Commentary for Tuesday, Dec 9, 2014 (www.golddealer.com) – Gold closed up $36.80 at $1231.50 in what looks like follow through momentum from Monday and safe-haven buying.
This is the highest gold close in 6 weeks and further supports recent talk that a short-term bottom might be in place. Perhaps world financial jitters are finally showing up in gold safe haven buying. The real question however is whether these often short term pushes to higher ground will hold?
The Chinese attempt at cleaning up their bond market might be behind yesterday’s pop in the price of gold – but at the very least they now join other huge financial machines which might look a little rocky.
I would never short the Chinese but any hiccup is worth watching especially because Europe continues to grumble – Japan is deflating if you can believe that after recent announcements of even more quantitative easing and the Russian economy is now contracting.
Today’s early sell off in US equities seemed to confirm world economic problems and the possibility that gold might regain its safe-haven status. But the DOW seemed to recover in later trading – so that horse remains in the race for now – even though the worries of some sort of international contagion have returned – creating the possibility that a world economic slide will drag the US into the mess.
I don’t see this happening but remember that a continued strong dollar is just as dangerous as higher interest rates in 2015. So while I would not be a Chicken Little here – there are some storm clouds which have returned and might further support gold even on the shorter term.
The Dollar Index was a bit weaker today (88.64) but not enough to account for the big jump in prices. The move today ($36.80) was big enough to wake up the momentum traders and while the technical picture short term is improving there is still a great deal of overhead resistance between where we are now and $1300.00. Keep in mind that gold’s 2013 high of the year is $1379.00 in March so a move above this number would be very interesting.
Silver closed up $0.87 at $17.08 so I expect buying will slow unless gold runs.
Platinum was up $16.00 at $1246.00 and palladium was also higher by $13.00 at $811.00.
This is what Reuters had to say about yesterday’s pop in the price of gold above $1200.00 in the aftermarket – they called it a brief surge of technical buying.
NEW YORK/LONDON, Dec 8 (Reuters) – Gold jumped more than 1 percent on Monday on a brief surge of late-day technical buying as it breached the $1,200-per-ounce level long after the U.S. dollar dropped from a more than five-year high.
Spot gold was up 1 percent at $1,203.51 an ounce by 3:01 p.m. EST (2001 GMT) after briefly rising to $1,208.19. The metal lost 1.1 percent on Friday when U.S. data showed employers added the largest number of workers in nearly three years in November and that wages picked up. U.S. gold futures for February delivery rose 0.4 percent to settle at $1,194.90 an ounce.
"This is all technical buying … $1,200 is the line in the sand right now," said Eli Tesfaye, senior market strategist for RJO Futures in Chicago. "Every time the market gets close to $1,200, you get a little bit of buying interest."
This is more interesting today because of the strong follow through and the sudden hiccup in the DOW. Almost everyone claimed technical buying and a short covering rally. So much for my hidden agenda idea – but the above does reinforce the notion that a short-term bottom is in place.
Why? The long term technical picture for gold is still a mess but the shorter term technical picture continues to improve – oil remains weak and the dollar for now remains the default safe haven buy.
So what gives with this pop to the upside? Do traders sense that gold is not going any lower? It was not too long ago that most considered a test of the $1000.00 level right around the corner especially after the Fed unplugged the last of the QE effort and stocks were roaring.
I wonder if the European economic theater is more underwater than commentators are willing to admit. The numbers are not encouraging but they are not terrible and Draghi has successfully kicked the QE can down the road a number of times without really defining exactly what the EU has in mind.
Today’s Chinese move of not allowing junk bonds as collateral should not have created this much commotion – it’s just common sense but remember that when huge financial machines need cash any move which dampens borrowing is a big concern. All of these markets are interrelated – trouble there – trouble here is the name of the game.
A number of gold repatriation schemes have recently come and gone. All really just a tempest in a tea pot so the possibility of a major blow up may be on everyone’s mind but the concern is not enough to push the vote – I guess they figure storage in New York is as good as any place – perhaps better.
My downside target in the longer term remains $1050.00 to $1150.00 before major physical buying will come crashing in the front door. But what if I am wrong and gold really has bottomed in a much higher range because of Europe?
Of course the physical trade would have a party – especially because the gold news has been brutal these past 3 years. But as long as we are speculating out loud – let me remind you of what happens when everyone joins the “bottom” party.
The surge to higher ground is big and powerful – really big and powerful. You could easily see the old $1375.00 range high created in 2014 taken out with a move above $1400.00. Ah – the good old days – when most of the gold news was positive and traders expected new record highs. Story to be continued – based on actual outcomes.
Are end of year tax strategies to be trusted? Well you don’t have to be a CPA to know that 2014 is drawing to a close or that 2015 is right around the corner. This is the traditional time when tax scams are as common as popcorn at the next blockbuster in the precious metals business.
The story usually goes like this: if you invested in precious metals or rare coins and are now losing money – Uncle Sam will help you write off the money you have lost.
What makes this story more complicated and opens the door to fraud is that it may – or may not be true. It is true that if you have lost money investing in either rare coins or precious metals you may seek tax relief – but the first place to begin asking questions is your tax professional – not your local coin dealer.
Virtually all tax loss strategies I have seen offered by coin dealers are simply a way to get you to sell something you have and buy something they have – they really don’t give a hoot about your supposed tax advantage.
And when it comes to explaining the loss if you are audited the nice coin dealer who suggested the idea in the first place won’t even remember your name. Because every person’s tax situation is unique that email you got about taking “advantage” at year end is most likely hokum of the first order.
There are cases in which losses incurred with rare coins, precious metals, stocks and many other “investments” can be written off on your taxes at year end. This is a fairly common strategy on Wall Street but there is nothing simple about the process – that’s why you need a professional tax person before considering the process.
The walk-in cash trade moved from very hectic to almost slow today and the phones were a carbon copy. To move from hectic to slow indicates the public might just be selling into the rally. But there might be a storm brewing so I would not want to short this market – a common money strategy not too long ago.
The GoldDealer.com Unscientific Activity Scale is a “4” for Tuesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Wednesday 3) (last Thursday – 2) (last Friday – 3) (Monday – 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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