Commentary for Tuesday, Sept 2, 2014 (www.golddealer.com) – Gold moved down $22.10 at $1263.70 reacting to a very strong dollar and lower oil prices.
This from CNN Money – “Simply put, a healthy dollar makes it cheaper for U.S. consumers to buy imported goods. It also gives American travelers more bang for their buck when abroad. So if you’ve been dreaming about a European vacation, now might be an opportune time.
The dollar is faring particularly well against the euro. It’s gained 5% versus the euro since the start of the year, and it’s climbed recently against the Japanese yen and British pound as well.
That makes sense when you consider the concerns about deflation in Europe as well as the possibility that more tension between and Ukraine and Russia could dampen growth on the continent. The European Central Bank holds its latest monthly policy meeting on Thursday. ECB president Mario Draghi did hint in a speech last month that Europe may need to launch an asset purchase program similar to the Fed’s quantitative easing in order to get the European economy back on track.
In fact, the ECB recently hired BlackRock (BLK) to help it put a potential bond buying plan into place. But a spokesperson for the ECB stressed in an email to CNNMoney that no decisions have yet been made about whether the ECB will decide to implement a QE-esque program or when it may start.
But Russia fears may have a bigger impact on what happens next for the dollar than what the ECB does. “The dollar’s strengthening as of late is more about Russia than Draghi,” said Axel Merk, chief investment officer with Merk Investments LLC. “The Ukraine situation is destroying confidence in the European recovery, and more sanctions against Russia will hurt Europe as well.” Merk points out that it will be very hard to figure out what Vladimir Putin decides to do next. That uncertainty could lead to even more investors dumping the euro and scooping up the dollar. It’s not so much that investors are in love with the dollar. They just hate the euro.
“People may be buying the dollar by default. Everyone is piling in on everyone else’s trade,” Merk said. If that continues, large multinational U.S. firms could be in trouble when they start reporting their third-quarter results in October.”
Gold was weak in overnight Hong Kong and London trading and continued lower in the domestic market. Gold seemed immune to anything relating to war or politics over the long weekend but easily pushed through its 200 Day Moving Average ($1285.00) and was further encouraged with the New York August ISM number.
The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee. “The August PMI® registered 59 percent, an increase of 1.9 percentage points from July’s reading of 57.1 percent, indicating continued expansion in manufacturing. This month’s PMI® reflects the highest reading since March 2011 when the index registered 59.1 percent. The New Orders Index registered 66.7 percent, an increase of 3.3 percentage points from the 63.4 percent reading in July, indicating growth in new orders for the 15th consecutive month. The Production Index registered 64.5 percent, 3.3 percentage points above the July reading of 61.2 percent. The Employment Index grew for the 14th consecutive month, registering 58.1 percent, a slight decrease of 0.1 percentage point below the July reading of 58.2 percent. Inventories of raw materials registered 52 percent, an increase of 3.5 percentage points from the July reading of 48.5 percent, indicating growth in inventories following one month of contraction. The August PMI® is led by the highest recorded New Orders Index since April 2004 when it registered 67.1 percent. At the same time, comments from the panel reflect a positive outlook mixed with caution over global geopolitical unrest.”
So for now the bears remain in charge and gold is looking at a 2.5 month low. On the positive side gold is still above its June low of $1240.00 so in the wider view we are still range bound.
The most negative scenario at this point would be a test which might look at 2014 lows around $1225.00 but remember there is plenty of support at the $1250.00 level.
And we should soon see physical activity pick up as vacation time both here and in Europe draws to a close.
Silver moved lower by $0.33 today at $19.07 and surprisingly there was not much action in the way of physical buying.
Platinum was down $15.00 at $1410.00 and palladium was down $26.00 at $882.00. Rhodium was unchanged today at $1325.00.
You can make a good case that gold is beginning to ignore the disaster that is the Middle East. But I think this is short term and as these problems continue to unfold the Western related coalition will not solve the problem.
GENEVA, Aug 29 (Reuters) – “Three million Syrian refugees will have registered in neighboring countries as of Friday, but many remain trapped by the advance of Islamist militants or are having difficulty in reaching open border crossings, the United Nations said. Syrians desperate to leave their war-engulfed homeland are forced to pay hefty bribes at armed checkpoints proliferating along Syria’s borders, or to smugglers, the U.N. refugee agency said.
The record figure is one million refugees more than a year ago, while a further 6.5 million are displaced within Syria, meaning that “almost half of all Syrians have now been forced to abandon their homes and flee for their lives,” it said.
“The Syrian crisis has become the biggest humanitarian emergency of our era, yet the world is failing to meet the needs of refugees and the countries hosting them,” Antonio Guterres, U.N. High Commissioner for Refugees, said in a statement.”
I don’t think the Middle East and Ukraine are given enough weight relative to safe-haven buying in the physical gold market. Paper traders watch carefully – and up through this past weekend some safe haven buying did support gold – dollar strength short-term will not be denied and safe haven support dried up in the overnight Hong Kong and London markets.
In the past any flare-up from either source was worth my usual $50.00 “war premium” explanation. The trading market would absorb the latest conflict news move higher temporarily and then prices would flatten out. The $50.00 scenario was a kind of insurance bet.
These past 12 months have presented two attempts (last August and March) at moving past $1400.00. Both cases were driven by similar military force which introduced serious safe-haven buying. So why is this important? Because none of these political/military failures have been resolved and the tension in some areas seems like it may become destabilizing – perhaps to the point of introducing a new paradigm. This new paradigm may be one that the US and its alleys may not be able to control or eliminate.
So while the dollar remains king in the short term don’t discount safe-haven buying especially as the world continues to become more dangerous.
It is not just the dollar which is pushing gold lower – as the US economy continues to improve paper traders become more convinced that quantitative easing will soon end. There has always been a contingent which claimed that quantitative easing will just be reinvented but its formal end perhaps before year end raises the notion of higher interest rates. This too will cap gold prices in the shorter term especially if inflation remains subdued.
This from Reuters – US manufacturing soars to 3-year high; construction spending jumps
The pace of growth in the U.S. manufacturing sector rose in August to its highest level since March 2011, according to an industry report released on Tuesday.
The Institute for Supply Management (ISM) said its index of national factory activity rose to 59.0 from 57.1 the month before. The reading topped expectations of 56.9, according to a Reuters poll of economists. A reading above 50 indicates expansion in the manufacturing sector.
The employment gauge slipped slightly to 58.1 from 58.2, below expectations for a read of 58.4. The new orders index rose to 66.7, up from 63.4 and marking its highest level since April 2004. The gauge of prices paid fell to 58.0 from 59.5, in line with expectations.
Construction rallies – Separately, data showed construction spending rebounded strongly to hit its highest level in more than 5-1/2 years in July as private construction increased and state and local government outlays surged, a further sign of vigor in the economy.
Construction spending increased 1.8 percent to an annual rate of $981.31 billion, the highest level since December 2008, the Commerce Department reported.
July’s percentage increase was the largest since May 2012 and reflected gains across all categories, with the exception of federal government. It followed June’s revised 0.9 percent decline. Economists polled by Reuters had forecast construction spending increasing 1.0 percent after a previously reported 1.8 percent drop in June.
Construction spending in July was buoyed by a 3.4 percent jump in state and local government projects, which lifted outlays to their highest level since June 2012. The increase in state and local government outlays, which was the largest since April 2013, offset a 1.1 percent drop in spending by the federal government on construction projects.
Private construction, the largest portion of construction spending, advanced 1.4 percent to its highest level since November 2008. Private residential construction spending gained 0.7 percent as housing starts rebounded. The housing market recovery is back on track after stagnating from the second half of 2013 in the wake of a spike in mortgage rates and higher home prices amid a stock shortage. Part of the increase in private residential construction spending reflected home improvements. Investment in private nonresidential structures such as factories and gas pipelines jumped 2.1 percent in July to its highest level in five years.
This is a portion of David Stockman’s Contra Corner – Keynesian Fairy Tale Alert: Establishment Citadel – Council on Foreign Relations – Peddles Helicopter Money Plan. David Stockman’s Contra Corner is the place where mainstream delusions and cant about the Warfare State, the Bailout State, Bubble Finance and Beltway Banditry are ripped, refuted and rebuked.
“In a word, the entire “savings glut” theory is upside down with respect to Japan, the US and the developed economies of Europe as well. All of these societies are now getting old, fast. The real problem is that they have over-consumed, not over-saved, during the central bank sponsored debt party of the last 30 years. Consequently, the actual culprit weighing down real growth is “peak debt” on household, business and government balance sheets, not a perverse failure to spend.
In fact, during the several decades leading up to the financial crisis, household and business leverage ratios were steadily ratcheted-up, meaning that consumption spending was financed by currently earned income plus borrowed funds from the credit card, mortgage and consumer loan markets. But the resulting consumption spree was a one-time economic trick that has now been exhausted.
Accordingly, the credit expansion channel of monetary stimulus is now broken and done. All of the massive balance sheet expansion by major central banks is being shunted into the financial gambling channel where it fuels asset price inflation, not main street jobs, output and enterprise.
Stated differently, the downshift in developed world growth is not due to under-consumption and insufficient “aggregate demand”. The latter is a wholly derivative economic “ether” that has no reality apart from current period spending that is derived from either income or borrowing.
The GDP of developed world economies is growing at “only” 1-2% per annum, therefore, for the simple and immutable reason that consumption spending is no longer supercharged by credit-based spending from rising household leverage ratios. Instead, PCE growth is constrained through the income channel to the growth rate of production, which is also languishing in this same tepid 1-2% zone. But that’s a problem on the supply-side—reflecting high taxes, high debt burdens, regulatory hurdles to enterprise and the vast financialization of developed economies owing to central bank distortion of financial markets.
Self-evidently, money is flowing in a mighty tidal wave into the Wall Street casino where it is driving the price of existing financial assets skyward. In that environment, labor cannot compete with debt, and so it is liquidated on the margin in order to generate incremental cash flow to pay the interest.
Likewise, investment in productive assets cannot compete with the short-run boost to stock prices resulting from massive corporate stock repurchases. So the growth rate of the capital stock has fallen sharply—-with annual net investment after depreciation now 20% below its turn of the century level.
At the end of the day, ironically, helicopter money—-the kind currently being dropped on the financial markets—-is the overarching problem. Redirecting the fleet to main street is obviously nothing more than crackpot economics.
The real problem is way too much debt—the legacy of Keynesian central banking, manipulated, sub-economic interest rates and the consequent scramble for yield which has enabled governments to borrow and spend at unsustainable rates. Now the piper has to be paid, and the phony growth that was stolen from the future during the bubble years must unavoidably be recouped.”
For those that believe that inflation is really dead – along with the price of gold I would consider the above article. The theme is not new – it belongs in my old files under “sooner or later” someone has to pay for this free lunch.
And ultimately it will be you and I because governments do not create wealth – they simply use it in the mistaken guise of serving the “common good”.
Don’t misunderstand – there are plenty of solid government services which help mankind. But their reach in the 21st Century is dangerous and a threat to the very system they serve. The massive amount of money which is poured into this inefficient system worldwide will not be erased by default. It will be paid back using inflated dollars.
The walk-in cash business today was just the opposite of Friday – very quiet. Typical really when gold is weak. The phones were also quiet.
The GoldDealer.com Unscientific Activity Scale is a “2” for Tuesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Wednesday – 2) (last Thursday – 4) (last Friday – 2) (Monday – Closed). The scale (1 through 10) is a reliable way to understand our volume numbers.
Email confirmation using a PDF File when buying or selling is functional. It also includes the various forms of payment and includes bank wire instructions. And you can now see your actual invoice or purchase order on your computer screen.
When you buy or sell please check to see if we have your current email on file and that your computer will accept our email (no spam).
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Our four flat screens downstairs with live independent pricing (BullionDesk.com) are a big hit with the cash trade. Live pricing moves all the buy/sell product prices on a real time basis. Yes – you can visit the store with cash and walk away with your product. Or you can bring product to the store and walk away with cash. When buying from us remember if you exceed $10,000 in cash (the real green kind) a Federal Form is necessary.
In addition to our freshly ground organic coffee offered visitors throughout the day we have added cold bottled water, cokes and Snapple. We have also added fresh fruit in a transparent attempt to disguise our regular junk food habits – which seem to grow when things get this quiet. And it does not help that the world famous Randy’s Donuts is just down the street.
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