Commentary for Tuesday, Sept 23, 2014 (www.golddealer.com) – Gold closed up $4.20 at $1221.00 – the market was higher in earlier trading ($1236.00) as the US attacked ISIS within Syria – but moved lower as the dollar recovered earlier losses returning to 84.67 on the Dollar Index. And oil remains at the low end of its range adding to negative sentiment.
Silver closed up $0.01 at $17.71 but don’t let the numbers fool you – the physical market is hot at these levels – with multiple big deals going out the backdoor.
Platinum closed up $2.00 at $1332.00 and palladium moved higher by $12.00 at $815.00. Rhodium looks like $1350.00. The Platinum Group Metals have been quiet of late but there might be bigger action in the wings if Putin decides on mischief in Ukraine.
SINGAPORE, Sept 23 (Reuters) – Gold ticked up on Tuesday but was stuck near its lowest in almost nine months, hurt by outflows from the top bullion backed exchange-traded fund as investors adjust positions on concerns of higher U.S. interest rates and strength in the dollar.
Investors pulled out of SPDR Gold Trust, the top gold-backed exchange-traded fund, for a second day in a row, with the fund’s holdings falling to 774.65 tonnes on Monday – its lowest since December 2008.
The fund is a good representation of investor sentiment due to the size of its holdings. Spot gold edged up 0.2 percent to $1,216.90 an ounce by 0617 GMT after dropping for two straight days.
The precious metal could be seeing some safe-haven buying as the United States and several Gulf Arab allies launched air and missile strikes on Islamic State strongholds in Syria on
Tuesday, opening a new, far more complicated front in the battle against the militants.
But despite the slight gain, spot prices remained near an 8-1/2 month low of $1,208.36 reached in the previous session.
Silver slipped 0.7 percent to $17.58, edging closer to a four-year low of $17.30 hit on Monday.
Funds run by ETF Securities also saw outflows from precious metals last week due to diminishing global risks and dollar strength, said Danny Laidler, head of the firm’s Australia & New Zealand operations.
"Precious metals saw the largest outflows in over a year, with silver and both long and short gold exchange-traded products seeing outflows," said Laidler, adding that $263 million was pulled out of precious metals funds last week.
"We view the current gold price as a very attractive entry point for longer-term investors."
Bullion’s appeal has been hurt as the dollar hovers nears a four-year high against a basket of major currencies as speculation mounts that the U.S. Federal Reserve would increase interest rates sooner than expected. Higher interest rates would hurt gold, a non-interest bearing asset.
Traders believe gold could extend the slide to below $1,200 and possibly to 2013 lows of $1,180, as there is little support from technicals and physical buying.
"The strength of the dollar continues to put pressure on all precious metals, with gold looking likely to make a play for $1,200 in the coming sessions," MKS Group said in a note.
The money being poured into the stock market is also negative for gold. But keep in mind that Wall Street knows this market is frothy – and if there was a real correction it will help the physical gold market. This in the latest Kiplinger Letter: Prepared for a 10%-20% market drop? The possibility should come as no surprise. “A correction is overdue. It’s been nearly 34 months since the last one, and the average is every two years. Moreover, with hostilities in the Mideast mounting, Russia-Ukraine tensions at a fever pitch and Japan and China sparring over South China Sea territory, the prospect of a geopolitical shock can’t be ignored.”
I point this out because what is good for the goose is good for the gander as my Mom used to say over her famous pancakes. There is a ton of money out there and it’s not going away anytime soon – what made stocks popular again can also become a boon in the physical gold market.
This from FXEmpire – Gold Soars on Airstrikes in Syria – “December Comex Gold futures rallied from an eight-month low on aggressive counter-trend buying and profit-taking, following a prolonged move down in price and time. With hedge and commodity funds massively short, the market was ripe for a short squeeze. The news behind today’s almost $20 rally was the start of U.S.-led airstrikes in Syria.
The military action triggered a sell-off in the equity markets which led some investors to move their profits into gold. The surprise geopolitical event also gave fund investors an excuse to begin booking profits. It is too early to tell if this move will hold since the majority of the fundamentals are still overwhelmingly bearish. However, due the pilling up of the negative fundamentals, contrary traders may have gotten it right this time at least over the short-run.
November Crude Oil futures traded higher on Tuesday after wavering most of the session. Bearish China Purchasing Managers’ Index data came in above consensus at 50.5 rather than 50.0, but this number was low enough to fuel concerns about future demand. This news helped attract some selling pressure.
However, the news of airstrikes in Syria by a U.S.-led coalition helped underpin the market and was able to generate some light short-covering. The turmoil in the Middle East is likely to provide some support, but don’t expect a huge rally unless there are supply disruptions. Also helping to boost prices was a rumor that OPEC is considering a cut in production next year to deal with the oversupply.
The EUR/USD was able to post a small gain on Tuesday despite bearish economic data. This is usually a sign that a market is running out of sellers, making it ripe for a short-covering rally. Any signs of “seller exhaustion” usually brings up thoughts of a short-squeeze. If this occurs then look for a more meaningful rally throughout the week.
New data from Markit showed overall weakness in the Euro Zone. Today, it was reported that the Services PMI posted a reading of 52.8. This was a three-month low. In Germany, factory growth showed its worst reading in 15 months. Manufacturing and services were also down in France.
The GBP/USD also rose on Tuesday as investors took profits after the recent sell-off on the thought the Fed would continue to post-pone a rate hike because of the uneven recovery taking place in the U.S. Most of the reaction was to a report showing U.S. home prices rose less than forecast in July. This was the second consecutive weaker-than-forecast housing report. Yesterday, the U.S. reported existing home sales as weaker-than-estimated.”
I don’t know if “soars” is the right word here but this ISIS strike did stop the downward momentum players…for now. President Obama seems to have good support from the Arab States but like anything related to the Middle East the outcome is dangerous and uncertain. The gold trade thinks this initial move into Syria might be the beginning of something bigger relative to the price of gold. I don’t believe this is true because any war threat lately has been ignored by traders and simply cannot overpower a stronger dollar and weaker oil.
The walk-in cash business was busy all day – mostly silver bullion related. There was one very large gold seller and the phones were active but not overly so – mostly smaller to mid-size silver bullion buyers but no whales.
The GoldDealer.com Unscientific Activity Scale is a “5” for Tuesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Wednesday – 3) (last Thursday – 3) (last Friday – 4) (Monday – 4). The scale (1 through 10) is a reliable way to understand our volume numbers.
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