Gold Lower on Consolidation and Quiet Technical Trading

Gold Lower on Consolidation and Quiet Technical Trading

Commentary for Tuesday, April 29, 2014 – Gold closed down $2.90 today at $1296.00 in a market which failed to produce any buzz what so ever. You could say it’s waiting on the FOMC information this week but then again it could be that everyone just fell asleep.  

LONDON, April 29 (Reuters) – Deutsche Bank has resigned its seat on the London gold and silver fix without finding a buyer, a spokesman for the bank said on Tuesday. A source close to the matter said the bank gave two weeks’ notice and it will cease to be part of the price-setting process as of May 13.

Gold Expert Brien Lundin claims they may be getting out to avoid the fallout over a fixing scandal. Market Watch in December claimed Deutche Bank is scaling back its commodity business as high costs and impending strict new limits on banks’ trading with their own money pressure profits. The so-called “Volcker rule” might also be a factor because it requires US regulators to control risk taking which might eliminate hedge trades. This is a result of the 2010 Dodd-Frank Act designed to restrict proprietary trading and hedge fund holdings after the 2008 credit crisis. I would look upon this more as recompense to a trading system which could not be properly controlled and the long standing morning and evening “fixing” becoming obsolete given the flash internet and 24 hour trading worldwide. Of note however is that HSBC (a world banking leader) did close its physical storage facility in New York and JPMorgan Chase is out of the gold business. This supports gold’s continued consolidation and might suggest we are approaching a bottom as those looking to sell have already done so.

Bob Pisani made a great point this morning on CNBC – Is it time to ‘sell in May and go away?’ It’s worked—briefly—for the past few years. There were selloffs in May from 2010 to 2013, but there were also global events that influenced the markets at that time. These included the debt crisis in Europe, and former Federal Reserve Chairman Ben Bernanke’s announcement last year that the Fed would soon begin its tapering of debt sales. The list of crises is as follows: May 2010: euro/debt crisis – May 2011 Portugal/Greece crisis – May 2012: Greece exit euro fears – May 2013: Fed taper fears – My point: whatever effect "sell in May…" has had on market psychology, it has been greatly exacerbated by the unrelated series of crises we’ve experienced in May over the last four years.

The “sell in May” scenario for stocks has been around for as long as I can remember and is based on perceived cyclical changes which repeat each year. At least that is the theory and his comments might also relate to gold. Let’s face it gold has seen a miserable two year plus trading range after failing to find support above $1800.00 in May of 2011. During that time we have been stuck between the extreme overhead resistance seen in the $1600.00 to $1800.00 range and the solid double bottom support at $1200.00.

Consider the recurring crisis theme presented by Pisani. Even with euro/debt crisis, the Portugal/Greece crisis, and the Greece exit crisis gold could not successfully challenge its stubborn overhead resistance. And the Federal Reserve taper story has crushed any attempt we have seen to push gold prices higher. The exception in this story is the Ukraine situation but surely this is temporary relative to pricing pressure in gold. Will this May produce another crisis for stocks? Pisani guesses further tapering will once again take center stage. Barring a large slowing of our economy this tapering will continue to pester gold keeping a lid on things. What we need is a game changer to redefine the current price dynamic. Like returning inflation or a big blow-out in pricing which pushes gold significantly lower ($1000.00) so the market would once again be seen as value driven. Without this Black Swan expect gold to deliver more of the same as this market continues to redefine the role of gold bullion in your financial future.

Silver closed down in similar fashion losing $0.10 on the day at $19.48. The CPM Group claims that fabrication demand for silver rose 6.3% in 2013 reaching 865 million ounces. Jewelry and silverware demand were strong and silver for solar panels was up 46% to 69.50 million ounces. Coins sales were 136 million ounces versus 106 million in 2012 with overall supply down 2.4% to 971 million ounces. It is also interesting to note that here in the states the American Silver Eagle 1 oz coin rules but the Europeans prefer the less expensive Austrian Silver Philharmonic 1 oz coin.

Austrian Silver Philharmonic 1 oz American Silver Eagle 1 oz

This comes from the Casey Daily Dispatch – Jeff Clark, Senior Precious Metals Analyst – I wrote to Silver last week, and she answered back. I’d like to share our correspondence with you…Dear Silver, Happy anniversary. It was on April 25, 2011 that you hit $49.80 per ounce in the New York spot market. Today, three years later, you sell for around $20, nearly 60% less. Is your bear market almost over—or are these low prices here to stay? Your price has lagged gold this year, so your normal volatility is lacking. How much longer will you be stuck? – Jeff Clark, silver investor – Here’s her polite response: Dear Mr. Clark, I have good news for you. While some investors have lost interest in me and my price is at 2010 levels, things will soon change. I put together this historical chart for you, and I hope you’ll share it with your fellow silver investors. It shows every major bear market over the past four decades. The black line represents what’s taken place from April 2011 through last Friday. Of the seven prior bear markets, four lasted longer and three were shorter. Four declined less than today; two were about the same; and only one was significantly deeper. If I were to match the two longest bear markets, my price would stay down until this October. If it matched the other two longer bear markets, it would end this summer. Over the past 40 years, there has been no bear market that would extend my low past this October. Or my low may already be in. Either way, I think it’s safe to say that I’m close to the end of my down cycle. In fact, the historical data say the opportunity to buy me at $20 or less will soon be unavailable. Let me relay some other data to you that also signal current prices can’t last too much longer. The US Mint (Still) Can’t Keep Up with Demand – The sharp drop in my price in 2013 unleashed a wave of pent-up demand for silver coins. Look at the response from investors. The question this year is if those record levels could continue to be supported. The first quarter is over, so I can tell you the answer…The US Mint sold 13,879,000 ounces of me in Q1, 2.4% less than the 14,223,000 sold in the first quarter last year. Here’s the monthly breakdown: 2013 2014 – Gain/Loss – Jan. 7,498,000 4,775,000 -36.32% – Feb. 3,368,500 3,750,000 11.33% – Mar. 3,356,500 5,354,000 59.51% – January’s 36% decline from the prior year looks big, but it’s not what you think: the Mint didn’t begin sales until the end of the second week of the month. The monthly total thus reflects only 2.5 weeks of sales. And March sales were the fourth-biggest month ever. Add in April’s sales figures and the US Mint is now on pace to exceed 2013 totals. It’s clear that your fellow investors think my price will go higher. Silver ETFs Have Net Inflows (Again) – You might remember that silver ETFs’ holdings were largely flat last year, unlike the mass exodus seen in gold funds. The pattern is continuing this year. Holdings in my exchange-traded products (ETPs) have risen 3.5% year to date, an additional 17.5 million ounces. In fact, the net purchases by silver ETPs have totaled $354 million YTD, the largest influx of all commodity ETPs! Meanwhile, gold-backed ETPs have seen sales of 500,000 ounces, about a 1% drop. Jewelers Love Low Prices – Low prices for me have led to increased silver jewelry purchases. As just one example, the UK reports that silver jewelry sales jumped 40.4% in February, to 351,791 items. India Just Won’t Stop Buying – India imported 5,500 tonnes of me last year, 180% more than 2012. Imports comprised 20% of all global demand. Last month’s silver imports were 250% lower. This was mostly due to the recent increase in import duties, and the fact that six banks got permission to import gold, which would soften purchases of me. This could partly explain why my price has struggled. But as long as politicians keep gold restrictions in place, Indians will keep buying me. China: More Silver for Solar – Chinese imports of me rose drastically in February, up by 75% month on month and 90% year on year to 358 tonnes, the highest since March 2011. Though lower the following month, March imports were up 16% year over year. China’s solar industry is growing explosively. In 2009, it represented about 0.2% of the global market; this year, it’s estimated to be one-third. It’s interesting to note that my price rose in February and fell in March, which suggests that Chinese demand affects my price, too. Supply Sources Are Concerning – So far, suppliers have managed to meet demand. However, there are dark clouds on the horizon…Very little excess supply is expected this year, as production is projected to remain flat, and demand for me shows no signs of letting up. Solar power accounted for 29% of added electricity capacity in America last year. “More solar has been installed in the US in the past 18 months than in 30 years,” says the US Solar Energy Industries Association. “Eventually solar will become so large that there will be consequences everywhere.”  Supply from recycling will probably be weak, because it’s not cost effective to recover every tiny bit of me from cellphones or prescription eyewear or casino chips. One report says that Americans threw away 130 million cellphones last year, containing over 46 tonnes of me. Several major base-metals mines are expected to be depleted over the next several years. The problem is that two-thirds of me is a byproduct from base-metals operations—if their output falls, there will be less of me, as well. The Silver Institute says that demand for industrial products made from me continues to grow. No Regrets – As I look at your current situation from a historical perspective, I see a lot of catalysts that will catapult my price higher in the near future. It seems rather clear that as demand continues to grow, supply tightens, and my role as money grows more substantial, I will trade at much higher levels in just a few short years. In fact, I offered to bet my cousin gold that I will outperform him before this cycle is over. He declined to take the bet. The clock is ticking. Don’t set yourself up for regret when my price leaves $20 in the dust. Your friend, Silver.

I enjoy reading Casey Research and Doug Casey is a legend in the precious metals business and has been around longer than me. Credentials aside however remember what I have always said about real silver investors. They are rabid in their belief and have been since silver moved from real money in the 1960’s to a real government fiat currency hedge today. Today’s silver bullion investor is so sold on the idea that silver is cheap that every time one comes into the store I look forward to the next story. Not bunk but real stories which relate to why silver is undervalued. And like Jeff Clark in this imaginative letter, the story of where we might go from here is yet to be written. 

Platinum closed up $12.00 today at $1430.00 and palladium was also stronger up $7.00 at $807.00.   

The walk-in cash trade was busy most of the day with no definable trend – there were plenty of buyers and sellers. The phones were just average to slow.

The GoldDealer.com Activity Scale is a “5” for Tuesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Wed – 7) (last Thursday – 6) (last Friday – 5) (Monday – 5). The scale (1 through 10) is a reliable way to understand our volume numbers.

Live pricing on the site moves all bullion products up or down during the day. The Bullion Products link on the home page now includes our Bid (blue) and Ask (green) prices. Premium quotes vary with product and look like this – “spot plus $15.00” or “spot plus $50.00” and bullion products list them under the live prices on their respective landing pages.

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Our best price guarantee (buying or selling) remains famous so call Kenny (1-800-225-7531) and get more money in your pocket. We guarantee your satisfaction and include our No-Nonsense Policy (NNP) which clients consider a welcomed extra. Like us on Facebook and follow us on Twitter @CNI_golddealer. Thanks for reading and enjoy your evening. The big sellers today were the American Gold Buffalo 1 oz coin and the RCM 100 oz Silver Bar.

American Gold Buffalo 1 oz RCM 100 oz Silver Bar

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