion products and we have programmed the premiums on each line to make your choices easier and cash is always available. Like us on Facebook and follow us on Twitter @CNI_golddealer. 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).