Commentary for Thursday, May 29, 2014 (www.golddealer.com) – Gold closed down $3.00 at $1256.30 so this market remains defensive. There were a few sputters along the way as gold saw lows of $1251.00 and a small rally to above $1260.00 but for the most part the bears are still in charge. Also consider that because gold traded for such a long time in a narrow band its moving averages are now much closer together (50 Day Moving Average $1296.00 – 100 Day Moving Average $1297.00 – 200 Day Moving Average $1295.00). All of this creates more confusion as recent closes have all been under all three moving averages.
A second look at 1st quarter Gross Domestic Product this morning showed an unexpected down 1% figure. This alone should have supported gold prices but did not create much stir and the flop in this basic measure of our economy was quickly discounted by expectations that 2nd quarter numbers will see growth in excess of 3%.
This type of economic justification allows for “excessive exuberance” in stocks – the belief by many Americans that “things really are not that bad” and the notion held by Congress today that the Federal Reserve can inflate with no consequence.
The now big event in the physical gold business will be next week’s European Central Bank action. Most believe Draghi will move interest rates into negative territory. For gold enthusiasts this is a double edged sword. A weaker euro will move the dollar higher initially pressuring gold prices but because both the euro and the dollar are moving lower this continued monetary easing will eventually support higher gold prices as soon as Europe shrugs off its deflationary bias.
Silver closed down $0.01 today at $19.03. Silver sales remain strong at these lower prices and the Perth Mint is minting the new Crocodile (1,000,000 mintage @ spot + $2.60 with delivery in June).
Platinum was down $4.00 at $1461.00 and palladium was off $6.00 at $833.00.
It is interesting to note that even as Treasuries move lower in a flight to quality the gold market remains in a quagmire. And I would have expected a pop in gold prices this morning since the Gross Domestic Product missed expectations.
The theory relative to the GDP is a miss would indicate less likelihood of continued quantitative easing which would support gold prices. So what you see here is a stock market making new highs and failure of world tension or troubles in Europe to rally interest in gold. So the precious metals are fatigued and the short trade still holds the upper hand.
The interplay between the paper market and the world mints is also interesting. You would think that when the bears are in control the world mints would produce less bullion coins. In fact the Canadians, Austrians, US and South Africa are producing coins to beat the band and distributors have no problem with public demand.
You could even make a case that the last few years (even with a flat to lower gold market) have been the “golden age” of world mint production. Americans can’t get enough of the “new issues” coming from the US Mint – and many of these products carry very high premiums. I don’t know exactly what to make of all this except to say that world consumers of real precious metals seem to be buying with both hands regardless of relative price. This dynamic has not created much in the way of shortages but by the same token it has not created a large physical overhang with dealers.
Everyone is getting in line – and not the buying line for gold. But perhaps this is exactly what this bearish market needs. An exasperation or exhaustion move to the downside. This will clear the air and confirm to actual physical buyers that prices at the low end of the trading range have stabilized.
This form Peter Hug (Kitco) – Market Pauses As Significant Support Level Tested – On the first assault, gold held the key $1,262 level as the market easily sliced through $1,277 support in yesterday’s trade. The metals are still not finding good physical demand out of the Far East after yesterday’s drop, but I suspect some consolidation should occur around these levels. A breakdown here through the $1,262 level has an immediate target of $1,247, but shorts may take their $25, wedge break profit and wait for confirmation of further weakness. The equity markets will be watched closely for signs of selling coming into the recent strength and the U.S. dollar has paused against the euro.
And then there is the Barron’s.com commentary with Jack Otter and Brendan Conway – gold suffered heavily. Conway – I would argue the Western investor, who has really not shown up this year, they’re not coming back. So don’t expect other buyers to lift this tide the way they did for the 12 years when it seemed the gold price could only go up. And in terms of what people should do, I think one lesson of the last year, last year and a half, is that you can’t expect any exotic asset that has no dividend, has no earnings to keep going up and up forever. People who buy it, should have it at most be a tiny piece of your portfolio.”
This is exactly the kind of commentary gold needs to confirm that holding on or initiating new positions is a bad idea. This will finally push what is left in the “weak hands” category into the new “big thing” investment. I would agree with Conway that the US speculator in gold is gone but if you look at yesterday’s ETF holdings for gold this “tragic picture” seems a little more upbeat. The record high for all gold ETF’s was 85,112,855 in 2013 compared to the record low in 2014 of 54,799,910 – so for sure we lost 35% which is a route but not the end of the world as there is still a significant number of players.
Also consider this from MetalMiner – China Wants its Own Gold Exchange in Shanghai, More Influence on ‘Fix’ Price – China has approached foreign banks and gold producers to participate in a global gold exchange in Shanghai, people familiar with the matter said, as the world’s top producer and importer of the metal seeks greater influence over pricing, Reuters reported. The Shanghai Gold Exchange (SGE) got the go ahead from the central bank last week to launch a global trading platform in the city’s pilot free trade zone, a move that could challenge the dominance of New York and London in gold trade and pricing. This is an opportune time for Beijing to open an exchange as the benchmark price-setting process for precious metals is under scrutiny.
The old/new game for gold is China and India and everyone in the physical business knows this business will eventually change the way everyone thinks about gold.
And as far as the US investor is concerned I guarantee they will be back in a flash on any reasonable improvement in price. The demand for physical jumped earlier in 2014 and the swing upward was less than $100.00 so it is true the speculator money has left the theater, but it is equally true they are just having a hamburger across the street.
So the moral of the story continues to be – don’t count my old friend gold bullion out of this race anytime soon. For the time being the bears are in charge but as long as Europe and the US continue to tinker with the monetary system the gold trade will keep everyone honest.
The walk-in cash trade was again steady most of the day with almost all buyers and the phones were busy both ways although we did see a few large sell orders in early trading. So the public still remains cautious especially if they purchased early in the 10 year bull cycle and are still sitting on profits. I always like to keep a core bullion holding but would not have a problem lightening up my position if I really hated the market. For the record however the number of sellers which entered the market early has dwindled considerably over the last few years.
I read this Richard Russell quote from Chuck Butler (EverBank) – Chuck is always a good read and including the thoughts of an icon in the gold business like Richard Russell was great. Russell has been a staunch conservative and gold advocate for as long as I have been in the business (35 years) and anyone with that kind of track record is worth reading.
“I’m going to talk about one of my favorite topics — gold. One advantage of gold, unlike real estate, is that gold is extremely liquid. At any time you can buy or sell almost unlimited quantities of gold. Another advantage of gold is that gold is easily kept and stored; gold doesn’t spoil or tarnish. Another advantage is that gold is outside the “system.” It is anonymous. Gold can be handed down from generation to generation. Gold is a good conductor of electricity; it is malleable and ductile.
Gold was considered wealth five thousand years ago, and it is considered wealth today. Gold is the first metal named in the Bible. One of the items the three wise men gave to the infant Jesus was gold. Gold doesn’t become antiquated, although many other items that are treasured today may become worthless over the years. Almost all “items of value” are subject to trends. For instance, the works of the great British landscape artists were treasured fifty years ago. Today nobody wants them.
I’m particularly interested in the action of gold from now to July, its traditionally weak season. I have expected the bear market in gold to end in July. Therefore, the less gold gives up in price from now to July, the more bullish the situation.
I see signs of manipulation in gold through the action of “paper gold” on the COMEX. Occasionally we see huge masses of futures being dumped in a matter of minutes on the thinly traded COMEX. All this in an effort to keep the price of gold down. Eventually, gold will reach its rightful level. So to coin a phrase, “You can’t keep a good currency down.”
Will the US government confiscate gold? My answer is NO, they will not. How would confiscation help the US? If the US possessed a huge hoard of gold, an extra few hundred tons of gold might boost confidence in the dollar. But I suspect that the US has sold or loaned all of its gold. If I’m wrong, then let an audit show me that I’m wrong.
If the US confiscates anything, it will be cash. This is what the US badly needs to carry its enormous debt. The US can confiscate cash through higher taxes or through a wealth tax. I believe in an emergency, Congress would vote for a wealth tax — say a tax on a person’s wealth over $400,000. Remember, a government will do anything it has to that will allow it to remain in power.”
The walk-in cash trade was just moderate today meaning the staff was more interested in lunch. The phones were active most of the day but not many had to wait for long if you know what I mean. As far action real action is concerned the gold bullion area is seeing about equal two way trading meaning the number of buyers and sellers are about even. Silver on the other hand is seeing mostly buyers.
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