Commentary for Thursday, May 1, 2014 – Gold closed down $12.50 today at $1283.10 in again what looks like a bearish market pushed by technical selling. But the bears do look tired (30 day chart) forming a recent double bottom around $1280.00. Gold did test the $1278.00 level before closing above its 100 day moving average ($1281.00) in a trading pattern very similar to what we saw two weeks ago affirming support in a tight trading range.
Personal income was up 0.5% and spending up 0.9% which should be positive for the metals but we are still in the shadow of the surprise 0.1% rise in 1st quarter GDP announced yesterday. The Fed continued the taper program yesterday moving down from $55 billion to $45 billion per month.
This from Debbie Carlson (Kitco) – How gold reacts to Friday’s U.S. nonfarm payrolls data could be telling for market direction, especially if the data come out weaker than expected, says UBS. The firm says gold’s muted response to soft first-quarter gross domestic product data suggests that investors “don’t have enough conviction to buy the metal.” If payrolls come out below consensus and gold doesn’t rally, “then this would be quite a damaging outcome for the yellow metal. After all, U.S. monetary policy forces are the leading push and pull factors for gold currently,” the firm says. Investor sentiment in gold is bearish, UBS says, so “the greater price reaction should therefore come from a ‘good’ payrolls report tomorrow, which finally spurs negative sentiment into negative positioning. To swing investors from bearish to bullish requires time; many will prefer to wait until the break higher is already established rather than being directional leaders.”
Silver closed down $0.13 at $18.99 and last summer we saw the $18.60 level which created big physical sales across the counter. A still muddled economy, lack luster news and a difficult technical picture contribute to this recent slide under $20.00. But we have entered the sweet spot when it comes to physical buyers so this is where we see a real disconnect between the physical and paper market. We expect another big jump in physical sales as the public takes advantage of cheaper prices. Concerning the $45 billion dollar taper number – at that rate you could buy all the annual silver production in 12 days. Today the 10 oz Silver Bar was a big seller.
Platinum closed down $1.00 at $1426.00 and palladium was up $2.00 at $814.00. Trades of gold bullion for platinum or palladium bullion have slowed considerably although we still favor this diversification. If your interested in platinum the Australian Platinum Platypus is a great investment.
I have never bought the idea that the Federal Reserve was stuck with the current quantitative easing program and so, as the theory goes this program will continue indefinitely supporting gold. The idea however is popular in the physical gold business.
Also on my side of the table is the notion that gold has seen most of the damage it will see as a result of continued tapering. So the sooner the Fed gets on with it the better because this will help in rebuilding confidence with investors. Read this latest assessment by Reuters.
(Reuters) – The Federal Reserve on Wednesday looked past a dismal reading on first quarter U.S. growth and gave a mostly upbeat assessment of the economy’s prospects as it announced another cut in its massive bond-buying stimulus. Recent information “indicates that growth in economic activity has picked up … after having slowed sharply during the winter in part because of adverse weather conditions,” the central bank said in a statement after a two-day meeting. “Household spending appears to be rising more quickly,” it added, although it said business investment “edged down.” The Fed said it would reduce its monthly bond purchases to $45 billion from $55 billion, a widely expected decision that keeps it on track to end the program as soon as October. The decision was unanimous. Just hours before the statement was released, the government reported that the economy grew at only a 0.1 percent annual rate in the first quarter, but the Fed pinned its hopes on other recent data that has suggested activity is bouncing back. Indeed, its statement was more upbeat than the one it issued after its last policy meeting on March 19. At that time, it noted that activity had slowed, although it said harsh winter weather was at play. “What the Fed is saying is ignore this first quarter number, it’s not reflective of the underlying strength in the economy,” said Phil Orlando, chief equity market strategist at Federated Investors in New York. Stocks closed up modestly, while prices for U.S. government debt rose after the Fed’s announcement. The dollar, which had dropped on the disappointing news on first quarter growth, held steady against the euro and the yen. STEADY AS SHE GOES – The Fed has now reduced its monthly bond purchases by a cumulative $40 billion in four steady steps. The gradual tapering seeks to close an era in which the central bank’s balance sheet quadrupled to more than $4.2 trillion through three separate purchase programs launched to battle the financial crisis and the recession and slow growth that followed. The projected end of the program sets the stage for a series of policy decisions expected next year on when and how to reduce the balance sheet to more usual levels, and, most notably, when to move the target interest rate above the near zero level maintained since late 2008. The Fed disclosed that its board of governors met on Tuesday to discuss “medium-term monetary policy issues,” the type of session that in the past has preceded important policy changes. But Janet Yellen’s second meeting as Fed chair offered no specific new guidance on rates or other core questions the Fed must answer in coming months. The Fed’s policy panel said in its statement that it will keep the overnight target rate between 0 and 0.25 percent “for a considerable time” after the bond buying ends – the same formulation it used after its March meeting. Indeed, outside of its discussion on the economy, the Fed’s statement was little changed from last month. Going forward, the bond purchases will be split between $25 billion of Treasuries and $20 billion of mortgage-backed securities, a cut of $5 billion a month to each. Analysts expected little out of this session as the Fed enters what may prove a sort of holding pattern as it closes out the bond purchases and debates when an initial interest rate increase may be warranted. Investors currently expect the first rate rise around the middle of next year. With little sign of inflation and unemployment at a still-elevated 6.7 percent, Yellen has said there is plenty of “slack” in the economy. In its statement, the Fed noted that unemployment “remains elevated” and that continued improvement required “appropriate policy accommodation” in the form of continued low borrowing rates. While the GDP report did not throw the Fed off course, it could influence the discussion going forward. The 0.1 percent annual growth rate was far below expectations. “This certainly is going to give Janet Yellen’s camp a lot more ammunition to remain on the more neutral to dovish side,” Richard Cochinos, a currency strategist at Citi in New York, said ahead of the Fed’s decision. It will also focus attention on the next round of data on jobs and inflation as signs of whether what the Fed analyzed as a winter lull was in fact nothing more than that.
The walk-in cash trade was active today and so were the phones. Better than average really but about right considering we are seeing cheaper prices and nothing pushes business better as far as the public is concerned.
We are thinking of putting an In and Out Wagon in our parking lot when the need for a hamburger arises. Everyone loves a good hamburger and we thought it would be a nice way of saying “thanks” for the business. Anyone with a tax free invoice ($1500.00) can get a free Double/Double on the way out. The truck would be in the parking lot about 2 hours and we would have tables in one corner. The upside to this idea is getting a great hamburger when you make a purchase in person. The downside is that while we have a large lot this idea might create a parking problem for vegetarians. Please opine at RSchwary@aol.com and thanks for the input.
The GoldDealer.com Activity Scale is a “4” for Tuesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Friday – 5) (Monday – 5) (Tuesday – 5) (Wednesday – 3). The scale (1 through 10) is a reliable way to understand our volume numbers.
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