Commentary for Monday, June 1, 2015 – Gold closed down a disappointing $1.10 at $1188.30 after moving above the important $1200.00 level in early trading.
Gold traded opposite the Dollar Index for the entire session. In early trading the Dollar Index was flat to generally higher – gold was capped. Eventually the Dollar Index sold off returning to the 97.00 level, probably reacting to the calming of tensions over the possibility of a Greek default.
And then the Dollar Index got stronger again moving to almost 97.75 reacting to a solid ISM number – meaning manufacturing looks good and therefore a rate hike is more probable making the dollar stronger. Some good commentators see the price of oil in there also but that was because crude was a bit weaker in early trading – it made a good comeback and is once again above $60.00 so its price range seems neutral to me.
This from Steve Goldstein – Solid tone to manufacturing report from ISM in May – WASHINGTON (MarketWatch) — “A key report on U.S. manufacturing improved in May and suggested the sector is coping with the headwinds of a stronger dollar and a collapse in oil prices.
The Institute for Supply Management’s manufacturing index rose to 52.8 in May from 51.5 in April, to edge past a MarketWatch-compiled economist survey that had forecast a 51.8 reading.
Though at a three-month high, the ISM index is nonetheless below the 12-month average of 54.9.
A similar report from Markit slipped fractionally to 54 from 54.1. In both the ISM and Markit reports, readings over 50 indicate improving conditions.
Neil Dutta of Renaissance Macro said a 52.8 ISM reading historically corresponds to GDP growth of 3.2%. Importantly, the main components of the ISM were also pretty good: The new-orders index rose 2.3 points to 55.8, the employment index rose 3.4 points to 51.7, and the production index slipped 1.5 points to a still-solid 54.5.
Comments from purchasing managers indicated that West Coast port issues have eased, though the U.S. dollar’s strength and oil’s role in depressing energy-industry demand were still being noted. “Automotive is still strong. However, steel prices have dropped due to overcapacity and the strong U.S. dollar,” said one manager in the fabricated-metal-products field.
ISM reported that 14 out of 18 industries reported growth, with only textile mills and computer and electronic products reporting contractions. “With supply chain disruptions from the West Coast port shutdown easing, the industrial sector remains in a tug of war between solid domestic fundamentals on the one hand but a soft global economy and stronger dollar on the other,” Dutta added.”
Silver closed down $0.02 at $16.66 in what can only be described as a sleepy over the counter trade. Without any significant reason to get excited I suspect the real physical market will remain active but quiet.
Platinum closed down $7.00 at $1104.00 and palladium was off $4.00 at $772.00. To give you an idea of the lack of buzz in this market – platinum is now trading at an $84.00 discount to gold – there is a reasonable amount of physical platinum bullion products available but this entire area is quiet. We have seen some trading of gold bullion for platinum bullion be even this is disappointing considering the very large discount.
This from Neils Christensen (Kitco) – Chinese Gold Demand Weakens, India’s Remains Consistent In April – According to the latest Swiss and Chinese trade data physical gold demand is dropping, but according to some analysts this should not be a major concern for the global market.
In a research note from UBS, Thursday, commodity analysts Edel Tully and Joni Treves said that Swiss gold exports fell to 143.92 tonnes in April, a decline of 36% from the previous month but a rise of 30% compared to April of 2014.
They noted that the decline in gold exports also coincided with Hong Kong trade data as gold exports from the island to mainland China dropped to 46.64 tonnes, down 25% from March and down 29% from the previous April.
Turning to India, UBS said they estimate that India imported 81.09 tonnes of gold last month, down 38% from March but twice the amount of gold imported last year. They added that last month’s import data is in line with the average over the past 10 years. However, the analysts added that the drop in gold imports and exports is more a reflection of seasonal factors than underlying fundamental weakness.
“Historical activity on the SGE suggests volumes are typically muted in the second quarter, and only tend to pick up again towards the end of the third quarter, heading into Q4, when local market participants start to build stocks for the Chinese New Year celebration in late-January/early February of the following year,” they said. “In India, seasonal strength has similarly tended to occur around Q3, on the back of wedding-and festival-related demand.”
Simona Gambarini, commodity economist at Capital Economics, said that while Chinese imports from Hong Kong have dropped, any fears of a slowdown in global physical demand are overblown.
She said that one of the reasons why gold has lost its luster in China is because of the country’s strong equity markets but investors could move back into gold as “[W]e believe the equity rally is overdone and the risk of a correction is rising.”
Gambarini also remains bullish on gold because any slack in Chinese demand will be taken up by Indian markets. “[T]he latest data show that India’s imports of gold remained strong in April, further corroborating our view that India will soon return to be the biggest buyer of gold as a result of the relaxation of import duties on the metal in late 2014,” she said in a report. “Overall, in the first four months of the year, India has imported 130 tonnes more than in 2014, compared with an 83 tonnes decline in China’s imports via Hong Kong.”
This from SRSrocco REPORT (EROI) – German Gold Buying – While EASTERN demand for physical gold investment remains strong, most of the folks in the WEST are bored with the barbarous relic as they continue to funnel their funds into highly inflated paper assets. However, the Germans seem to look at gold a bit differently…actually a lot differently.
Even though the Swiss continue to buy more gold on a per capita basis, German physical gold investment demand is the highest of all Western countries. How much higher?
According to the World Gold Council, total German physical gold bar and coin demand during Q1 2015 was 32.2 metric tons (mt), Switzerland ranked second with 13.8 mt and the U.S. came in third at 9.9 mt. Interestingly, German physical gold investment increased 20% compared to the same period last year while U.S. gold coin and bar demand fell 12%.
Matter-a-fact, German gold bar and coin purchases (32.2 mt) during the quarter account for more than half of total European demand (61 mt). On the other hand, the British, French and Canadians ranked the lowest in the chart taking the 5th, 6th and 7th spots respectively. What’s even more amusing, total physical gold investment from these three countries is about a tenth of German purchases.
Furthermore, Germans purchased more than three times the physical bar and coin investment than did Americans during the quarter. Now, as I mentioned above, the Swiss still buy the most gold per capita due to their long-term fundamental belief in gold ownership. However, if we compare German buying versus American…this is the result:
Germany population = 80 million (32.2 metric tons)
United States population = 320 million (9.9 metric tons)
Germany is actually buying 12 times more physical gold per capita than the United States.
Again, if we exclude the savvy gold buying Swiss, the Germans continue to be the strongest physical gold buyers in the West. Lastly, if we add up all the other Western countries total gold bar and coin demand including Switzerland, here is the result for Q1 2015:
Germany = 32.2 metric tons (45%)
Rest of West = 39.5 metric tons (55%)
Is there something the Germans know about gold that most of the folks in the West don’t?
This from Lawrence Williams (Mineweb) – China gold demand holding up well – new record ahead? Chinese gold flows as represented by SGE withdrawals are holding up extremely well – We keep seeing reports in the mainstream media suggesting that Chinese gold demand is slipping away, but continuing strong gold withdrawal figures from the Shanghai Gold Exchange (SGE) seem to contradict these reports. While, as we have reported before, there are many doubts expressed as to whether SGE withdrawals are actually equivalent to Chinese consumer demand, there is no doubt that they do represent the underlying consumption situation.
Hong Kong-based Philip Klapwijk, the former executive chairman of GFMS prior to its acquisition by Thomson Reuters, did explain some of the discrepancies between the mainstream analysts’ Chinese consumption figures and SGE withdrawals (which differed last year by around 1,000 tonnes) as unrecorded cross border gold movement from mainland China into Hong Kong (technically illegal) in a presentation to the Bloomberg Precious Metals Forum a week ago (See – Chinese do export gold – to Hong Kong: Klapwijk), but he also noted that due to a clampdown by authorities this amount had ‘fallen off a cliff’ so far this year, which raises the question as to where all this gold being withdrawn from the SGE is going if it is not being technically ‘consumed’ in the mainland, or being ‘exported’ to Hong Kong.
The latest figure for SGE withdrawals, announced Friday, is for 42 tonnes for the week ended May 22, bringing the total so far this year to 945 tonnes in only 20 weeks. The levels are actually high for the time of year, which is usually a low period for SGE gold movements. Thus average weekly withdrawals so far this year have amounted to over 47 tonnes. While this includes the relatively high demand levels up to the Chinese New Year, it should also be recognised that the final four months of the calendar year also tend to see very high SGE withdrawal numbers.
So it is certainly conceivable, should the current high demand levels continue anywhere near the current volumes through the summer – and so far there’s been no sign that they may be easing – and there is the usual pick-up from September onwards, SGE withdrawals this year could well match, or exceed those of the record 2013 year when the total came to over 2,200 tonnes (representing an average of just over 42 tonnes a week).
With Indian demand imports expected to exceed 1,000 tonnes this year – more if one includes smuggled metal which still appears to be running at a high rate – gold flows into the two Asian giants are continuing unabated. Where the big unknown comes in now is what China intends to do next. We see tensions rising between China and the US over the latter’s increasing involvement in the political manoeuvrings over the South China Sea (which China feels is none of the US’s business) and possible further tensions arising from any US opposition to the further growth of the Chinese yuan’s influence as a globally traded currency, there is a prediction in some quarters that China is planning to wrest control of the global gold benchmark pricing system away from London with a launch of a Shanghai ‘gold fix’ later this year. And if the yuan is accepted as a part of the IMF’s SDR currency basket then it will be all-change in the gold market from the beginning of 2016 with China becoming the dominant influence.
This may well be a prediction too far. But it is fairly safe to say that China, and some of its allies – notably Russia – are moving towards a situation where they would like gold to play a regenerated role in the global monetary system and world trade. This is so counter to most Western economic thought that when a mainstream analyst suggests only that we should think about the possibility that China might be moving towards some kind of gold backing for its currency (not necessarily a gold standard in the old sense with full currency backing by the yellow metal), he is almost universally ridiculed by the economic establishment. (See: Will China go for a gold standard? The jury is out!) – yet ‘thinking outside the box’ and very rapid implementation of new ideas is what the Chinese establishment is particularly good at. You just can’t write off the possibility that the Asian Dragon might come up with some kind of radical currency move that runs counter to accepted western economic thought. It certainly has sufficient Forex reserves to implement some kind of move which might have an adverse effect on the dollar. At the moment there is something of an economic truce between the world’s two superpowers, but the US needs to be careful how it proceeds with protecting the dollar’s global position at the expense of China. If you kick a dragon you’re likely to get burnt!
The walk-in cash trade today ran the gambit from slow to busy and so were the phones. If there was an overriding feeling it was simply that gold’s failure to hold $1200.00 was expected and this is why there is little buzz across the counter.
The GoldDealer.com Unscientific Activity Scale is a “ 4” for Monday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Tuesday – 2) (last Wednesday – 3) (last Thursday – 3) (last Friday – 7). 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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