Commentary for Fri, Aug 1, 2014 (www.golddealer.com) – Gold closed up $12.30 at $1293.60 regaining most of its loss yesterday ($13.60) on the news that the US produced 209,000 new jobs last month which is less than expected.
Today’s gain also looks like some safe-haven buying re-entering the market which was encouraged by this technical bounce as gold regained its 200 day moving average ($1285.11).
Everyone is looking carefully at the jobs number but in fact we have put together a string of monthly advances which is not so good but also not so bad. A theme which has become common as the Federal Reserve continues to work its quantitative easing program to the advantage of the working class.
For the most part the Fed has met its inflation and employment mandate but now the hot button parameter is becoming wage growth. Perhaps they are looking for a reason to postpone interest rate hikes.
Default talk around the Banco Espirito Santo recorded a $4.7 billion loss is overblown. But such conversation does promote rumors – like the solvency of Spain which refocus the backburner issue of banking problems in Europe.
I don’t think this will go anywhere but with increased Russian sanctions which will create push-back we are creating a nervous background for overseas stocks. This of course is exacerbated by yesterday’s drop in the DOW of 300 points and all of this will support gold in the short term.
Silver closed down $0.04 at $20.33 in quiet trading.
Platinum closed down $2.00 at $1463.00 and palladium closed down $9.00 at $864.00. The action in rhodium continues with talk of a 60,000 ounce shortfall this year. Rhodium is up 31% this year but is still only 45% of its 10 year average.
Our employee survey as to the direction of gold next week looks positive – 9 people claiming higher prices, 1 person claiming lower prices and 3 believing prices will be flat. Last week this survey indicated 4 up – 2 down and 4 flat so out of 10 employees 2 were correct.
The Weekly Precious Metal Closes – July 28 through Aug 1 – 2014
Gold Silver Platinum Palladium
Mon $1303.30 $20.52 $1490.00 $880.00
Tues $1298.30 $20.54 $1483.00 $878.00
Wed $1294.90 $20.55 $1481.00 $880.00
Thurs $1281.30 $20.37 $1465.00 $873.00
Fri $1293.60 $20.33 $1463.00 $864.00
I appreciate gold’s pop to the upside going into the weekend but there are problems. First gold is struggling against the continued strength in the dollar and second – the less than robust physical action coming from both India and China.
The US Dollar Index (DXY) has increased in strength as US economic numbers continue to show improvement. It also gained strength as the Europe and US stock markets rattle investors in the short term. For now the good old American buck is the world’s short term safe haven asset.
Over the past 3 months the Dollar Index has moved from 79.0 to 81.50 and in the past 5 days has shown no sign of slowing down moving from 81.0 to 81.5 with experts believing a better jobs report this week might push this number higher.
There is precedence because a look at the 1 year Dollar Index Chart shows a high of 82.67. With this kind of headwind gold will have to be satisfied with slugging it out – looking for a better scenario. The only reason we continue to hold the $1280.00 range is because Gaza and Ukraine present a troubled future where a gold bullion position might come in handy.
If you are looking for a wild card in the gold consumption area watch India the second largest consumer behind China. Recent relaxation of import restrictions by India caused a surge in gold consumption in June but most believe “more comprehensive change” in import rules brought about by India’s new Prime Minster Modi will take time.
In the bigger picture this change is inevitable because Modi is a “pro-gold” politician and India continues to modernize production and manufacturing. This is the way up for her largely poor population which uses gold in their physical possession much the same way as Westerners use bank accounts.
According to Reuters – “China’s gold demand slumped by a fifth in the first six months of the year, the China Gold Association said in a separate statement on Thursday. “The sales volume of jewellery and investment demand for gold has really dropped drastically in China,” the analyst said. “Consumer confidence in the gold market has declined and they are now buying jewellery or bars of lesser value.” The lower demand this year is partly due to huge purchases in 2013, when China overtook India as the biggest consumer of the precious metal. Gold prices dropped 28 percent last year, after a 12-year bull run, prompting many to bring forward their purchases and eating into 2014 demand.”
I would also be careful about shorting China’s capacity for owning more gold bullion. Like other Central Banks the Bank of China’s gold reserves continue to move higher and the drop in consumer demand is the first in 8 years.
AP – CHINA’S FACTORIES: “Upbeat data on Chinese manufacturing helped put a floor under Asian stocks. Monthly surveys of manufacturing in China signaled that the world’s second biggest economy perked up further in July thanks to recent mini-stimulus measures. An official purchasing managers’ index rose to its highest in 27 months while a similar factory report by HSBC showed the strongest rate of improvement in a year and a half.”
Anything upbeat about China is good for the physical gold market. And if gold puts in a solid bottom in the $1280.00 shakeout we could see solid buying return for the remainder of 2014.
Let’s consider the important Moving Averages in the precious metals which can provide additional directional information. All technical indicators should be taken with a grain of salt. Some popular averages are 50, 100 and 200 day periods – the shorter ones being more sensitive than longer periods. The theory here – underline that word – is that when the moving average is moving lower and the price of gold moves below that average it signals possible further weakness. If the price of gold is moving higher and the price of gold rises above that average it may signal that further buying is in order.
Compare gold’s close today ($1293.60) to its 50 Day Moving Average (DMA) ($1294.32) – 100 DMA ($1298.34) and 200 DMA ($1285.11). It is significant that today’s gold close is above the 200 day moving average.
Look also at silver’s close today ($20.33) to its 50 Day Moving Average (DMA) ($20.29) – 100 DMA ($20.12) and 200 DMA ($20.22). It is significant that today’s silver close is higher than all three moving averages.
RSI (Relative Strength Index) is one of many technical indicators that the average investor might find interesting. The RSI relative to gold is a momentum tool used by technicians in an attempt to determine overbought and oversold conditions in a particular asset class. The RSI is really a ratio of averages – it divides the average number of “up” closes times the days involved with the average number of down closes using the same number of days.
The RSI Range moves from 0 to 100. An asset (gold in this case) is considered overbought if this pure number approaches 70 – overbought in the sense that gold might be ready for a pullback or see some profit taking by paper traders. If the RSI approaches 30 it might be oversold meaning it could be undervalued and present buying opportunities for investors.
Like all technical indicators the RSI is not the Gospel According to Luke. There are ways it can go off the tracks but when looked at in the longer term it might be a simple and handy number to watch carefully. At the time of this writing the RSI for gold looks like it’s trading around a relatively neutral 45.
The walk-in cash trade was active today with good buying and selling on both sides with the exception of one rather large gold bullion buyer. The phones were average to off going into the weekend but there were plenty of questions – mostly from old customers. For some reason we are fielding more gold and silver bullion IRA questions.
The GoldDealer.com Activity Scale is a “2” for Friday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Friday – 4) (Monday – 3) (Tuesday – 2) (Wednesday – 2) (Thursday – 2). The scale (1 through 10) is a reliable way to understand our volume numbers.
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