Commentary for Thursday, Fed 12, 2015 ( www.golddealer.com) – Gold closed up an unconvincing $1.20 on the Comex at $1220.10 but this market feels heavy to me.
We are back to a guessing as to when the Federal Reserve might raise interest rates – perhaps this summer. But it was not too long ago that interest rate talk would have to wait until next year – the Federal Reserve is all over the street.
But any such move will not be good for gold. At the same time look at today’s retail sales – down 0.9% in January from down 0.8% in December. With numbers like these and Europe ready to assume world leadership in quantitative easing a rise in interest rates does not make sense.
On the short term gold is up today because the dollar weakened considerably. The Dollar Index closed yesterday at 94.93 and has been at or above the 95.00 level for more than a week. Today the high/low spread on the Dollar Index was 94.97/93.98 and is 94.10 as of this writing. In other words we have lost about a point in value between yesterday and today. A significantly weaker dollar usually pushes gold higher.
WTI Crude for March closed yesterday at $48.84 and today is trading around $50.65 so we are back in the $50.00 range. This supports gold but most traders look for a settling perhaps even back into the low $40.00 a barrel range. It’s not the weakness so much as the variation which unnerves the traders – stability is better.
Yesterday the dollar was strong against the yen and gold moved lower but as I said the short trade is at work here so many of these sudden “up” and “down” moves are paper traders looking for profit advantage. Today the market is firmer on a short covering rally which pushed gold higher – but the real problem is that does not seem to act too concerned with geopolitical problems. In other words today if a hot spot develops – like in Greece, the price of gold may firm on the short term – European Central Bank quantitative easing options is another example – prices firmed and then moved lower. The Russian/Ukraine problem has serious implications – if you are old enough to remember Ukraine was a big poker chip in World War II.
Gold does not seem concerned that major central banks are experimenting. Yesterday was a perfect example as the Bank of Japan is now thinking that too much stimulus is their problem! The yen got stronger over talk and all the conversation that what Japan needed was more liquidity might become history. At the very least this should raise some concern over whether the Captain of that ship should be at the helm.
All of these problems should push the price of gold higher but they collectively have little staying power – the reason being that traders and investors really do not fear the outcomes. They should – massive fiat currency creation and raw aggression between sovereign states have consequences but the world in general has upped the ante across the financial board.
A pop in our money supply of $4 trillion – no problem. Greece can’t pay their bills – we will lend you more money – repayment to be considered at a later date. By the way rolling over 240 billion in euro debt is guaranteed to bring this problem back to a theater near you – and soon.
The European Union needs more cash to grease the economic skids – fine we will invent a convenient bond buying program even though early EU plans excluded such manipulation.
It’s easy to see where I’m going with this – let’s call it the “Wimpy Strategy” for all you old Popeye fans: “I will gladly pay you Tuesday for a hamburger today”.
And as long as cheap money (remember the US has held interest rate near zero since 2008) is the name of the game – everyone makes out. Wall Street can’t get their bets down fast enough and who can argue with their success? No inflation and a boat load of fiat currency encourage unwise speculation and the casino environment makes everyone feel as though this ride will last forever. I’m not saying don’t take advantage – I own some stocks and welcome the economic recovery – but I would not let it all ride in this kind of wild environment.
Silver closed up $0.02 at $16.77. The physical market across our counter is steady but nothing to write home about – even though premiums are cheap and silver bullion is trading at 66% below the 2011 peak. There are a ton of incentives to buy this market even if you are not a contrarian investor so moderate activity in disappointing – $1000 face 90% silver bags are selling for only $1.50 over spot! Still silver investing is either white hot or non-committal so crying over the term moderate might be looking a gift horse in the mouth.
Platinum closed up $5.00 at $1203.00 and palladium closed up $7.00 at $773.00. There is some activity here prompted by the fact that platinum is now trading $17.00 under gold. That’s cheap from a relative standpoint – solid platinum bullion products are a bit sketchy but there is enough around to fulfill orders if you are not too product specific.
Chicago Mercantile Exchange reports for the last 5 trading days – so we are looking at the trading volume numbers for the April Gold contract: Thursday 2/05 (287,457) – Friday 2/06 (276,159) – Monday 2/09 (269,660) Tuesday 2/10 (267,480) and Wednesday 2/11 (264,072). On the higher end of the range and steady.
This summary from the World Gold Council – Gold Demand Trends Full Year 2014
This edition of GDT examines all the latest developments of gold demand and supply during 2014 by sector and by region.
Jewellery demand subsided 10% to 2,153t in 2014, but remains comfortably above the 2,053t five-year average
A decline in jewellery demand in 2014 was unsurprising in light of the phenomenal strength in 2013. Demand gradually recovered throughout the year, culminating in the strongest Q4 since 2007.
Investment demand rose 2% to 905t; sentiment remained muted but ETF outflows fell
ETF redemptions slowed to a fraction of the hefty outflows witnessed in 2013, while demand for bar and coins among smaller investors dropped by 40%. However, the step change in bar and coin demand sparked off by the financial crisis shows no sign of reversing.
Technology declined to 389t in 2014 as substitution to cheaper alternatives persists
Full year demand contracted to 389t – the lowest level since 2003. Sluggish economic conditions in key markets and ongoing substitution away from gold remain the driving forces behind the 5% drop last year.
Central banks purchases grew 17% to 477t; sales continue to be insignificant
Central bank net purchases totaled 477 tonnes in 2014, 17% above 2013’s impressive 409 tonnes. This represents the second highest year of central bank net purchases for 50 years, after the 544 tonnes added to reserves in 2012.
Supply remained static in 2014 at 4,278t; record mine production counterbalanced by fall in recycling
Total gold supply was little changed in 2014; however this masked disparities in the underlying components. Recycled gold fell to a seven-year low, while annual mine production grew for the sixth straight year, up 2% to a record of 3,114t.This left full year supply virtually unchanged at 4,278t.
This from Matt Egan – 25% of physical gold buyers are crazy, metals executive says – A lot of people who buy bits of physical gold aren’t looking to make a bracelet or ring. They buy gold because they believe disaster is imminent.
These investors are convinced gold will spike to $10,000 an ounce (it’s currently around $1,225) when the U.S. government implodes, said Peter Hug, an executive at metals retailer Kitco.
Hug calls these people “crazies” and says they form a substantial amount of the U.S. physical gold market — at least 25%.
It’s no secret that gold has long been viewed as a form of insurance against disaster. The thinking is that even if the financial or political system collapses, gold will still hold value.
The yellow metal is also widely seen as a hedge against inflation and the collapse of the dollar. Those are two things gold bugs have been deeply worried about given the massive amount of money printing the Federal Reserve has done since the Great Recession.
The end-of-the-world trade: Hug’s comments at the Inside ETF Conference last month may raise some eyebrows because he is an executive at one of the largest online retailers of precious metals in North America.
These so-called crazy gold provide lots of business for Kitco. He said their influence is most obvious in the market for smaller units of physical gold between one and 32 ounces.
“These investors buy the metal and it just disappears. It goes under their mattress. They want to use it when the world ends,” Hug told CNN Money.
Irrational fears or smart safeguards? Peter Schiff, an outspoken gold investor for years, said this characterization of gold buyers is unfair.
“The fears of an economic collapse in the United States are not irrational. I think it’s more irrational when people are complacent that nothing can go wrong,” Schiff told CNN Money.
It’s tough to second guess those who bet on gold before the meltdown of Lehman Brothers in September 2008. Prices spiked from around $800 an ounce in late 2007 to more than $1,800 in 2011 as central bankers raced to stabilize the financial system and get out of the Great Recession.
Where’s the hyperinflation? Yet inflation remains nonexistent. Heck, deflation is more of a concern right now in many parts of the world. That’s partially why gold has dipped to under $1,250 an ounce today.
Schiff concedes that some people are so paranoid that they own nothing but physical gold.
“That is being too fearful and maybe obsessed with it. But is that any less rational than the person who owns no gold whatsoever?” he asked.
Schiff said his brokerage firm, which sells physical gold for delivery, recommends people have 5% to 15% of their investment portfolio in physical gold.
Playing the fear card: Hug, a Canadian, said the fear trade is far more common in the U.S. than it is north of the border. This could partially be because Canada’s financial system is viewed as less risky than Wall Street and experienced far less stress in 2008.
“You can’t play the fear card if you’re a dealer or a speaker as well in Canada as you can in the United States,” he said.
The walk-in cash trade was uneventful today – business was steady on the smallish side with no good stories from customers. We get our share of old timers – steady buyers and sellers from the 1970’s. They provide the best stories – amazing really about bootleg refiners using their garages to produce crude bars. Illegal today – environmental problems – but some of the old bars are still floating around. The phones were on the quiet side.
The GoldDealer.com Unscientific Activity Scale is a ” 3” for Thursday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 3) (last Friday – 4) (Monday – 4) (Tuesday – 4) (Wednesday – 3). 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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