Commentary for Thursday, Aug 21, 2014– Gold closed down $19.70 at $1273.70 reacting to better economic data and a stronger dollar. Compare the close ($1273.70) with the 50 Day Moving Average ($1306.00) – the 100 Day Moving Average ($1296.00) and the 200 Day Moving Average ($1284.00) and the technical picture is not encouraging.
Recent gold pricing has suggested a rather flat movement with some support above $1300.00 – this represented safe-haven buying over Ukraine and Gaza. But with no war-premium we are back to a defensive gold market which ran into a continued strong dollar and I think this spooked traders.
Weakness actually began in the overnight Hong Kong and London markets – it then carried over into domestic trading as gold hit two month lows. We are now significantly under the 200 Day Moving Average on the close ($1273.70) and with a strong stock market and continued improvement in the economy I look for a test of the $1240.00 level in this latest shakeout. Still as prices become cheaper advantages increase in the physical market.
The Fed Chair Janet Yellen speaks at Jackson Hole, Wyoming tomorrow but few think this will now change the lower price for gold into the weekend.
We are now taking orders (spot plus $85.00) on the Perth Mint Goat which is the 8th coin in a series of 12 in the Lunar Series 2. Mintage on this 1 oz bullion coin will be capped at 30,000 – you can order today with delivery in September.
Silver closed down $0.08 at $19.39 and even at this lower number I do not see much public interest in silver bullion across the counter. Things remain slow – it’s summer time and for now the public does not seem to have the usual buying reaction to cheap silver prices.
Platinum closed down $9.00 at $1419.00 and palladium was higher by $12.00 at $880.00. One of my favorite PGM metals rhodium took a beating today – down $60.00 at $1415.00 probably the result of decreased Soviet tension.
The 60 day gold chart will give you a better idea of gold’s recent direction. The high during this time was ($1340.00) at which time gold failed and was generally lower touching $1280.00 in early August. We then saw a reasonable bounce in prices moving again to over the $1300.00 mark. If you throw out the highs and lows gold seemed comfortable between $1320.00 and $1290.00 but generally the trend has been lower as the “war premium” evaporated.
Now let’s talk about the thinking among gold commentators before the Ukraine and Gaza trouble became big headlines. Most believed that as quantitative easing continued gold would lose support – and in fact before recent safe haven buying it did lose value. Now look at the 1 year chart for gold and you will see a high of $1382.00 and a low of around $1240.00.
Everyone will concede that that the psychology of this market has moved from neutral/bullish into a defensive mode with a negative bias. But if you now look at the 5 year gold chart you will see that gold has traded above the $1200.00 mark since August of 2010.
So there is plenty of support within a hundred dollars of recent pricing. If you are a longer term buyer I think real physical demand will pick up as we approach the $1240.00 range especially as the summer months draw to a close. Even as thinking moves back to the old paradigm in which gold was unwinding and the Federal Reserve will end quantitative easing by year end.
Why? First we are deep into this quantitative easing scenario and the end result is still an unknown. Unwinding the stimulus is one thing – avoiding long term damage is another. Second the Federal Reserve is desperate to keep housing (and all the related industry supported by housing) on track and the only way this happens is by keeping interest rates low.
A continued stream of cheap money will support gold prices and over time push inflation numbers higher.
For now however the inflation picture is mixed – food has begun to move higher and the only reason gas has not followed is because we have plenty of crude oil supply – but grain prices are moving lower – see what I mean – mixed.
This new dynamic relative to oil cannot last for long – the general trend for oil over the last 5 years has been higher. So unless you believe there is something magic at work with oil and the dollar both are subject to quick revisions.
Look for the dollar to reverse direction and oil to stay at the higher end of its 5 year trend especially if you believe the US economy is coming back to life.
Everyone is now bullish on the dollar so the corollary will soon be that gold must trade lower. And where did all this dollar bullishness come from you might ask? Well – relative to other currencies the dollar has always looked like a decent bet – and the dollar rallied once again yesterday as FOMC minutes suggested the labor market was picking up and therefore hikes will come in the lending rate sooner rather than later.
I guess anything is possible but this outcome appears less likely to me because of what is happening in Europe but no matter at this point – let’s look at the dollar over a longer period of time. A graph of the 6 month US Dollar Index will show that the good old greenback has hovered pretty steadily around the 80.00 mark and only began a push to higher ground a few months ago.
If you look at the one year dollar index chart you will see that the index at 82.25 is approaching a 12 month high (82.67) so dollar bulls should be happy. If you look however at a 3 year chart you will find that this 12 month high is still well below the 3 year high (85.00).
So where am I going with this dollar thing? Well it’s easy to understand that with a strong dollar any move in gold will be capped but I would not get too carried away with the strong dollar argument. Why – because of the long-term debt build up – the result of massive tinkering with our economic system.
Now consider the 5 year Dollar Index Chart – it has sold off from these higher levels at least three times. And if you want to look at the largest sell off during that time we moved from almost 90.00 to less than 75.00 in 2011.
Of course it is impossible to say for sure what the Fed will do in these experimental money days but I find it hard to believe they will raise rates when our economy is still sputtering. I would not be surprised to see interest rates stay low – with the occasional rattle of sabers well into 2015. In which case we might soon see a dollar sell off – perhaps orchestrated by a similar call from Wall Street. This of course might be the voice in the wilderness – but then again we are only coin dealers.
Finally get used to the idea that gold will struggle, especially short term as stocks remains strong. The NASDAQ this morning reached 14 year highs and even though stocks don’t look cheap anymore commentators are talking about higher highs. There is nothing like higher prices to attract speculation money and so for now fresh money continues to flow into stocks – money which might have otherwise been attracted to lower gold prices.
The walk-in cash trade was again modest – nothing special. The phones were also lackluster – and a few investors are growing tired of the lack of direction in this market.
The GoldDealer.com Unscientific Activity Scale is a “4” for Thursday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Tuesday – 2) (last Wednesday – 2) (last Thursday – 3) (last Friday – 4) (Monday – 3) (Tuesday – 3) (Wed – 4). The scale (1 through 10) is a reliable way to understand our volume numbers.
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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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