Gold Higher – Improving Technical Picture/Momentum Interest

Gold Higher – Improving Technical Picture/Momentum Interest

Commentary for Monday, Feb 1, 2016 ( – Gold closed up $10.60 at $1127.40 on the Comex today. The overnight Hong Kong and London markets were quiet but the domestic trade firmed. Still this is the highest close of 2016 so the “New Year Surprise” (the fact that gold had a pulse in a crisis) remains alive and well as we are now about $70.00 above recent lows – a good place for some profit taking.

So gold continues to bid well in a world with financial problems – even as the Dollar Index remains strong – we closed Friday at 99.65 after a move to the upside which began on Thursday. We moved from 98.50 to almost 100.00 and then sold off into the 99.12 range. I think that the dollar will remain strong even though there is little chance of another rate hike because the world financial markets are still tense.

The big question here is whether this firmness in gold can be maintained – remember there is a great deal of overhead resistance between $1120.00 and $1180.00. The good point technically is that gold continues to press the above $1100.00 area – probably the result of financial weakness in China and the fact that the European Union is struggling.

Everyone is claiming safe-haven demand and there is some of that to be sure but I suspect not to the extent that everyone wants to believe. Gold has regained some of its luster in that it is beginning to once again act like a safe-haven but it’s too early in this cycle to get excited. The reason being is that the US and world economic machine is not in as bad a shape as gold pundits would have you believe.

We are a far cry from the 2008/2009 financial crisis which pushed the price of gold to new highs and the theory that the current world’s spending binge is about to bring the roof down in places like China is just that – a theory.

Let’s compare today’s healthy close in gold ($1127.40) to the moving averages – 50 DMA ($1081.00) – 100 DMA ($1106.00) and the 200 DMA ($1131.00). So it’s easy to see we have moved past the 50 and 100 DMA but still must show muscle to challenge the 200 DMA ($1131.00).

Also helping gold’s world image is the notion that central banks have no problem with negative rates. The expectations that central banks are staying with policies of easy money and monetary
expansion should not be forgotten even though they have been at it since 2008. I pointed out Friday that Japan has even moved into negative rate territory.

So I’m encouraged that the short-term picture continues to improve – but I’m concerned that the over the counter physical market is not more robust – finally the ethnic trade has disappeared – this always happens when the local cash trade thinks the market will correct.

Silver closed up $0.10 at $14.33 in quiet trading.

Platinum closed down $4.00 at $868.00 and palladium closed up $4.00 at $501.00.

This from Greg Robb (MarketWatch) – Bernanke says Fed likely to add negative interest rates to recession-fighting tool kit – The Federal Reserve should consider using negative rates to counter the next serious downturn, said former chairman Ben Bernanke in an interview with MarketWatch.

“I think negative rates are something the Fed will and probably should consider if the situation arises,” Bernanke said in the interview last month.

Former Fed Vice Chairman Alan Blinder urged the Fed during the financial crisis to set negative interest rates for overnight deposits — essentially charging banks a fee to park funds at the central bank.

Blinder argued this would force banks to find more productive uses for the money.

Bernanke and his colleagues opted not to push interest rates below zero, worried that the costs outweighed the benefits. In particular, there was a concern that money-market funds wouldn’t be able to recover management fees.

‘The scope for negative nominal rates is fairly limited.”

But experience in Europe has shown this fear was unfounded.

In the region, the European Central Bank, the Swiss National Bank and the central banks of Denmark and Sweden have deployed negative rates to some degree.

For instance, earlier in December, the ECB cut its deposit rate to negative 0.3% from negative 0.2%.

Bernanke said he was surprised by how negative rates have been able to fall in Europe.

Bernanke suggested negative rates can’t be the Fed’s primary tool to combat a recession.

“The scope for negative nominal rates is fairly limited,” he said.

At some point, people begin to hoard cash, which has a zero interest rate, he noted. And quirks in the U.S. financial system also limit the utility of negative rates, he said.

Bernanke said he hadn’t heard anecdotes of ordinary people being affected in Europe, as personal checking accounts are not paying negative rates.

This from Neils Christensen (Kitco) – Despite Support, No Political Will In Republican Party to Create A Gold Standard – Analysts – Although there has been early support from some Republican candidates to put the U.S. monetary policy back on the gold standard, many analysts say there isn’t the political will to make this a major issue during the 2016 election.

Monday, Iowans cast their vote in the first primary election to nominate their candidate to run for President late in the year. The Republican field is fairly wide with 12 candidates on the ticket in Iowa. Of the 12 candidates, the idea of moving back to a gold standard has been supported by five;, Senator Ted Cruz, Senator Rand Paul, Dr. Ben Carson, Arkansas Governor Mike Huckabee and New Jersey Governor Chris Christie.

Second place in the polls, Cruz has been the most vocal noting, during the October Republican presidential debate, that the Fed should be focused on “sound money and monetary stability, ideally tied to gold.”

In the same debate, Huckabee said that the dwindling middleclass is the result of the U.S Fed “manipulating” the dollar. “What we need to do is to make sure that they tie the monetary standard to something that makes sense, rather than to their own whims,” he said.

Christie raised concerns about the impact the Fed’s extraordinary money printing will have on the economy while Carson has noted that the value of the U.S. dollar is based on nothing.

Paul has been a long-time supporter of changing the current U.S. monetary policy. In an interview with Kitco News, in 2013, Paul said that he would like to establish a commission to study the possibility of establishing a new gold standard. Paul also introduced a bill to audit the Fed, which the senate rejected at the start of the year. His father, Rep. Ron Paul and also a former presidential candidate was a big advocate of returning to a gold standard.

However, since the October debate, candidates have been fairly mum on adopting the controversial monetary policy as many economists have lambasted the suggestions. In December the L.A. Times published a commentary by Michael Hiltzik who said it was the worst idea in the debate.

Even some economists who support the idea of adopting a new gold standard don’t see it happening any time soon.

Keith Weiner, president of the Gold Standard Institute USA, and CEO of Monetary Metals said that a gold standard would help to create stable interest rates and financial system, which would promote economic growth. However he added that the political reality does not support a shift in the current monetary system, he said.

He explained that loose monetary policies is helping to promote higher equity markets, creating the illusion of wealth. Nobody in any political party wants to change the system “taking away the punch bowl,” Weiner said.

“I don’t think the gold standard will be a major election issue this year,” Weiner said. “But I don’t think the idea is going away. This will only become a bigger and bigger issue as people have started to see the long-term impact of aggressive money printing.”

Mark Skousen, author of Economics of a Pure Gold Standard, agreed he doesn’t expect the topic of a gold standard to be very popular this year as flexible monetary policies will be needed to fight deflationary forces in the economy. Skousen also questioned the stability of a gold standard as the market has become a lot more volatile.

“Commodity prices are inherently unstable,” he said. “They are subject to boom and bust cycles.”

He explained that gold’s historic role has been a hedge against rising inflation, but that isn’t a factor at the moment as inflation pressures remains weak as a result of lower energy prices.

Instead of implementing a gold standard, one idea that Skousen suggested was to have a gold target, not an actual gold standard. He explained that along with having an employment target and an inflation target, the Fed can promote currency stability with a gold target, adjusting their policy to trade within a band against gold or silver.

“If gold rising sharply against your currency then your monetary policy is too loose and if it’s collapsing then your monetary policy is too tight,” he said.

Although the idea of returning to a gold standard could ultimately be a pipedream, the topic is expected to crop up during the election campaign. Jeffrey Christian, managing director of New York- based CPM Group, said that he could see the proposal of reestablishing a gold standard make it into the Republican party’s official platform, similar to the proposal that was included in its 2012 platform. But he also said that doesn’t see the discussion going much further than being an idea on paper.

Christian added that there are a lot of misconceptions about a gold standard and that history actually shows that there were major financial crisis during periods of established gold standards. He explained that the biggest problem with tying your monetary policy to a fixed asset is that it is not flexible enough to withstand periods of high volatility.

“There is this nostalgia for a gold standard that has never really existed,” he said. “History showed that you had this rigid monetary policy until it broke and then the government had to intervene.”

Christian added that when fixing monetary policy to a fixed asset, if the politicians get it wrong, it can create major deflation on one side or high inflation on the other.

Christian explained that former Fed Chair Allen Greenspan used to talk about gold in his Humphry Hawkins testimony before Congress but it was always in relation to the health of financial markets.

“The only way gold can be a good barometer is if it is allowed to move freely in the marketplace. When you tie your monetary policy to a fixed asset it distorts the price.”

Juan Carlos Artigas, director of investment research at the World Gold Council, agreed with Christian that having a gold standard prevents central banks from acting more freely to support economic growth.

Artigas explained that a country backing its currency with gold helps to balance the “fiat risk.”

The walk-in cash business was slow today but the phones were surprisingly steady.

The Unscientific Activity Scale is a “ 3” for Monday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Tuesday – 3) (last Wednesday – 3) (last Thursday – 4) (last Friday – 4). 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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