Commentary for Thurs, June 5, 2014 – Gold closed up $9.00 at $1253.00 on Draghi’s ECB commentary meaning it was interpreted as more of the same lose money policy which is nothing new in Europe. The ECB President promised some time ago that a “summer surprise” was in the making which would help Europe in her fight against deflation.
The commentary on the announced measures was mixed in that some believed the EU needed a “bazooka” instead of a feather duster. Still Draghi is talking and the world is listening. He lowered some key interest rates and made other gestures designed to move the euro lower.
Gold did move higher but most of that increase should be credited to “short covering” as opposed to new long positions. So technically an up day is always better than the alternative but significant changes in the ECB should have been worth $25.00 to $50.00 in gold so maybe these are not so significant.
This from Debbie Carlson (Kitco) – Indian gold demand may pick up later this year, says Jeff Nichols, publisher of Nichols on Gold. “With a new government in New Delhi, the country’s restrictive gold import policies will almost certainly be relaxed in the weeks or months ahead, leading to a surge in demand ahead of this autumn’s festival season, traditionally a time of great gold interest across the sub-continent. Remember, until last year, India was the world’s largest gold-consuming market when a surge in Chinese demand and India’s own restrictive gold-import policies reduced it to second place in the gold world,” he says.
Silver closed up $0.22 at $18.98 in relatively quiet trading.
Platinum was up $12.00 at $1445.00 and palladium was up $3.00 at $839.00
Like I said yesterday gold did not exactly jump through the roof on the refocused ECB (European Central Bank) plan to help the EU with its flagging economic machine. What we did in a similar position during our economic crisis was to use financial tools already available to us like buying bonds (quantitative easing) and flooding the banks with fiat money while keeping interest rates low.
The Europeans once again moved their interest rates lower but do not have as yet the same kind of tools our Federal Reserve uses all the time when they want to create something out of nothing.
Still there are many other things the ECB can do to increase bank liquidity. And here Dragi shines because his position is that banks will begin lending or he will force them to lend. The EU is similar in many ways to our economy – some good ways and some bad ways.
Our banks are sitting on a ton of money and they are beginning to deploy that cash but not in a way which will directly push inflation numbers higher on the short term. Our government does penalize US banks for not lending but this latest move by the ECB will do just that. Before today’s meeting a bank would receive a small interest rate (0.1%) for cash on hand – today that money represents a minus 0.1% fee.
The European banks are sitting on plenty of cash but Dragi is moving to increase that cash position and guarantee they will lend more money in the hopes of jump starting their economy.
Whether all this will work is still a big question because even here in the US I think our quantitative easing program has some big drawbacks and sooner or later we will have to pay the piper – but for now things are looking better.
But here is what should be important to gold buyers relative to ECB changes. The European Union has not made the needed structural changes in the way they do business and neither has the United States. In the end monetary policy cannot be the only answer to a dragging economy – if business and lending is slow (recessionary) why not look at the core problems? Free enterprise, real competition, transparency and fewer taxes will do what quantitative easing cannot.
If all governments have to offer is more money to “help” business the end result will be more bubbles and higher inflation – and everyone knows that will support the price of gold.
The walk-in trade was steady and active today. The phones were just normal. We are seeing a great deal of physical buying in silver bullion at these lower levels and a few large sellers of gold bullion.
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