Gold Makes New Recent Highs and Sells Off Over Oil

We have moved above the important $1230.00 level so it’s time to once again check Gold’s Moving Day Averages – 50 DMA ($1193.00) – 100 DMA ($1212.00) and finally the 200 DMA ($1254.00). The 200 day is the really big deal so a move above $1254.00 will carry significant confirmation weight. But before we get the party hats out let’s consider why gold got cold feet at $1245.00 today.

Gold in the overnight Hong Kong market saw decent upside action moving above the important $1240.00 line and reached a high of $1245.00 in the domestic trade before selling off. I think all the kerfuffle had to do with safe haven buying created by weak oil.

And I still think we are in for some profit taking in gold unless Europe really bombs.

This from CNBC – “Gold has extended gains to climb to its highest level since last October as investor demand for safe havens is on the rise as the price of oil continues its tail-spin. New data on gold positioning shows investors are increasing their long positions, or bets that the yellow metal will increase in price, with gold net longs at peaks not seen since August last year according to UBS.”

Now look at WTI crude prices on the opening – the market traded lower moving below $44.75. This set up the positive scenario for gold – oil was lower and most believed it would move downward from that point – creating more discord in Europe. This is where the real safe haven buying emerged reinforcing the higher overnight trend.

Now look at what happened to WTI crude around 9 am in the domestic trade. The oil market rallied to over $46.00 a barrel and the safe haven buying in gold subsided.

The reason this is worth considering is that while gold purists always point toward physical gold as a sure safe haven the rest of the world is out of focus. With the amount of fiat cash floating around the definition of safe money is always under review.

Think about it – would anyone have imagined that after the financial collapse the 2015 stock market would offer dividends from major companies in the 6% to 12% range? Impossible with Federal money near zero you say – well it’s happening all over the block and holding gold as a safe haven is moving to the back burner. That’s why any real link to owning gold bullion in the media is welcomed.

Gold commentary (positive or negative) has been absent on the news channels – but today CNBC mentions our friend: Gold – recently considered “old hat” may be making a comeback.

This from Sarah Benali (Kitco) – Signs of a Bottom for Gold? – ETF Securities – “Holdings of gold-backed exchange-traded products closed off the year on a negative note; however, ETF Securities said the resilient gold price so far this year, among other factors, may be hinting at a bottom for the metal.

Despite substantial gold and silver ETP outflows last quarter, Mike McGlone, director of research for ETF Securities, said gold prices were barely down “potentially indicating a foundation, forming near the US $1,200/oz level.”

McGlone also noted that declining global bond yields are increasing the “store of value attraction” of the precious metals sector for investors, adding that gold has outperformed the other precious metals so far this year.

“Gold was the best performing precious metal in the first full week of the New Year, gaining 3.9% as geopolitical fears supported defensive assets like bonds and precious metals,” he said.

According to McGlone, gold recycling, which accounted for roughly 37% of total gold supply over the past five years, may also be providing support for the metal. “With recycling having fallen to the lowest level since Q3 2008, it should help support a floor below which gold is unlikely to fall without triggering a further loss in supply,” he said.

So I’m not out dancing in the street over this modest push to higher ground in prices – but this does suggest gold is regaining its some of its luster relative to safe haven buying. This alone is big considering the Dollar Index is still above 92.35 and Wall Street continues to count the money.

Silver closed up a big $0.59 at $17.12. So if you are so inclined the water is fine – I would not be too worried because you might have missed a possible bottom at less than $16.00. This does not make any sense because by any standard this metal is still cheap relative to old highs.

Remember a 50% move in silver from current levels takes you back to $25.00 which is still cheap compared to the 2011 peak of $48.00.

Platinum closed up $7.00 at $1247.00 and palladium was higher by $1.00 at $851.00.

This from Associated Press – Why US Inflation Stays Ultra-Low While Job Growth is Surging – This isn’t explained in Econ 101. Month after month, U.S. hiring keeps rising, and unemployment keeps falling. Eventually, pay and inflation are supposed to start surging in response. They’re not happening.

Last month, employers added a healthy 252,000 jobs – ending the best year of hiring since 1999 – and the unemployment rate sank to 5.6 percent from 5.8 percent. Yet inflation isn’t managing to reach even the Federal Reserve’s 2 percent target rate. And paychecks are barely budging. In December, average hourly pay actually fell.

Economists are struggling to explain the phenomenon.

“I can’t find a plausible empirical or theoretical explanation for why hourly wages would drop when for nine months we’ve been adding jobs at a robust pace,” said Patrick O’Keefe, chief economist at consulting firm CohnReznick.

Normally, with unemployment this low, the Fed would raise its benchmark interest rate to prevent inflation from spiking and the economy from overheating. Not this time. Though the Fed’s record-low rates have helped support the economy since the 2008 financial crisis, those low rates haven’t met their other goal of raising wages and inflation to normal levels.

As long as inflation stays consistently below its target, the Fed might feel pressure to delay a rate increase beyond midyear, when most economists have predicted a hike. Thanks in part to plunging oil prices, many economists now envision even less inflation this year than in 2014.

When the U.S. economy last enjoyed a similar hiring binge, in 1999, average wages climbed 3.6 percent, compared with 1.6 percent last year, according to the government.

So what explains consistently solid job growth without inflation? Here are four crucial factors:

Recession’s Lingering Damage – Though the unemployment rate is back to a nearly healthy level, many other measures of the job market remain subpar.

There are still 6.8 million people working part time who can’t find full-time jobs, up from 4.1 million before the recession. Each of those workers potentially competes with the unemployed for full-time work, thereby holding down wages.

And there are 2.3 million people who have recently stopped looking for work, some of them because they grew discouraged about their prospects. Others chose to return to school or to care for relatives. That’s up from 1.3 million before the recession.

And a broader gauge of unemployment, which includes the officially unemployed as well as involuntary part-time workers and those who’ve stopped looking, is 11.1 percent. That figure has improved since the recession, but not as much as the official unemployment rate has.

Jennifer Durham, a vice president at the 800-fast-food restaurant chain Checkers, says it plans to add 50 to 60 restaurants this year. Each should employ 25 to 30 people.

But Checkers hasn’t faced much pressure to raise wages for hourly workers. “There’s no shortage of applicants,” Durham said.

The end of long-term unemployment benefits, which provided up to 99 weeks of aid until they expired a year ago, may also be contributing to lower wages, said Daniel Alpert, managing director at Westwood Capital, said.

That’s because some of the unemployed have likely had to take lower-paying jobs. Retail or restaurant jobs that pay at or near minimum wage don’t provide much more spending power than unemployment benefits did, Alpert added. That means the new jobs won’t raise inflation much if workers can’t afford to spend much more than they did when they were unemployed.

Blame the Robots – What’s happened in the auto industry reveals much about how the economy has been transformed — and why a nearly normal 5.6 percent unemployment isn’t igniting wages.

Sales of new cars last year reached 16.5 million, the best performance since 2006. But the gains have yet to restore every auto job lost to the recession — let alone expand the industry’s employment over the past eight years. The number of autoworkers remains about 160,000 shy of pre-recession levels of more than 1 million.

The reason: Companies fear returning to the days when they had too much factory capacity. So they’re squeezing more production out of less capacity. Emerging from the recession, automakers reconfigured factory floors and added robots to produce more vehicles from fewer plants and fewer workers.

What’s more, the United Auto Workers union agreed to wage cuts in an effort to help General Motors, Ford and Chrysler. New hires started at around $16 an hour, about half of what longtime workers earn.

Roughly a quarter of Detroit’s factory workers now make the entry-level wage. Even longtime UAW workers haven’t had an hourly pay raise since 2007, though they’ve received annual profit-sharing checks equaling about $4 an hour.

Similar trends have emerged at other factories and in other industries. O’Keefe notes, for example, that retailers are selling more goods than before the recession yet still employ fewer workers.

Though hiring has picked up in higher-paying industries, in many cases, wages are still lagging. Average pay at heavy goods manufacturers rose only 0.7 percent last year, less than half the economy-wide average. Pay for transportation and warehousing workers rose just 0.9 percent.

Check the Demographics – Seen more Uber-riding, Snapchatting millennials? Since the start of graduation season in May, employers have hired an additional 1.67 million college graduates — nearly 60 percent of all jobs added last year. In the past year, the number of 25-to-34 year-olds with jobs has climbed a solid 2.5 percent.

Because so much hiring has disproportionately occurred in recent months, Wells Fargo chief economist John Silvia figures that wages might be held down because many lower-paid entry-level workers are finding jobs. Their influx cuts into average wages while simultaneously reflecting the strength of job growth.

“Given that we’ve hired so many people in the last two or three months, you’re bringing in a lot of new workers who will not be paid as well as experienced workers,” Silvia said.

Dig a bit deeper and you find other age-based pressures: The number of workers older than 55 climbed an impressive 3.4 percent last year. But those employees likely maxed out their salary potential years ago and are unlikely to enjoy sharp pay hikes. The number of employed 35-to-54-year-olds — the age group most likely to be in their peak earnings period — rose less than 1 percentage point in the past year.

Global Reality Bites – No matter how much the U.S. economy improves, American workers still face competition from billions of workers in China, India, Eastern Europe and elsewhere who weren’t part of the global economy a decade or two ago.

That most of those economies, as well as Japan and the rest of Europe, are stumbling only intensifies the competition for jobs. Weak growth overseas has lowered interest rates and inflation — and therefore tempered pay growth — in many of the United States’ competitors. That means U.S. workers face continued low-wage competition.

At the same time, the dollar’s value is rising against other currencies, thereby making U.S. goods costlier overseas. This limits the ability of U.S. workers to secure higher pay. Many U.S. companies can move operations overseas.

O’Keefe notes that this trend increasingly hurts skilled U.S. service workers. Software engineers, legal researchers and IT help desk workers all compete with lower-paid workers overseas.

The walk in cash trade was on the quiet side again today and the phones were just moderate. Even with the metals making new recent highs this has not created a big jump in interest. This is not surprising – folks are waiting for the other shoe to fall.

The big question is whether gold has bottomed in the $1200.00 range or are we in for more back and forth unwinding and perhaps see lower prices? That’s the problem with bottom guessing – you can never be sure about anything.

So while a “wait and see” is smart on the short term it may not be the best approach in the long term. The gold market has been basically sideways to lower since it sold off in the $1800.00 range the summer of 2011. I think discounts abound in all the metals so why not add a little at these lower levels – because if it turns out gold has bottomed the pile-on will happen quickly.

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