Commentary for Thursday, March 27, 2014 – Gold closed down $8.70 today at $1294.70 and unfortunately crossed over the important $1300.00 line in another test of weak hands. There is not any particular news out there that is bearish but when things get quiet the short traders like to push the lower limits and see who blinks.
So you are seeing another round of short players making a few bucks in the short term. The close below $1300.00 is not encouraging psychologically because we have held this mark in the sand since February 12th. Gold has also moved below some important averages but further selling pressure was not seen so there is a bit of push against these lower levels.
Final 4th quarter US Gross Domestic Product number was announced at 2.6%, which was not a surprise considering everyone seems happy with the economic recovery. I thought the measure of inflation number for the quarter was interesting at 1.5% with a core rate that came in at 1.8%. These figures are very close to the Fed target inflation rate of 2.0% so I wonder what happens if inflation exceeds the target?
Silver was down $0.06 in quiet trading at $19.69 and still not much happening here in the physical market even though we have reentered the buying sweet spot under $20.00. For the record however there are no major sellers at these lower levels so maybe everyone is just being put to sleep.
Platinum closed down $9.00 at $1397.00 and palladium down $20.00 at $761.00. Buying platinum bullion for about $100.00 more than gold bullion seems like a great value play when you consider the problems in Russia and South Africa. Still the American buying public does not seem very excited over the option.
Peter Hug (Kitco) makes a good point recently that while the Russian intervention has taken a backseat as far as gold pricing is concerned, the tension there is still dangerous and keeps the short gold traders at bay. This is true because who knows what could happen and world sanctions against Russia continue to stoke the fire although I think sanctions do little and create trouble.
There are a few side stories that support gold this morning even though the market is somewhat lower. The flop of the King IPO and others not showing much action after initial offering might point to a slowing in the stock market. There has been a great deal of money deployed in stocks and multiples are not cheap. There are other mixed signals for banks like Citi failing the Federal stress test but remember bank stocks are all very strong so clearly Wall Street and the public show none of the old banking fear.
There are plenty of bearish scenarios floating around for gold but if you are looking for something more positive consider the very wide view. If you study the 10 year chart of gold prices (2004 – 2014) you will see that we have moved from about $400.00 to a high of more than $1800.00 (2011) and then settled downward touching the $1200.00 mark twice this last year.
Now place a ruler at the lowest pullback points during this decade and you will see that even with the large sell-off gold has not broken its bullish long-term pattern and will not if the $1200.00 mark is not breached. If you prefer the “glass half full” scenario a technical case can be made that recent trouble which began in 2011 is simply part of a larger bullish trend which is still in tack technically.
In other words if gold for some inexplicable reason moved higher from current levels, retested the old highs ($1800.00) and then moved to new highs the technicians of the world would claim the move was a continuation of a very old bullish market.
Only time will tell because like I have been saying this market needs time to further settle and short to medium term moves could be all over the place but the fact remains that while the short-term technical picture is not a happy face the very long-term picture might paint an entirely different story.
Finally if you are still wondering why inflation is not pushing gold higher here is something to think about from zerohedge.com / The Real Inflation Fear: US Food Prices Are Up 19% In 2014 posted by kurtnimmoadmin / Global Crisis. We are sure the weather is to blame but what happens when pent-up demand (from a frosty east coast emerging from hibernation) bumps up against a drought-stricken west coast unable to plant to meet demand? The spot price (not futures speculation-driven) of US Foodstuffs is the best performing asset in 2014 – up a staggering 19%. You can read the article and see the amazing chart at www.infowars.com.
No one really talks much about the inflation threat because most are still glad we dodged the 2008 financial collapse but make no mistake inflation remains a big problem. Just because the Fed monitoring indicates there is no inflation take a closer look at the above and you will see how easy it would be for the US to fall into another 1970’s type inflation spiral. And this time around the amount of money floating around is huge relative to the old days so expect gold to react much faster and move much higher. Why? Because everyone knows this next wave of inflation will eventually happen and while everyone is content that the problem is not bothering us now we all understand it is only a matter of time.
ICTA (Industry Council for Tangible Assets) has a new logo which won’t mean much to most but this part is important: To avoid problem dealers – none-delivery, steering and generally poor telemarketing behavior – look for precious metal dealers who belong to ICTA and the PNG (Professional Numismatists Guild). Dealers who are members of both organizations insure a happy consumer face because they are held to a much higher ethical and professional standard. Look for membership in ICTA and the PNG from any national dealer and avoid headaches.
Another relatively quiet day for the across the counter cash trade and we asked accounting if they paid the phone bill.
The GoldDealer.com Activity Scale is a “3” for Thursday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 3) (last Friday – 3) (Monday – 4) (Tuesday – 5) (Wednesday – 4). The scale (1 through 10) is a reliable way to understand our volume numbers.
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