Commentary for Friday Oct 11, 2013 – Gold closed down $28.60 at $1268.00 as large sell orders came in on the New York opening (2 million ounces sold in about 15 minutes) which triggered sell stops pushing gold as low as $1260.00. I think you have to now consider another test of $1200.00 support last seen in July which if held would put in a bullish double bottom for gold.
Perhaps a pattern here considering gold dropped $40.00 on October 1st and $60.00 on April 12th. So a couple of stories are floating around (and I mean floating): first a large hedge fund is selling and second the Fed is doing what it can to keep gold low to appease the Chinese (who happen to hold a huge Treasury note position). No comments please I am just a rumor junkie.
Silver followed gold lower down $0.64 at $21.21.
Platinum was down $20.00 to $1374.00 (Barclays thinks the platinum premium to gold will increase based on fundamentals) and palladium was unchanged at $712.00.
And now the famous Kitco Gold Survey for the upcoming week: “Bearish technical charts and negative general sentiment about gold is expected to weigh on prices next week, said a majority of participants in the weekly Kitco News Gold Survey. In the Kitco News Gold Survey, out of 34 participants, 26 responded this week. Of these, four see prices up, while 18 see prices down and four see prices sideways or unchanged. Market participants include bullion dealers, investment banks, futures traders and technical-chart analysts. Last week, a nominal number of survey participants were bullish. As of noon EDT Friday, December gold on the Comex division of the New York Mercantile Exchange was down about $41 for the week. Survey participants who see weaker prices said there’s very little to support gold in the short term. “Gold futures are facing the mounting pressures of a potential deal on the table. The unfortunate reality for gold bulls is that we never had that big boost like we saw the last time compromising the debt ceiling was in jeopardy. Therefore I feel that the path of least resistance is lower,” said Phillip Streible, senior commodities broker at RJ O’Brien, referring to the talks in Washington. Adrian Day, president and chief executive officer at Adrian Day Asset Management, also sees prices lower, adding that the current action in gold is confusing. “I have to admit to being puzzled at gold’s recent performance. The environment is positive for gold, particularly the monetary environment, from the lack of ‘tapering’ last month to the appointment of arch-dove Janet Yellen to succeed (Federal Reserve Chairman Ben Bernanke). The dollar is down over the past month, global liquidity has increased, and yet gold languishes. Investors are probably looking ahead to the eventual reduction and end of stimulus. But in my view this is a long way out. But for now, gold will likely languish,” he said. Those who are neutral on prices said they are standing to the sidelines until something is resolved over the debt ceiling deadline and U.S. government shutdown. The few analysts who see higher prices said gold prices are oversold and they expect bargain hunters to come back in. Allen Sykora contributed to the survey.”
For some inexplicable reason the Kitco team has not called me for my opinion on the direction of gold or silver or platinum or palladium. Hmmm…nonetheless there is no doubt that negative sentiment is once again moving to the heavy side. Believe it or not this is good: cheaper is better when it comes to gold and when everyone has abandoned the gold ship in favor of the fiat currency promise the market has bottomed. This comment might be getting old but in the meantime take advantage of the sale and continue to accumulate on weakness.
If you look at a 60 day chart in gold prices have been weaker since late August. Now compare a 3 month chart of the US Dollar Index which has also trended generally lower since July and you will see gold is moving lower as the dollar is moving lower which should produce a big question mark. It is possible the gold/dollar relationship which should generally move opposite one another is telling us something? Is this deflationary or the continued de-hedging of long term physical positions either in the playbook (Exchange Traded Funds) or the large off the books gold bullion trade? I know the generally proffered position here is that the Asian trade is picking up all the ETF selling and that even that selling is flattening out meaning the offload amount is growing smaller. If this is true the bulls will smile but what if the “other trade” is bigger than most think? Anyone have any ideas here: opinions please…thanks.
The paper price of gold (COMEX) has been dragged around the physical gold market by the nose my entire career in the precious metals business. The COMEX is so imbedded in the day to day thinking of every coin dealer and precious metals business in this country that we all have come to believe that the paper price of gold and the real article might be the same. But clearly they are very different and Julian Phillips (www.GoldForecaster.com) points this out nicely in a recent Kitco post: “A fact that is usually overlooked in the media when they comment on COMEX is that the physical transactions that take place there, account for a maximum of 5% of transactions. It is only these that could have a direct bearing on the gold price. How? Ninety-five percent of transactions in the futures and options markets are terminated before they reach the date on which gold has to be delivered. The purpose of this is not simply to make profits (which are the sole purpose of the speculator) but to hedge a physical position. As we discussed in an earlier part of the series, such moves are to protect against the risk gold prices pose to a miner or manufacturer who profits from the business of producing gold products. But they can be used by a speculating institution, such as Goldman Sachs or J.P. Morgan Chase, who as they did in April, sold around 400 tonnes of gold on COMEX with the full intention of buying the gold back before the contracts matured. Let’s be clear: this was not a gold transaction, but a financial transaction only linked to the gold price. It did not involve the movement of gold, nor did it affect the gold price directly (except through the psychological impact on the gold market itself). In conjunction with the positions established in the futures and options markets, the banks and their clients sold 100 tonnes of physical gold very quickly so as to swamp the gold market, as the SPDR gold ETF was seeping gold from U.S. gold funds. Since the beginning of the year to May, the U.S. sold around 1,000 tonnes of gold. Together this huge amount of physical gold (in a market whose daily supply of gold is just over 11 tonnes) reaped around $6 billion in speculative profits and knocked back the gold price around $460 an ounce. Speculators will argue that they are part of the supply/demand equation and they are, but are not part of the big picture of either supply or demand. This is because their short-term positions are always closed out. They are, as we described in the first part of the series, like waves on the seashore going both ways, but not affecting either the tide or the current. Because they’re part of the highly sophisticated market mechanisms, including high speed computer trading, they can, and freely do, affect prices in the short-term. But what happened to the gold that was sold out of the U.S.? It went to refineries in Switzerland, in particular, and from there to Asia, never to return. That final move is part of the current and tidal effect of the market. Just as the massive hedging of the last century we looked at in the second part was ‘de-hedged’, post 2005, to accelerate the rise of the gold price, so will any attempt to buy back the gold into the U.S. impact the gold price and take it higher.”
Both walk in cash trade and the phone business were busy today with lower prices. The public is active in both buying and selling so action seems split between the bulls and the bears. Volume numbers are increasing but this is interesting: US Silver Eagles sales have fallen off a cliff meaning the public is now ignoring what was once its favorite silver bullion choice, choosing instead the cheaper 1 oz silver round. Finally we have written a few “big-boy” gold bullion orders from long time customers.
The almost famous LA Physical Business Number is as follows (note the change to a weekly tally): Mon: 6 / Tues: 6 / Wed: 2 / Thurs: 2 / Fri: 2 and my totally ignored scale is based on combined CNI computer volume numbers (over “5” is busy). This is worth a peek because it is the only real physical gauge shown by a large dealer which points toward “buzz” (or not). Phase One of our new golddealer.com web site will soon be complete and includes a new look along with live pricing. It will also include Live Chat, you will be able to set up your own customer account, and you will receive automatic email confirmation on buying or selling. Look for further interface improvements before year end which makes accounting, shipping and tracking easier (check to see if we have your email in the new system). We now offer the choice of USPS or FedEx Ground.
Our new flat screens within the CNI Building are up and operational and the cash trade loves this idea. The feed and graphs are live (gold, silver, platinum and palladium). Bullion products are programmed with premium spreads so your choices are easier. As usual cash is always available. There is nothing like this on the West Coast and visitors enjoy complete transparency when buying or selling.
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Written by California Numismatic Investments (www.golddealer.com).