Gold Mildly Corrective on Reduction in Quantitative Easing

Gold Mildly Corrective on Reduction in Quantitative Easing

Commentary for Wed, July 30, 2014 (www.golddealer.com) – Gold closed down $3.40 at $1294.90 pressured lower by a stronger dollar. The dollar was stronger, of course because the first look at the Second Quarter Gross National Product shows solid promise, up 4%!

Remember however these numbers are adjusted on a regular basis and GDP can vary dramatically – the classic example being the First Quarter Number coming in down 2.9%. And even that number was revised today – now down 2.1%.

If you can get your head around these metrics it’s good – but if you can’t the important thing to remember is that according to Uncle Sam (and President Obama today in a trumpet speech) our government and plans put into place by the Democrats are working.

Also of significance was the inflation measure inside the GDP showed inflation at 2.0% which is up 1.3% from the last quarter. And interest rates are mildly higher which is also a positive trend (please don’t throw tomatoes) in that most economists believe higher rates must happen sooner than later because we have remained at ridiculously low rates too long and sooner or later the fiddler will have to be paid.

The Federal Reserve will also trim another $10 billion off its bond buying program (quantitative easing) which will bring the total they spend each month to $25 billion. Not exactly penny pinching and the largest by far example of government largess seen in my lifetime.  Keep Alan Greenspan’s comments in mind – that the policy invoked by the Fed with this massive stimulus is a road never traveled before now.  

All of these closely watched (I think) economic numbers were released after gold closed but curiously its price reaction was muted. The overnight Hong Kong and London markets were marginally higher ($1305.00 to $1310.00) even though everyone figured the Fed would cut another $10 billion bring pressure on the price of gold. 

There was a sell-off in gold during domestic trading but initial reaction was mild by any standard and the market recovered nicely in the $1295.00 which I think is very supportive of gold but really for the wrong reasons.

We would normally see a larger selloff in gold with much improved economic data – this has been the case in the past and as quantitative easing moves lower so does gold. We may see this sell-off later in the day or in tomorrow’s trading but for now the price of gold is supported by violence in Ukraine and Gaza and there might be a whiff of inflation in the wind.

If we do not see any follow through weakness in Thursday’s trading this would be bullish short-term. But there does not seem to be any buzz in the gold market – one way or the other. It is almost as though traders are happy to be sitting on the sidelines waiting.

Silver closed up $0.01 at $20.55.

Platinum closed down $2.00 at $1481.00 and palladium was higher by $2.00 at $880.00.

All Gold Exchange Traded Funds: Total as of 7-23-14 was 55,410,455. That number this week (7-30-14) was 55,422,591 ounces so over the last week we gained 12,136 ounces of gold.

It might also be interesting to note that in 2013 the record high holdings for all gold ETF’s was 85,112,855 ounces. In 2014 the record low was 54,773,273 ounces.

All Silver Exchange Traded Funds: Total as of 7-23-14 was 624,906,059. That number this week (7-30-14) was 624,894,751 ounces so over the last week we dropped 11,308 ounces of silver. 

All Platinum Exchange Traded Funds: Total as of 7-23-14 was 2,874,109 ounces. That number this week (7-30-14) was 2,873,569 ounces so over the last week we dropped 540 ounces of platinum.

All Palladium Exchange Traded Funds: Total as of 7-23-14 was 3,064,551 ounces. That number this week (7-30-14) was 3,063,891 ounces so over the last week we dropped 660 ounces of palladium. 

Will increasing Russian sanctions support gold? This adds to world tension but there are so many things now which are either dangerous or stupid that perhaps we are all just growing tired. This from the Daily Witness – MOSCOW (AP) — “Russia’s central bank is promising to support financial institutions hit by U.S. sanctions as stocks took a tumble on opening in Moscow.

In an online statement, the bank promised to “take adequate measures” to support targeted institutions. Russia’s state-owned VTB bank — Russia’s second-largest — was trading down 1.2 percent on Wednesday morning.

Other major banks that were left unscathed by sanctions — such as the country’s largest, Sperbank — were trading higher.

U.S. officials said Tuesday that roughly 30 percent of Russia’s banking sector assets are now constrained by sanctions. The move comes after Malaysia Airlines Flight 17 was shot down over East Ukraine. Western officials accuse pro-Russian separatists of bringing down the plane with a missile supplied by Moscow.”

This from William Adams and our friends at FastMarkets.com – PGM COMMITMENT OF TRADERS – “Longs at, or near, record levels – The net long fund position (NLFP) in platinum dropped 640 contracts last week to 48,010 contracts, with 1,201 long contracts liquidated and 561 short contracts covered. The NLFP has now dropped 2,142 contracts since it peaked at 50,152 contracts on July 8. Given the fundamentals, there may not be much interest in shorting platinum, but given the size of the long position there may well be room for profit-taking if prices stop rising.

As far as the ETFs are concerned investors continue to add to their holdings that reached a record high of 2.878 million ounces last week and that have climbed one percent so far in July. Given the fundamentals and the nature of ETF investors who tend to be in for the long term, we expect ETF buying to remain a supporting factor for prices.

The palladium NLFP climbed 669 contracts last week to 25,414 contracts, still below the peaks seen in 2013 at 27,970 in April and of 27,661 contracts in November. The longs added 683 contracts, taking the gross long position to 31,853 contracts, which is a new record high, while the short position added 14 contracts to 6,439 contracts.

The NLFP is not at its highs yet, as the gross short position is relatively high. With the fundamentals that much stronger, it does not look as though the longs are in any hurry to take profits, we wait to see if the shorts end up reducing their exposure, or if prices hang-up at these levels then we may end-up seeing stale long liquidation. ETF holdings are at record levels, showing robust confidence in palladium prices.”

The walk-in cash trade today was active even though our Activity Scale came in at the bottom end of the range. There was a great deal of traffic downstairs but I think the dollar size of each transaction was on the small side. The phones were only busy for about half the day.   

The GoldDealer.com Activity Scale is a “2” for Wednesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 5) (last Friday – 4) (Monday – 3) (Tuesday – 2). The scale (1 through 10) is a reliable way to understand our volume numbers.

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Thanks for reading from your friends at GoldDealer.com and enjoy your evening.

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