Commentary for Monday, Jan 26, 2015 – Gold closed down $13.20 at $1279.40 on continued pressure selling from Friday on profit taking and a strong dollar.
The Syriza party as expected won Greek elections over the weekend. They are Marxist, left leaning and anti-austerity. There has been some concern that they may want to leave the European Union but a recent poll showed 74% of Greeks are against such a move – but such talk may just be saber rattling in a move to gain strength as the new governing party renegotiates austerity provisions.
Silver closed down $0.32 at $17.86. Keep in mind that some profit taking in silver is also expected as it has rallied about 18% from recent lows. Activity has picked up in $1000 face 90% silver bags which are now trading at $1.70 over spot delivered.
Platinum closed down $12.00 at $1255.00 and palladium closed down $8.00 at $782.00.
Gold is weaker on continued profit taking and classic “buy the rumor and sell the fact” trading. The expected boost to the price of gold on specific EU quantitative easing plans last week provided no follow through safe-haven buying in Europe. The euro fell to as low as 1.109 today but don’t think that just because the EU has begun inflating that the euro will continue weaker.
And even the anti-euro election results in Greece provided little good news for gold. The reason Greece gets press is not because their piece of the EU pie matters much – it is because their problems of ballooning debt and lack of economic traction create a bigger concern that all is not right in Europe.
This concern is overblown in my mind and so while Greece creates tension it is not a big prime mover. The interest rate she pays on bonds has moved from less than 6% to about 10% so there are problems but we have seen this many times before and there has been no domino effect.
What seems to be holding gold back after this most recent run is the usual culprit – look at the 5 day chart on the Dollar Index. We have moved from 93 to 95 and WTI crude oil is steady around $45.00 a barrel. The stronger dollar and stable crude oil coupled with a low inflation model encourages the paper markets. Look at the European exchanges this morning after the EU President Draghi’s announcement last week of formal quantitative easing.
I would not go as far as saying this looks like a relief rally in European stocks but clearly the Draghi move helped calm the waters. They are reacting the same way as our stock market did when we were buying bonds.
Money remains cheap and corporations are masters at deploying large sums in this environment. Under these rules corporations can borrow huge sums – buy back stock and pay high dividends relative to US interest rates.
These factors coupled with the expectation of lower inflation creates less excitement for gold traders and less buzz in the US physical markets. Keep in mind however this is not a one-way street – physical gold defined in say the euro or the ruble is looking pretty good.
This most recent pullback in gold will also be subject to the actions by the Federal Open Market Committee meeting this week. The usual format (Tues and Wed) with no information released until after market closes on Wednesday. Most expect no changes in the interest rate which will support gold on the shorter term. But higher interest rates (sooner or later) will pose another challenge to gold in the short to medium term so there is still plenty of heavy lifting to be done in 2015.
Technically the bulls still have an advantage on the short term – but that’s all because momentum is waning. Gold over the past 30 days is in positive territory by around $80.00 and support looks reasonable within $10.00 either side of $1280.00.
Gold’s Moving Averages here are important: 50 Day ($1214.00) – 100 Day ($1212.00) – 200 Day ($1252.00). For now we are trading above all three which makes the bulls happy but any move toward the important 200 Day Moving Average ($1252.00) will make everyone very nervous. On the shorter term a move below the $1280.00 range will signal further consolidation.
This from Bloomberg (Eddie van der Walt) – Russia Adds to World’s Fifth-Biggest Gold Reserves for 9th Month – Russia is showing no signs of slowing gold purchases as the fifth-biggest holder boosted reserves for a ninth month.
The country’s gold reserves rose to about 38.8 million ounces as of Jan. 1 from 38.2 million ounces a month earlier, the central bank said today on its website. It’s the longest stretch of monthly increases since August 2013, data from the International Monetary Fund show.
Russia has more than tripled its gold hoard since 2005 and holds the most since at least 1993, even as it recently had to use its international reserves to defend the ruble. Sanctions imposed by the U.S., the European Union and their allies have compounded the effect of plunging energy prices and led Russia’s economy to the brink of recession. The ruble slid almost 50 percent in the past 12 months.
“For a central bank to change direction quickly is unlikely and Russia has been buying gold for a while,” David Jollie, an analyst at Mitsui & Co. Precious Metals Inc. in London, said by phone Thursday. “But it is a bit surprising to see them swapping foreign currency for gold in an environment where oil prices are falling.”
The latest purchase equals about 18.7 metric tons, similar to amounts bought in November and October, and compares with 37.3 tons added in September.
The walk-in cash trade was off today but not exactly quiet and the phones saw significant action on the open but faded later in the day. I still think the real physical market lacks some conviction – they were not exactly lining up after Friday’s information concerning the new ECB playbook.
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