Commentary for Monday, Sept 29, 2014 (www.golddealer.com) – Gold closed up $3.40 at $1217.50 probably because investors are growing leery of the jobs numbers due out later this week. Pending home sales were down and consumer spending flat – so mixed signals regarding the US economy.
The problem with this whole kettle of fish is that the media can’t make up its mind what is happening – Friday and over the weekend everyone was getting out the party hats relative to a recovering US economy. The dollar was monstrous – QE was ending – and everything was just OK in River City.
Monday investors turned cautious – the dollar lost a bit of steam and gold moved higher. It is not that Wall Street does not know what is going to happen – the Fed is taking away the punch bowl in October.
This is depressing to gold – but the real question is what will happen once the financial largess is withdrawn? There are already some signs of rising interest rates – this coupled with that uncertain press I talked about defines the problem. Uncertainty – and that is supporting gold for now – whether we seriously test $1200.00 or call the bottom remains to be seen.
Conservative factions within the gold bullion market are fearful because the technical picture leaves something to be desired – but large physical players have made amazing financial commitments leading the way to new CBOT storage facilities. They are not building out because they think the market will not recover.
The big game changer is of course the return of inflation. Anything which is steady and above 3% will get plenty of attention and we will be back to the races – but some believe the hole we have dug is much bigger than most believe and don’t expect this number to rise before 2016.
Silver closed up $0.03 at $17.51 and EFT holdings of silver bullion have hit a new high (640 million ounces). I looked at a few averages on our inventory computers and found a few interesting things: first we are going through our inventory at about twice the normal rate and second – even with all the new silver bullion products the good old 1 oz silver round is king.
If you are a committed silver bullion investor study the US Mint production levels of this popular bullion coin over the past decade. Of course the famous US Silver Eagle has been in production since 1986 and one of the most popular Monster Box choices these days – but production numbers are very telling especially when you consider silver is now trading in the $18.00 range.
The US Mint claims there is no problem with sourcing raw silver for making the silver coin blanks used in the production of the US Silver Eagle 1 oz – this is true and most of the trade concedes that any slowdown in delivering the finished product is a function of coin blank production and not silver supply.
Yearly Silver Eagle Mintage 1 Oz
2014 – 31,161,000 (through September)
2013 – 42,675,000 coins
2012 – 33,742,500 coins
2011 – 39,868,500 coins
2010 – 34,764,500 coins
2009 – 30,459,000 coins
2008 – 20,583,000 coins
2007 – 9,028,036 coins
2006 – 10,676,522 coins
2005 – 8,891,025 coins
2004 – 8,882,754 coins
2003 – 8,495,008 coins
But look closely at published production numbers this past decade. Coming up on either side of 2004 the US Mint was selling about 8 million coins a year. And then the numbers jumped steadily each year into what is typical today – about 30 to 40 million coins per year – an increase in production of 500%!
We at GoldDealer.com – and this is true of most large bullion dealers – are primarily sellers of US Silver Eagles 1 oz Monster Boxes – the number we buy back from the public is much smaller than the number going into the hands of committed investors. This should tell you that the physical demand for this silver bullion product is rock solid and even with a considerable drop in prices the public is not selling.
Investor demand for this silver bullion product has increased 5 fold over the past decade and continues strong today.
A decade ago – silver bullion traded in the $4.00/$5.00 range moving steady higher and eventually topping off around $50.00 in 2011. It then traded steadily lower arriving at today’s $18.00 to $20.00 trading range. So technically this market has consolidated around the 50% mark – and most commentators agree – shortages remain and we are now selling product at under what it takes to mine it out of the ground.
If you are a complete cynic disregard the amazing $50.00 pop in prices and only consider the lower end of its current trading range ($20.00) the price of silver has moved up nearly 4 fold during this time – at the same time production was going through the roof. Anyone who thinks long term silver investment is waning should consider these statistics.
Platinum closed up $7.00 at $1309.00 and palladium was also higher – up $6.00 at $789.00. Rhodium closed down $15.00 at $1310.00.
This from FXEmpire – World Gold Council Market Analysis A Bit Misleading – Gold continues trading on the weak side as 1218.00 as the new week kicks off. Silver is not far behind at 17.485 trading in the green at the end of the week. The precious metals diverged on Friday after US data signaled a strong economic recovery. Silver was well supported on its base metal side. While the third precious metal platinum took a pill falling to a 15 month low against the strong US dollar. Gross domestic product rose at a 4.6 percent annualized rate, compared with an earlier estimate of 4.2 percent, government data showed today. The latest figure matched the median forecast in a Bloomberg survey of economists. Traders were expecting a drop in GDP after the OECD earlier in the month reduced its forecast for US growth in 2014. A measure of inflation, which is tied to consumer spending and strips out food and energy costs, climbed at a 2 percent annualized pace. Last week gold touched an eight-month low.
Investor’s interest in precious metals continued to decline this week. Holdings in exchange-traded products backed by platinum are at a four-month low after expanding to a record in July. Gold and silver also fell this week.
The World Gold Council is out pushing its new report that shows increased demand for gold will continue to expand even though the economic crisis and political turmoil is behind saying that gold is no longer just for safe havens. The report fails to mention that most gold buying will be for jewelry as personal consumption of precious metals has been at an all-time low during the financial crisis and that pent up demand for gold in gifts and jewelry will come from increased incomes and consumer confidence, but this increase in purchases will be short term. The new analysis,” says the Council, presenting Professor Persaud’s findings, “shows that a 1% increase in GDP lifted jewellery consumption by an average of 5%, all else equal.” Because “gold jewelry is what economists refer to as a ‘superior’ good,” says Persaud, “where demand increases proportionally more than income.” The same 5:1 relationship applies to electronics demand compared to GDP growth, too.
Although gold investment demand is “much smaller” than jewelry buying, however, “shifts in investment demand can be large and play a critical swing role in the market,” Persaud cautions. Gold investment, agrees the World Gold Council’s commentary, “can exert strong pressure on prices over the short (and potentially medium) term.
This is from Ronan Manly and Mark O’Byrne (GoldCore) – Death Of ‘Safe Haven’ Gold Greatly Exaggerated – “In September 2008, during the financial crisis, the gold price rose $50 in one day, September 18, as investors sought refuge in the one asset that they perceived to be a safe-haven of high liquidity and high credit quality. This one day move in September 2008 was the largest one day move since February 1980.
Back in late 1979 and early 1980, some of the key drivers that propelled the gold price higher were the Russian invasion of Afghanistan and the Iranian hostage crisis. Just looking back at old newspaper gold market commentaries in 1979 and 1980 will highlight that a lot of the key drivers for the rise in the gold price at that time were geo-politically related.
Today, the world appears to be as uncertain if not more uncertain. Indeed, in 1980 there was little risk of terrorism – state sponsored or otherwise.
In the late 1970s and early 1980s, the gold futures markets did not have nearly as large an impact on the world gold price as they does now, and the gold price was primarily driven by physical demand for gold, a lot of which was Middle Eastern and Asian demand.
The concept of unallocated gold accounts in the London market was in its infancy and was only being discussed by the five gold fixing bullion banks as a security issue in not having to move gold shipments around London so often. The practice of having unallocated gold not fully backed by allocated gold was not encouraged at that time.
Fast forward to today, and the ‘flight to quality’ and ‘financial insurance’ characteristics of gold should in theory be as important now as they were in 1979-1980 given similar invasions and occupations in various countries, not least in the Middle East with ISIS, and the renewed bombing in Syria/Iraq by the US and/or a US coalition.
Coupled with these worsening geopolitical developments, global macro economic risks remain elevated, with official interest rates at historically low levels, continued central bank balance sheet expansion through quantitative easing programs, and continued fiat currency debasement in the US dollar, Euro and other reserve currencies.
Inflationary risks therefore remain at the forefront. But at the same time, the gold price barometer is not signaling these inflationary risks either. The key driver of the gold price at the moment is perceived to be the relative strength of the US dollar, yet the US dollar is only stronger compared to the other main currencies because these currencies, such as the Euro, are weak due to their economies remaining weak and their money supplies having been debased.
The economic recovery in the US is tentative at best. With the current weakness in the gold price, there is a growing cacophony that the safe haven qualities of gold are no longer relevant. Indeed, some in the financial markets are saying that the current gold bull market is dead.
It would appear to us that the factors that would make gold a safe-haven asset have not gone away. In fact these factors are strengthening, as described above. The only rational explanation appears to be that gold remains an investment safe-haven as it has always done, but that this is not yet being recognized by the price discovery process in the market.
Adding in the fact that there is a continued disconnect between, on the one hand, the global physical gold market primarily driven out of China and India, and on the other hand, the New York gold futures market and unallocated London bullion market on the other hand, then this disconnect should not be expected to persist over the medium term. This is especially the case given the heightened geopolitical and macroeconomic risks.
With the gold price not yet signaling the geopolitical and macroeconomic alarm bells that many would have expected it to, the question of gold price manipulation remains a valid question. Recent gold price manipulation by an investment bank for commercial reasons has been established in the case of the successful prosecution against Barclays by the FCA regulator.
For strategic reasons, central banks do not welcome a disorderly increase in the gold price because it makes their fiat currencies look vulnerable and adds to inflationary expectations. It is therefore not unrealistic to think that some of the current gold price weakness may be related to nonpublic gold market interventions by some of the world’s central banks such as the Federal Reserve and the ECB, perhaps under the auspices of the Bank for International Settlements (BIS).
There is plenty of documentary evidence to suggest that the G10 central banks have historically discussed the gold price during their regular meetings and they also are very cautious on allowing more recent document releases through freedom of information requests.
For different reasons, the Chinese government welcomes a low gold price since it allows China to continue to accumulate gold in large quantities. Even if this accumulation of gold by China is being done for other reasons, it does act as a way of hedging China’s exposure to its vast holdings of US dollar denominated Treasuries. Time will tell if this has been China’s strategy.
Most markets these days are being manipulated. Therefore it seems very possibly that the gold and silver markets are too. This could be one of the factors in the precious metals surprisingly poor performance in recent weeks despite significant geopolitical and indeed economic uncertainty.
The Middle East is a powder keg that seems likely to explode. The U.S. and western nations have taken a hard stance against an increasingly powerful Russia. This is effecting an already fragile Eurozone and other economies. Brinkmanship and a failure of diplomacy has brought the world close to a serious military conflict.
Gold has protected wealth throughout history from financial crises and war. We believe it will continue to do so in the coming years
It is very likely that tensions will lead to safe haven demand for gold and higher prices. An economic war has broken out between major world powers and the historical record shows that sanctions and protectionism tend to lead to military confrontation and war. Everybody should own some physical gold as a hedge and a safe haven asset to protect against the significant risks challenging us today which include bail-ins, currency wars, terrorism and war.
The contention therefore is that, for now, the death of safe haven gold has been greatly exaggerated. Gold is a hedging instrument and a safe haven asset as seen in history and much academic research in recent years. That is not apparent in recent weeks but we believe it will be in the medium and long term.”
The walk-in cash business was steady – no waiting but busy enough to keep everyone running downstairs. The phones were also relatively busy – look at the Activity Scale over the past week – the number 5 appears often – that is a solid average.
The GoldDealer.com Unscientific Activity Scale is a “5” for Monday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Tuesday – 5) (last Wednesday – 5) (last Thursday – 5) (last Friday – 5). 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 – perhaps a week or two. 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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Our four flat screens downstairs with live independent pricing (BullionDesk.com) are a big hit with the cash trade. Live pricing moves all the buy/sell product prices on a real time basis. Yes – you can visit the store with cash and walk away with your product. Or you can bring product to the store and walk away with cash. When buying from us remember if you exceed $10,000 in cash (the real green kind) a Federal Form is necessary.
In addition to our freshly ground organic coffee offered visitors throughout the day we have added cold bottled water, cokes and Snapple. We have also added fresh fruit in a transparent attempt to disguise our regular junk food habits.
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