Commentary for Tuesday, July 22, 2014 (www.golddealer.com) – Gold closed down $7.60 today at $1306.10 so we have seen a kind of mixed market these last few days with some short term profit taking as the dollar strengthened. The Dollar Index (80.78) has been trending higher since Monday so this will produce some drag on the price of gold while news regarding Gaza and the downed Malaysian aircraft continue to support some safe haven buying.
London 22/07/2014 – Core CPI in June was 0.1 percent, the lowest reading since February, indicating a reduced rate of inflation. CPI has dropped to 0.3 percent, meeting its forecast, which is likely to mute reactions to this data release. This show of a reduction in CPI across the board will signal to markets that the FED is likely to hold rates lower for longer to continue to stoke inflation, which will add upside momentum to precious metal prices.
So you might ask why gold has not reacted more violently to Middle East tension and problems in the Ukraine. The answer being that while both are a humanitarian tragedy – neither seems to be escalating beyond management so traders watch carefully but remain unengaged. But this may prove problematic – Hamas is a terrorist organization being helped by Iran – this is a formula for disaster so the US had better be sweating the details.
Volume numbers today (Tues) in gold were 120135 contracts which is high relative to action in the last 5 trading sessions. Look at the number of contracts traded – yesterday (428) – last Fri (116687) – last Thurs (2691) – last Wed (522).
In the last 5 trading sessions – 3 days were quiet – two days were very busy – yet gold moved in a very tight range – $1298.20 (low) – $1322.40 (high). This looks like a military market (just made that up – hurry up and wait) – and you can draw your own conclusions but this looks like short term volume trading with short term profits in mind. This also reminds me of a wandering price trend which may be with us through the summer – but at the same time supported by international tensions.
Silver closed unchanged at $20.96.
Platinum closed down $5.00 at $1488.00 and palladium was off $2.00 at $874.00. The buying of the Baird Rhodium 1 oz bar ($1320.00/Delivered) remains active.
Bloomberg claims this morning that Credit Suisse will exit commodities – “Credit Suisse Group AG said it will abandon commodities trading as a $2.6 billion fine to settle a U.S. tax investigation pushed the Swiss bank to its biggest quarterly loss since 2008.” It looks like they will keep their precious metals interests but consolidate them under foreign exchange. Most people relate Credit Suisse to that beautiful gold bar they produce but really their precious metals interests are small relative to their banking and international reach.
This from Kira Brecht (Kitco) – “For those technical traders who like to monitor developing patterns, there is a potential “inverted head and shoulders” bottom formation that could be forming on the daily chart. This pattern has not been confirmed. But, it is something worth watching. See Figure 2 below.
An inverted head and shoulders pattern is a bottoming formation. These patterns rarely fit the textbook criteria. Action during April could have formed a complex “left shoulder.” The “head” is seen at the June lows. The right shoulder may have started forming in late June into mid-July.
In order to “confirm” the bullish potential of this pattern, a strong and sustained rally would be needed above “neckline” resistance, which is seen on Figure 2 below and comes in around $1,349.10 on Monday. The right shoulder could continue to develop for even a few more weeks. But, this is something worth watching. The measuring objective would be quite large (the width of the pattern from the neckline to the head) and would project significant gains if confirmed.
However, as of now this is not a confirmed or tradable pattern. It remains in the development stage, but is worth watching. Sustained declines under the $1,294 area would likely destroy the pattern’s viability.
Bottom line? The near term outlook is sideways to higher as long as support at $1,294 holds firm. If a strong rally were seen above the “neckline” trendline in the days or weeks ahead, more substantial gold market gains could be targeted into the late summer or early fall months.”
Trading patterns have a big following in the gold business and Kira Brecht (TraderPlanet) is always worth reading. The above pattern as presented is not complete but this market does have “feel” to it which might suggest change. I know “feel” is a very subjective word but if you are not a confirmed “bear” the struggle to higher ground or current fight between the bulls and bears is hopeful to us bulls. The general market commentary relative to gold has been negative for some time but the break above the recent descending tops line is noteworthy. Let’s hope so because once a real “bottom” in gold is a reality the sidelined action will quickly return.
Because many believe the value of the dollar is inversely proportional to the price of gold I thought it would be interesting to take a look at what has happened to the good old American buck over the long term. According to Trading Economics the United States Dollar increased to 80.50 in July from 79.78 in June of 2014. The United States Dollar averaged 97.45 from 1967 until 2014, reaching an all-time high of 164.72 in February of 1985 and a record low of 71.58 in April of 2008.
There are some in the gold bullion community that believe the dollar is ultimately doomed and so encourage a counter investment in gold to offset such a possibility. I guess this is possible but the rhetoric surrounding the dollar’s demise has been around since the early 1970’s and you can see by the averages above that the record does not support the theory.
There is also the theory that since 2008 the monetary expansion was so huge that “this time around it’s curtains for the dollar”. I think this would be true if indeed all the money printed was circulating and available. But most of that cash (some believe as much as 80%) is just gathering dust as the reserves of our national banks go through the roof.
The banks are not lending the money to business and individuals because (they claim) profitable opportunities have not returned since the 2008 debacle.
This may be why our economy remains sluggish – we have not experienced inflation and the value of the dollar has not tanked.
Now we are not economists by any stretch – just regular old gold and silver bullion dealers who have been telling the public for more than 33 years that it might be a good idea to put a small part of their savings into something more substantial than the “full faith and credit of Uncle Sam”.
And just how long the Federal Reserve can maintain this balancing act is another question. Remember – even coin dealers know that economics is not an exact science. Things could easily get out of control or these theories can miss the mark leading to another financial crisis.
So gold bullion plays an important role as a counterbalance to government edict – it really is primary financial insurance. Especially now that the Federal Reserve claims its quantitative easing program will end by December of 2014. Reversing this monetary expansion by lowering bank reserves – the only check on inflation at the moment will not be an easy task – and is subject to Murphy’s Law.
And talking about what the Federal Reserve promises versus what it delivers consider the following – (Reuters / James Kelleher) – U.S. job rebound not spurring spending, Wal-Mart’s Simon says – U.S. employers may be hiring again, but the job market recovery is not giving ordinary consumers enough confidence to increase their spending, a top Wal-Mart (WMT.N) executive said on Monday.
In an interview with Reuters, Bill Simon, the president and chief executive officer of Wal-Mart U.S., said the improving employment picture had so far failed to raise cash register receipts at the retailer’s U.S. stores.
“It’s really hard to see in our business today … that it’s gotten any better,” he said. “We’ve reached a point where it’s not getting any better but it’s not getting any worse – at least for the middle (class) and down.”
Last week, the U.S. Labor Department reported that U.S. employment growth jumped in June, and the jobless rate closed in on a six-year low.
The news, which was seen as proof the U.S. economy was finally growing briskly after years of a lackluster recovery, helped send the Dow Jones Industrial Average above 17,000 for the first time.
Simon said Wal-Mart’s lower- and middle-income customers appeared to have made a number of changes to their shopping habits that were “not the best thing in the world for a retailer,” splurging on events like back to school and holidays like the Fourth of July, but pulling back spending in between.
“They’re adapting to what has been a difficult macroeconomic situation,” he said.
In May, Wal-Mart Stores Inc said its profit fell nearly 5 percent in the first quarter and forecast weaker-than-expected second-quarter earnings, citing among other things the continued financial struggles of its lower-income customers.
At least one in five of Wal-Mart’s customers relies on federal government assistance to help buy groceries and other goods at the retailer’s more than 4,000 U.S. stores. Wal-Mart has also faced pressure from discount retailers such as Dollar General Corp (DG.N), which have lured away financially struggling lower-income customers by slashing prices.
“People think we do better in a down economy,” Simon said. “We don’t. We do better when the GDP is growing, when the economy’s good and we really need that in the long run for the business to improve.”
The above post is interesting not because Wal-Mart is starving – the last time I was there you could not get into the place. And it’s true the US economy is getting better – but now the cracks in the European model are showing and that is getting more publicity.
So a possible scenario relative to gold bullion. There is theory that present US fiscal policy is just the same old policy only on steroids because the 2008 financial collapse was the largest in history. And there is a real limit to what the Federal Reserve can accomplish before we meet critical mass. I think Bernanke’s comments about “fiscal limits” when he talked to Congress was at the center of this thinking. In other words he implied the Fed is rowing as fast as they can but Congress needs to pick up its game in the fiscal battle.
But what if Congress can’t do more, the European’s debt implodes and the Federal Reserve realizes that continuing to pump up their balance sheet is no longer effective. Running the red ink meter from less than $1 trillion before the crisis to more than $4 trillion during the crisis has averted catastrophe – but has not fixed the underlying problem because there are plenty of “Wal-Mart” experiences like the one above and all present those little red flags that something is not right.
And investors need gold bullion in their personal possession when all they have between themselves and inflation are government promises that things are getting better.
Especially when smart guys like Wal-Mart’s Bill Simon claim things are not adding up.
The CNI Activity Scale has been steady and active but the downstairs walk-in cash traffic has been slow. This would point to higher phone traffic but without that downstairs noise it may seem quieter than it really is – who knows these days because the buy/sell action is pretty much split between the bulls and bears. There was one whale that showed up early today which is promising.
The GoldDealer.com Activity Scale is a “4” for Tuesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Wednesday – 2) (last Thursday – 4) (last Friday – 4) (Monday – 4). The scale (1 through 10) is a reliable way to understand our volume numbers.
Email confirmation using a PDF File when buying or selling is functional. It also includes the various forms of payment and includes bank wire instructions. And you can now see your actual invoice or purchase order on your computer screen.
When you buy or sell please check to see if we have your current email on file and that your computer will accept our email (no spam).
About shipping information – when buying or selling your rep will walk you through your current mailing information. Thanks for keeping us up to date if you have moved.
Our four flat screens downstairs with live independent pricing (BullionDesk.com) are a big hit with the cash trade. Live pricing moves all the buy/sell product prices on a real time basis. Yes – you can visit the store with cash and walk away with your product. Or you can bring product to the store and walk away with cash. When buying from us remember if you exceed $10,000 in cash (the real green kind) a Federal Form is necessary.
In addition to our freshly ground organic coffee offered visitors throughout the day we have added cold bottled water and cokes. No popcorn machine as yet and I am working on the In and Out burger plan again.
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