Commentary for Wednesday, Jan 29, 2014 – Gold on the COMEX closed up $11.60 today at $1262.20 an unexpected move higher in light of the Federal Open Market Committee meeting today which cut the quantitative easing program another $10 billion.
Higher prices in the gold market looks like safe haven buying pushed by problems in the currency market because of the unstable lira. Turkey raised interest rates overnight by 4.5% in an effort to stem the decline in her currency. This in turn will decimate her economy and so the problem is exacerbated and the poor people of the country continue to suffer. This is not inconsequential as similar problems in Argentina could lead to another round of hyper-inflation.
Today was the last meeting for Federal Reserve Chairman Bernanke who will be replaced by a dovish Janet Yellen. As expected the FOMC reduced the ongoing stimulus package by $10 billion. So we are now looking $65 billion a month, not exactly small change but down from the original $85 billion bond buying program. They also left interest rates and unemployment guidelines unchanged. Gold actually tested the $1270.00 level today before settling and before news of the $10 billion dollar reduction so the international currency problem carries some sway.
Silver closed up a quiet $0.05 today at $19.53 and given the undercurrent in gold this small move was disappointing.
Platinum was down $1.00 at $1409.00 and palladium was down $5.00 at $711.00.
The Dollar Index sold off about a point last Thursday but since then has been rather flat around 80.50 so initial weakness which supported higher gold has subsided. The foreign exchange markets are still worried about the Turkish lira which continues to support gold.
The lira is collapsing but is such a small currency relative to the world market that this in itself would not create many waves. But this in conjunction with a wobbly US stock market and possible problems in the largely secret Chinese financing machine is kind of like the perfect rumor storm. All of this needs time to shake out but if the European recovery was manufactured meaning overblown the need for a safe haven like gold will once again make headlines.
Some anti-gold commentators make the case that in reality gold is not an inflation fighter and while I don’t agree you cannot argue that gold is the only asset which protects smaller investors from the Turkish problem.
So gold’s insurance value is overlooked especially when its relative price is always the subject of conversation. But the people in Turkey who own gold over the paper lira are not worried about gold devaluation. I would at least watch for continued signs as to the real state of the world financial system. If it is in trouble the price of gold will move dramatically higher and hopefully readers will sleep a little easier knowing their gold bullion position really does protect them from fiat paper.
The walk-in cash trade was just average today and the phones were a disappointment as I was looking for more real physical action given the pop in gold prices earlier in the trading day.
The GoldDealer.com Activity Scale is a “5” for Wednesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Wednesday – 6) (last Thursday – 4) (last Friday – 4) (last Monday – 3) (last Tuesday – 6) (Wednesday – 5). The scale is 1 through 10 and we believe this is a reliable way to “sense” real bullion business.
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