Commentary for Monday, March 23, 2015 ( www.golddealer.com) – Gold closed up $3.20 at $1188.00 on the Comex today reacting to a dollar downdraft. But I expect profit taking will soon show its hand long as traders decide a bank deposit is necessary.
The dollar directs the price of gold as usual – today’s market was again firm (4 days in a row) and Friday’s Dollar Index close was 97.74. Today we saw a trading high of 98.24 and a trading low of 96.95 – as of this writing we are looking at 97.10 so the dollar is weaker relative to Friday and trading at the lower end of its trading range today.
Everyone is watching the dollar relative to gold these days and there are as many opinions on dollar direction. The jury is still out however – until Europe really settles. Supplies of small gold bullion coins like the Swiss and French 20 Franc and the British Sovereign remain thin which might mean the Europeans are putting a few under the bed.
This from Sarah Benali (Kitco) – Four Reasons Why USD Should Move Higher – Capital Economics – “Although there are those who think the U.S. dollar is poised for a reversal, economists at Capital Economics say some of their arguments may be flawed. “There are four main arguments why the surge in the dollar may have run its course, especially against the euro, but none convinces us,” says Melanie Debono, assistant economist at the firm. “The upshot is that we still expect the dollar to rise to parity this year against the euro (from $1.07), to $1.40 (from $1.49) against sterling, and as high as 140 (from 120) against the Japanese yen,” she adds. According to Debono, one argument made against the dollar is that “differentials in economic growth may be narrowing, with the recovery in the euro-zone gathering steam,” which she says may not be true as the euro will “surely have to remain weak to support any recovery in the region.” Second, Debono says that some expect the euro to move higher, and in turn the dollar lower, because concerns over Greece are diminishing. “Even though Greek exit from the euro might ultimately be in the best interests of all concerned, the initial uncertainty and renewed fears of contagion would probably undermine the single currency further,” Debono argues. Debono also says that another argument against continued dollar strength is that markets are already positioned for further dollar strength and any unwinding of these positions may trigger a correction. “But while swings in investor sentiment might create some additional short-term volatility, we would give far more weight to the underlying fundamentals which suggest that the dollar can and should climb further,” she says. Finally, Debono notes that the recent strength in the dollar may not affect the Federal Reserve’s monetary policy decisions as many perceive. “Fed officials still expect to tighten more aggressively than the markets are anticipating – particularly next year – even after lowering their rate projections last week,” she says, adding that on a trade-weighted basis, the dollar’s strength is in line given the relative strength of the U.S. economy.”
This from the Daily Pfennig (Chris Gaffney/Frank Trotter) “The dollar continued to sag on Friday, extending what is turning into the biggest dollar decline in three years. The dollar has dropped five of the past 6 days vs. the euro as investors contemplate the next move by the FOMC. The recent dollar rally reminds me of a few years back when we would see the currencies rally each time Chuck spent some time away from the desk – we called it Chuck’s ‘vacation rally’ for the currencies and it sure looks like that pattern has returned. A couple of Fed officials helped out the ‘Chuck Vacation Rally’ by jawboning the dollar lower last week. While dropping the word ‘patience’ from the official statement, Fed members cut their interest rate projections and shared their concerns that the US economy may not be as ‘solid’ as they previously thought. Fed Chair Janet Yellen also brought the strength of the US dollar front and center by stating that the stronger greenback is contributing to weaker exports and would be a ‘notable drag’ on growth this year.
We will have a few more Fed members speaking this week including Fed Vice Chairman Stanley Fischer, SF Fed President John Williams and our local favorite St. Louis Fed President James Bullard. Investors are continuing to try and gauge when the FOMC will start their tightening, with a majority of bets still indicating a June hike but sentiment has been starting to shift toward September. But as we have pointed out in previous Pfennigs, does it really matter if Fed Funds are at .25% or even .5%? Prior to all of the ZIRP policies being instituted on a global scale, a .50% Fed Funds rates would certainly be seen as accommodative!! But investors seem less worried about the overall level of interest rates, instead they continue to focus on the divergent paths of the major central banks – the US FOMC will be moving rates higher while the ECB and BOJ continue to decrease rates.
In addition to all of the Fed speakers, the markets here in the US will be driven by a few pieces of data beginning with existing home sales which are expected to see a 2% MOM increase in February. Tomorrow we will have all of the consumer inflation data released for February with the ‘core’ rate expected to show a very slight .1% increase last month. We will also see additional information on the housing market tomorrow, with the release of New Home sales and the Markit Manufacturing PMI will top off a fairly busy data day tomorrow. Wednesday we get durable goods orders along with the Capital Goods orders. Thursday we get the weekly jobs numbers which are expected to see 290k jobless claims in addition to the Markit Service PMI and Composite PMI data. And we will end out what is a fairly busy data week here in the US with another view of GDP for the 4th quarter along with all of the U of Michigan numbers on sentiment and inflation expectations.
Greece has been out of the spotlight lately, helping to rally the euro vs. the US$ over the past few days but it looks like the markets will probably get another full dose of Greece this week. Greek Prime Minister Alexis Tsipras will be meeting with German Chancellor Angela Merkel today in Berlin. Germany is the largest contributor to the 240 billion euro bailout and I’m sure Tsipras will be floating his economic plans to Merkel in order to try and get her backing prior to presenting his government’s new roadmap to recovery to the rest of the Eurozone leaders. Greece needs to get approval of their plan in order to unlock the aid payments needed to keep their country afloat, and this approval is needed by month end (now only a week away).”
The following from Reuters is also important because it highlights an aspect of the European Union you will not see in the papers or on television. I don’t place a large amount of significance on these types of protests – but they do underline a problem which is common in Europe and the United States.
Namely that “unification” under the name of bigger capitalism has detractors. Why? Because the money split is not proportional and I am surprised this trend has not gotten more press in the US. There are billions moving toward bigger and bigger corporations and away from mainstream America looking to make ends meet.
This trend provides a tension in Europe and debt decisions like Greece hang in the balance. If Greece defaults physical gold ownership will step into the spotlight.
This from Reuters – Protesters, police clash near new European bank HQ in Frankfurt – ECB targeted in anti-austerity protests – “Anti-capitalist protesters clashed with riot police near the new headquarters of the European Central Bank (ECB) in Frankfurt on Wednesday and set fire to barricades and cars, casting a pall over the ceremonial opening of the billion-euro skyscraper.
Some 94 police officers were injured by stones and tear gas flung by a violent minority from within the 3,500 protesters, police said. Rally organizers said there were 7,000 protesters, more than 100 of whom were injured by police.
Seven police cars were set on fire, streets were blocked by burning stacks of tires and rubbish bins, and shops were damaged in the city center. Dark smoke billowed in front of the 185-metre high ECB towers and over Frankfurt.
Police used water cannon to try to make a path through the mass of black-clad protesters to the entrance of the building, blocked off from the street by barricades. A total of 550 protesters were detained. “Police were attacked with stones and spray. Due to the extreme violence we saw in the morning, we have to assume it could happen again,” a police spokeswoman said.
ECB President Mario Draghi addressed the demonstrators in his speech at the opening ceremony but said they were missing the point by blaming the ECB.
“European unity is being strained,” he said. “People are going through very difficult times. There are some, like many of the protesters outside today, who believe the problem is that Europe is doing too little. “But the euro area is not a political union of the sort where some countries permanently pay for others,” he said.
“It has always been understood that countries have to be able to stand on their own two feet – that each is responsible for its own policies. The fact that some had to go through a difficult period of adjustment was therefore not a choice that was imposed on them. It was a consequence of their past decisions.”
German leaders condemned the violence while defending the right to protest against the ECB. “No one has the right to endanger the life of police and fire officials,” Finance Minister Wolfgang Schaeuble told a news conference in Berlin.
The protest was organized by a group called Blockupy – named after the Occupy Wall Street movement in 2011. “Free caviar for everyone,” read one sarcastic banner.
“Our protest is against the ECB, as a member of the troika, that, despite the fact that it is not democratically elected, hinders the work of the Greek government. We want the austerity politics to end,” Ulrich Wilken, one of the organizers, said. “We want a loud but peaceful protest,” he told Reuters.
Blockupy says it represents grass-roots critics of supranational financial institutions including the “troika”: the ECB, the European Commission and the International Monetary Fund, whose inspectors monitor countries such as Greece and Cyprus that have received international bailouts.
The ECB is also influential as a provider of finance to the banks of struggling countries and has in recent weeks sanctioned a drip feed of extra emergency finance to Greece’s lenders. Greek Finance Minister Yanis Varoufakis last week criticized ECB policy towards Athens as “asphyxiating”, a criticism also made by the protest organizers.”
Silver closed up $0.01 at $16.87 – this most recent jump to higher ground has choked off silver bullion sales across the counter. But keep in mind that buying at today’s level is still cheap relative to old highs.
Platinum was up $3.00 at $1144.00 and palladium was down $8.00 at $770.00. There is still plenty of interest in platinum bullion even though bullion coins are not being produced in any quantity today. Platinum now $44.00 under the price of gold is the reason.
The walk-in cash trade was on the slow side today – even sleepy and so were the phones. Also a comment on our Activity Scale – the pop in these numbers over the past week has been the result of a few very large deals – million plus not the result of a large increase in smaller deals. This indicates the general buying public is still not on board and there remains some balancing from the whales. I say balancing here because all of the activity is not just the public selling – some of this rather large action is the result of trading one bullion product for another.
The GoldDealer.com Unscientific Activity Scale is a “ 5” for Monday. The CNI Activity Scale takes into consideration volume and the hedge book: (Tuesday – 7) (Wednesday – 5) (Thursday – 4) (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 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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