Gold Lower on Profit Taking – FOMC an Expected Non-Event for Now

Gold Lower on Profit Taking – FOMC an Expected Non-Event for Now

Commentary for Wednesday, April 29, 2015 ( www.golddealer.com) – Gold closed down $3.80 today on the Comex at $1209.80. This modestly weaker close is the result of several factors.

The first factor being that the Federal Open Market Committee is going to continue its watchful eye, promising change. The Fed did however leave the window open for a June rate hike – this is important. And even more important is that the FOMC believes recent disappointing economic numbers are weather related. The second factor gold was softer today was simple profit taking after nearly a $40.00 advance over the past two weeks.

If you are looking for a surprise in today’s gold close consider the dollar. The Dollar Index closed yesterday at 96.18 and the trading range today was 94.68 through 96.18 – trading at 95.20 at the time of this writing. The Dollar Index was actually fairly flat before the FOMC minutes were released but when nothing was done relative to interest rates the index dipped and we should have seen a significant rise in the price of gold. So my bet is that while the FOMC’s immediate decisions are important the fact that they left the interest rate window open for a summer pop holds sway over even a weaker dollar.

Silver closed up $0.09 at $16.67 and there was an unexpected pop in the number of American Silver Eagle Monster Boxes going out the door today.

Platinum closed up $3.00 at $1160.00 and palladium was also up $3.00 at $784.00.

This is the actual FOMC Press Release – Information received since the Federal Open Market Committee met in March suggests that economic growth slowed during the winter months, in part reflecting transitory factors. The pace of job gains moderated, and the unemployment rate remained steady. A range of labor market indicators suggests that underutilization of labor resources was little changed. Growth in household spending declined; households' real incomes rose strongly, partly reflecting earlier declines in energy prices, and consumer sentiment remains high. Business fixed investment softened, the recovery in the housing sector remained slow, and exports declined. Inflation continued to run below the Committee's longer-run objective, partly reflecting earlier declines in energy prices and decreasing prices of non-energy imports. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Although growth in output and employment slowed during the first quarter, the Committee continues to expect that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to remain near its recent low level in the near term, but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of declines in energy and import prices dissipate. The Committee continues to monitor inflation developments closely.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.” 

This is our usual ETF Wednesday information – these metrics are important to individual physical investors because they provide clues as to whether the physical market is enthusiastic and adding metals or is disappointed and selling metals.

Gold Exchange Traded Funds: Total as of 4-22-15 was 52,244,163. That number this week (4-29-15) was 52,167,288 ounces so over the last week we dropped 76,875 ounces of gold.

The all-time record high for all gold ETF's was 85,112,855 ounces in 2013. The record high for Gold ETF's in 2015 is 53,901,867 and the record low for 2015 is 51,057,082.

All Silver Exchange Traded Funds: Total as of 4-22-15 was 620,072,995. That number this week (4-29-15) was 621,755,405 ounces so over the last week we gained 1,682,410 ounces of silver.

All Platinum Exchange Traded Funds: Total as of 4-22-15 was 2,562,208 ounces. That number this week (4-29-15) was 2,576,136 ounces so over the last week we gained 13,928 ounces of platinum.

All Palladium Exchange Traded Funds: Total as of 4-22-15 was 2,911,049 ounces. That number this week (4-29-15) was 2,932,240 ounces so over the last week we gained 21,191 ounces of palladium.

Comments on Kitco this morning – The very large bank Barclays is looking for a tighter trading range for gold and less volatility. This has also been my position of late and this position makes more sense than the more dramatic flame throwing – “gold is becoming worthless” as the American public at least looks to stocks and real estate.

Barclays Bank also claims the back and forth action of Exchange Traded Funds is slowing – volume is moving lower – and they conclude investor interest is waning. This can be seen in our ETF information published each Wednesday but the conclusion drawn is actually good for the gold market. I see a completely different picture – interest in gold bullion domestically is obviously cooling but real world demand is solid – especially because we have entered the era of super fiat money produced out of thin air.

And like Barclays suspects gold is simply settling down into a less volatile and more dependable currency hedge at the lower end of its current trading range. The notion that there will be a final blow out in the price of gold at this lower level is becoming less likely. The battle for substantially lower gold prices may disappear after we settle the Fed interest rate question and gold may once again take its rightful place as a simple currency hedge.

I think this would be great for gold because it would curtail the drum-beat commentary about price expectation in gold and allow the domestic market to occupy the same space as China and India. In other words the American consumer might one day want to own gold just because it is real money and represents real wealth.

Now that would be a huge change in monetary thinking as opposed to buying into the Wall Street notion that a public traded company is worth billions of dollars just because its cash flow says so and it does not matter if the company is actually profitable. This accepted monetary postulate is just as preposterous as accepting the notion that the dollar is infallible because it has dodged the 2008 financial collapse. The surrogate of the American Federal Reserve fiat money system is the monolithic American corporation which can raise billions of dollars on an idea – well founded or not. And if just a small fraction of that uniquely American money raising machine sought the safety of real gold its price today would be amazing in deed.

This from Paul Ploumis (Hard Assets) Chinese gold demand taking a break? – The recent data issued by the China Gold Association suggests significant rise in gold production and consumption by the country during the initial three months of the current year.

The Chinese gold production surged higher by 14.7% during January to March this year when compared with the corresponding three-month period in 2014. The production totaled 110.704 tons during the period. In a document distributed to reporters during a press briefing, the association noted that the country’s gold consumption grew marginally by 1.14% during the quarter to 326.68 tons. The data suggests clear signs of gold demand growth, considering the fact that Chinese gold consumption had plunged by nearly 25% in 2014.

Meantime, adequate gold inventory levels have kept the gold imports down during the quarter. The gold shipments into the country from Hong Kong dropped from 67.575 tons during February this year to 66.363 tons in March. The gold imports during March were the lowest since August 2014. The sharp decline in gold imports is a clear indication that gold demand has started to ease. Going forward, the Chinese gold demand is unlikely to jump higher, stated China Gold Association.

The imports from Hong Kong provides overall hint on general gold import trends by the country. It must be noted that shipments enter the country through Shanghai and Beijing, for which official data is not published. According to unofficial reports, the People’s Bank of China is believed to have tripled its gold holdings since it last updated in April 2009.

The walk-in cash trade was active – even busy at times – no large sellers however there was a big jump in the sale of American Eagle Monster Boxes – the cash trade loves walking in here with green and walking away with sealed new boxes. A reminder however – a cash transaction in excess of $10,000 requires a form. The phones were very active all day and we sold pretty much in every bullion category.

The GoldDealer.com Unscientific Activity Scale is a “ 4” for Wednesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 4) (last Friday – 4) (Monday – 3) (Tuesday – 5). The scale (1 through 10) is a reliable way to understand our volume numbers. The Activity Scale is weighted and is not necessarily real time – meaning we could be busy and see a low number – or be slow and see a high number. This is true because of the way our computer runs what we call the “book”.

Our “activity” is better understood from a wider point of view. If the numbers are generally increasing – it would indicate things are busier – decreasing numbers over a longer period would indicate volume is moving lower.

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