Commentary for Monday, Nov 10, 2014 (www.golddealer.com) – Gold closed down $10.00 at $1159.60 and traded as low as $1155.00 before turning around to finish a bit on the disappointing side considering Friday’s big move higher.
Gold has fallen about 16% from its early March high this year – so it remains weak but not out of the game when you consider dollar strength – still the gold held by Exchange Traded Funds is at its lowest level in 5 years. But let’s also put that in perspective – they are down 38% from their peak in 2012. Considering the ease of getting in and out of these funds – numbers like these suggest there are more longer term players than I thought at one time.
The strong equities market is also a big drag on the physical market. Cheap money continues to fuel Wall Street and it’s difficult to make a short term case that your money is better off in gold than in stocks. There are some big short positions being held in stocks these days but this is a fool’s errand – and as long as stocks remain strong gold will remain capped.
The Chinese and Indians are still buying gold and likely to accelerate purchases at these new lower levels. This is a bigger factor than most believe because of the nature of both countries. Americans own gold because they believe it might eventually make them some money – the cultures of China and India own gold because – to them it represents real money. The more physical gold they own the higher their stature and the more secure they feel – because they have little control over their political reality.
Mining costs is the other big factor that will eventually work in gold’s favor. Many operational gold mines are now losing money – Bloomberg offers the following: they looked at 19 major mining companies – 7 claim the current price of gold does not cover their operating costs and 2 are within $50.00 of breaking even. This would indicate that about half of the world’s gold mining companies may be slowing down – some perhaps even closing if the price of gold continues to move lower.
One of the interesting things I noticed about gold lately is that a few writers are daring to claim the bottom may be in sight. So while real gold commentary is still largely negative – there seems to be some that believe the worst may be behind us.
I said that the technical picture for gold has been weak for ages – we do see some bounces to the upside but these are short lived. The last break down happened around $1200.00 and so I expect we will eventually see a trading band between $1050.00 and $1150.00. Today’s failure to move higher simply reinforced that neutral to negative commentary. This market is continuing to unwind but we could very well be approaching a bottom.
Silver closed down $0.05 today at $15.65. The US Mint’s announcement that 2014 US Silver Eagles production has ceased sent everyone scrambling. I don’t know why – this always happens and the Mint continues to gin out millions of these coins each month. Who cares if the date is 2014 or 2015 or back dates? The Australian Mint produced 1,000,000 Silver Crocodiles and is now sold out – we still have coins at spot plus $2.60 so why chase higher silver bullion premiums?
Platinum was down $6.00 at $1206.00 and palladium was also down $6.00 at $766.00.
Have you ever wondered if Exchange Traded Funds are a good barometer of what the public has in mind relative to the price direction of gold? Reuters – SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings fell 0.41 percent to 732.83 tonnes on Thursday, a six-year low.
The Exchange Traded Funds are a relatively new way to buy and sell physical gold. Granted they have their detractors who remain leery as to whether there is enough real gold within the fund. This is silly – these are large corporations with legal coverage and audit trails enough to choke a horse. The real gold is there and the coming and going is tracked carefully because 732 tonnes of gold needs a great deal of watching. But for the record the GLD and SLV prospectus allow for fractional reserves.
But that is not my point – I think the Exchange Traded Fund is not all bad but in the end is a poor substitute for the real thing. The personal possession factor is gold’s biggest positive factor regardless of price.
The funds are also sold to some as a cheap way of buying and selling. This is true but is also a facetious argument – the spread between real bullion products is cheap and major dealers include shipping so the cost of ownership is small.
I also appreciate the attention shown to fund holdings by commentators who want to make a directional price argument. Granted this makes some sense – after all if the funds are all moving higher you could conclude the general public is buying and if the funds are moving in the opposite direction – perhaps the public is selling.
Given there is little else to look at which would indicate physical buying and selling activity. There are no reliable statistics that I am aware of which will tell you whether your next door neighbor is buying more gold or selling what he already owns.
Of course there are plenty of statistics from reliable sources like the World Gold Council which will outline Central Bank action – which is big – but very different in nature to what the average coin dealer sees across the counter – so what about all the other smaller but substantial private buying or selling?
I have made this point before but let me repeat that we sell a large amount of gold bullion. And there are many legitimate bullion dealers like us which do the same thing. All of them will tell you that they sell much more than they buy. So another question over your morning coffee: where is all this over the counter gold going within the United States?
Finally my last comment about the gold exchange traded funds – are they really an indicator of price direction? If you think about it – the funds might be less a good indicator of future price direction and more just a surrogate to the already ridiculous paper traded gold futures forum.
This from Eric McWhinnie (The Cheat Sheet / USA Tdoay) – China hoarding gold to challenge U.S. dollar? – In a world filled with fiat currencies, how important is gold’s role in the financial system? Proponents often view the precious metal as a hedge against economic chaos, while critics typically claim gold is hardly more than an unproductive rock. Interestingly, some countries appear to believe gold is quite important, and one former Fed chair explains why.
Alan Greenspan, who served at the helm of the Federal Reserve for nearly two decades, recently penned an op-ed for the Council on Foreign Relations discussing gold and its possible role in China, the world’s second-largest economy. He notes that if China converted only a “relatively modest part of its $4 trillion foreign exchange reserves into gold, the country’s currency could take on unexpected strength in today’s international financial system.”
Greenspan also believes the downside risks for China stockpiling gold are limited, at least from a pure investment point of view. “It would be a gamble, of course, for China to use part of its reserves to buy enough gold bullion to displace the United States from its position as the world’s largest holder of monetary gold,” he wrote. “But the penalty for being wrong, in terms of lost interest and the cost of storage, would be modest.”
The People’s Bank of China has not formally disclosed any changes to its gold holdings in years, but it’s believed that the central bank is purchasing gold to diversify its reserve holdings. In 2009, China announced that it boosted its gold reserves by 454 tonnes via acquiring gold quietly over the previous five years. That represented an impressive 76 percent increase in gold reserves. Today, China still shows that it holds 1,054.1 tonnes in reserves, but it’s speculated by analysts to actually have around 2,000 to 3,000 tonnes.
Some market participants also believe China is building up its gold reserves to challenge the U.S. dollar, which is currently the world’s reserve currency. A few years ago, China’s official news agency, Xinhua, said, “International supervision over the issue of U.S. dollars should be introduced and a new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country.”
Gold already plays a significant role in China’s economy. In 2013, China’s gold consumption surged 41 percent year-over-year to 1,176.40 tonnes, exceeding 1,000 tonnes for the first time on record, according to the China Gold Association. Demand for jewelry was the biggest contributor, with an increase of 43 percent to 716.50 tonnes, while bullion demand rose 57 percent to 375.73 tonnes. China is the largest gold consumer and producer in the world.
China faces an uphill battle if it’s going to challenge America’s gold stockpile. According to the most recent data from the World Gold Council, the U.S. holds 8,133.5 tonnes of gold, representing 71.8 percent of reserves and the most held by any one country in the world. Furthermore, a behind-the-scenes look from Greenspan reveals that the U.S. is not likely to sell its gold stash anytime soon.
“In 1976, for example, I participated, as chair of the Council of Economic Advisers, in a conversation in which then U.S. Treasury Secretary William Simon and then Federal Reserve Board Chair Arthur Burns met with President Gerald Ford to discuss Simon’s recommendation that the United States sell its 275 million ounces of gold and invest the proceeds in interest-earning assets,” said Greenspan. “Whereas Simon, following the economist Milton Friedman’s view at that time, argued that gold no longer served any useful monetary purpose, Burns argued that gold was the ultimate crisis backstop to the dollar. The two advocates were unable to find common ground. In the end, Ford chose to do nothing. And to this day, the U.S. gold hoard has changed little, amounting to 261 million ounces.”
The walk-in cash trade was again busy. The phones were also a challenge – it’s a good thing gold was soft today because it it was not this place would be a zoo.
The GoldDealer.com Unscientific Activity Scale is a “7” for Monday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Tuesday – 8) (last Wednesday – 8) (last Thursday – 4) (last Friday – 7). 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 very busy and see a low number – or be very 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.
Email confirmation using a PDF File when buying or selling is functional. It also includes the various forms of payment and includes bank wire instructions. And you can now see your actual invoice or purchase order on your computer screen.
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