Commentary for Monday, Oct 6, 2014– Gold closed up $14.50 at $1206.70 in what looks like a short covering rally – remember this market has probably moved into the oversold area this past week so a short technical bounce higher is to be expected.
Helping gold move higher was a softening of the US dollar since Friday and this move recovering the important $1200.00 mark takes some of the strain out of the market.
It also helps that China and India are back in the game. Still the technical picture for gold remains negative and one day to the upside does not create a trend. This market still feels heavy to me – this can change on a dime however – as many still can’t figure out whether gold is bottoming or further consolidation is necessary. As usual all things are perfect after the fact but in the meantime let’s be patient.
A quick look at the Dollar Index is all that is needed to understand why gold remains weak. A three month picture (July, August and September) will show an index rising from 80.0 to 87.00. During that same period gold moved from $1340.00 to something under $1200.00.
So as the dollar gained roughly 10% – gold lost roughly the same amount. You might wonder if the dollar could gain another 10% in the coming months – perhaps – remember the old trading adage about never standing in front of a train – there is some precedence.
If you look at the Dollar Index over the past 5 years you will see a top at something short of 90.00 which happened in 2010 – even though today’s index seems to be flattening out at its current level as seen in today’s close.
If you buy the thought that the euro in doomed because the European Union will do anything to inflate its way out of its current economic funk then another 10% rise in the Dollar Index is not too much to swallow. Some dollar technical players think this is not only plausible but likely.
And who knows in this upside down world of fiat money? The notion that the dollar will remain strong forever is an Alice in Wonderland theory but we are donning our wizard hats for the short term relative to dollar strength – because it might be helpful in determining a possible pivotal point in the price of gold.
If short-term history repeats itself and the Dollar Index rising another 10% could gold lose an equal amount – meaning we might be looking at something in the $1000.00 to $1100.00 range? This number should sound familiar because it was the worst case scenario bantered about when gold fell off the cliff in late 2012 moving from $1775.00 to $1200.00.
The real question in this bearish scenario is how much cushion will the physical market provide? By any standard prices are getting cheaper and there are other “sleeping” factors a longer term gold bullion buyer might want to consider. Serious factors which are now on the back burner – like inflation – another bubble collapse which might cause a financial panic – continued Central Bank buying to name a few.
Of course all of this is speculation but one thing is sure – physical gold bullion in your hand is very comforting all over the world. And it’s important to realize that while gold bullion is moving lower in dollar terms – it is moving higher in many other currencies. Move outside the world of US dollars and gold bullion is looking better from the viewpoint of non-dollar denominated countries.
Silver moved up $0.40 today closing at $17.18 – and we are finally seeing some physical buying of $1000 face 90% bags. The premium on bags is about $1.10 which is on the cheaper end of the range as premiums have been as high at $2.50.
Keep in mind that silver has been pressured downward as the world economy continues to struggle. If you believe recovery is in the air (and it is unless you are a complete cynic) and there is a shortage of real silver to cover the future’s action – accumulation at these levels makes sense. Also just from an observation viewpoint – silver is getting all the attention lately.
Platinum closed up $22.00 at $1248.00 and palladium was up $11.00 at $765.00. Rhodium remained unchanged at $1215.00.
I read David Stockman on a regular basis because he will eventually be called a financial prophet or liberals will have to develop a scheme to lock him up to shut him up. His blog is David Stockman’s Contra Corner and a visit on occasion is worth your time.
What makes his writing interesting is that he is not a pistol toting gold committed conservative. But he is a financial conservative and his latest look at the job’s numbers will make the case which has also been offered in support of gold bullion.
It’s simple really – the government has gotten itself into an interest rate pickle and so the often talked about “normalization” of interest rates will never happen. This is a consequence and the price we paid for digging us out of the 2008 financial collapse.
I know – it does not make any historical sense – that’s why I have trouble believing the cause and effect scenario. But I am a coin dealer and not an economist so it’s difficult to say what will happen when the largest experiment in world history relative to fiat money draws to a close. Can the government really reverse this process?
If they can the Stockman result will not play. But if they can’t – or worst the process takes 20 years (a plus 4 trillion dollar pop to the balance sheet is much more money than anyone understands) the price of gold will ultimately benefit.
Consider a portion of a recent Stockman post – September Jobs: Some Numbers They Didn’t Mention – “Among other things, these dismal employment ratio numbers tells you why the Wall Street patter about PE multiples being at or below historical norms is so wrong-headed. The capitalization rate for the American economy should be falling because the dependency burden faced by workers and entrepreneurs is soaring at rates never before witnessed. Going back to September 2000, for example, there were only 76 million adults not in the labor force or unemployed, and that represented just 35.8% of the adult population of 213 million.
This means there has been a 26 million gain in the number of adults not working—-even part-time—during that 14 year period. About 10 million of that gain is accounted for by retired workers on social security—-a figure which has risen from 28.5 million to 38.5 million during the interim. But where are the other 16 million? The answer is on disability (+4.5 million), food stamps (+25 million), survivors and dependents benefits, other forms of public aid, living in parents’ basements on student loans or not, or on the streets.
There should be no mistake about the implications of these baleful trends as once again reinforced in today’s “jobs Friday” report. They do not represent merely a social problem or the fact that Washington’s fiscal calamity is going to get steadily worse in the years ahead. They also embody an endemic economic problem and staggering challenge to the Keynesian money printing regime now incumbent in Washington.
In the first place, the massive monetary experiment since 2000—which has seen the Fed’s balance sheet grow from $500 billion to $4.5 trillion or by 9X—-has not caused macro-economic performance to improve. The employment ratio has plunged; full-time breadwinner jobs have actually shrunk; total labor hours employed have been stagnant; real GDP has grown at only 1.8% annually for 14 years—compared to 4% annually between 1956 and 1970; and real net capital investment is 20% below its turn of the century level.
So what is really embodied in today’s report is more evidence that America’s dependency ratio is still rising and that the already crushing burden of the welfare state will weigh ever more heavily on an economy that is visibly failing as measured by any of the fundamental trends of performance. Indeed, it is well to recall that even today—after what the clueless occupant of the White House claims as 10 million new jobs when 90% of that number, in fact, represents “born again” jobs relative to the 2007 peak—-there are 110 million Americans living in households receiving means-tested benefits and 158 million in households that receive transfer payments of all types.
Yet as the burden of taxation and public debt resulting from these trends weigh ever more heavily, it leaves the mad money printers resident in the Eccles Building stranded in an impossible corner.
Unless they wish to destroy the monetary system and keep money market rates at zero forever, they will have to normalize interest rates. And rising interest rates—eventually 300-400 basis points at minimum— on top of rising taxes do not amount to a formula for booming growth. Or even any meaningful economic growth at all.
In that context, capitalizing S&P earnings at 20X reported profits on the eve of the coming storm is a fool’s errand. And you can look it up. What really counts for growth and stock market value beyond the day trader’s horizon is all right there in the September jobs report—-even if they didn’t mention it on bubblevision.”
The walk-in cash business was not as busy as Friday but it did keep everyone writing orders. In the main most business consisted of small to mid-size buyers but there were a few large gold sellers. The phones were busy all day and volume numbers continue to rise.
The GoldDealer.com Unscientific Activity Scale is a “5” for Monday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Tuesday – 6) (last Wednesday – 6) (last Thursday – 6) (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 very busy and see a low number – or be very 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 – perhaps a week or two. 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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