Commentary for Tuesday, Fed 3, 2015 – Gold closed down $16.50 on the Comex today at $1259.70 moving lower as tensions in Europe subside on the shorter term. Gold saw a low today of $1255.80 and seems ready to retest the low ($1254.00) seen last Thursday.
Looking at the Gold Moving Averages is important – 50 DMA ($1223.00) – 100 DMA ($1214.00) and the 200 DMA ($1252.00). Even with today’s weakness we are still trading above all 3 averages – but we are closing in on the important 200 DMA ($1252.00). Just like the test last week gold must hold above $1252.00 or we will see another round of technical selling.
So why is gold moving lower? There are a number of moving parts here but the underlying reason is that it can’t gain any technical strength. Before you laugh think about it – the market has been hapless since the failure to move higher than $1300.00.
Overnight gold was reasonably steady moving above $1280.00 in Hong Kong and London but the domestic market was weak on the opening because of a number of data points.
January car sales this morning were very strong – GM up 18% Ford up 16%. Granted there are other economic signals which are not so good but strong car sales might indicate that the economy continues to recover and so the Federal Reserve may raise interest rates.
I know this argument is old hat but the interest rate issue will be huge for gold in 2015. Now you might also argue that big car sales are simply the result of cheap money and more debt financing and you would be right – but traders heard “big car sales”.
Also consider oil – crude is now above $50.00 and everyone is talking “bottom” now instead of “lower future prices”. This is big for stocks and will eventually support higher gold prices. But on the short term stable to higher oil makes the world, especially Europe look better – which is not so good for gold bullion.
This firmness in the price of oil has been a negative for the dollar. The Dollar Index this morning moved below 94.00 and the Dollar Index 5 day chart has moved from a high of 95.00 to 93.71 as of this writing. This supports the price of gold so today’s weakness could have been worse.
And then there is that pesky Greece matter – instead of a nagging negative we now have an improving positive – always good for kicking the can down the financial block. It would seem Germany has moved from a rather bellicose anti-debt Greek position to perhaps one which suggests that Greece’s new government plan of restructuring might be a good idea.
It’s amazing – but now the European Union might be changing its mind about austerity. It does not seem to work so why not lend Greece more money and ignore structural problems within the state? The real problem here might not be financial but social – with the rise of the fanatic fringe no honest government wants further alienation of the poor and disenfranchised.
And finally the investing mood in the domestic stock market is improving – a negative for gold. The DOW watchers are happy to close the book on January but today’s improvement in Europe – higher oil and rumors that earning’s reports due out this week will be good have brightened things considerably. There is also payroll numbers this Friday which, if supercharged could be a big negative for gold.
All of this is beyond my pay grade but settling financial tension in Europe even on the short-term is not a bad thing and so the safe haven aspect of gold has once again become less important.
One thing is certain – the above snap-shot is subject to change dramatically as the world continues to mess with the money supply. Even the Aussie’s began a new quantitative easing program yesterday – in an attempt to jump start sagging sales – so more cheap money.
I expect the price of gold will pick up the slack in 2015 but in the meantime prices remain under some pressure. On the positive side extreme negative talk relative to the price of gold has all but disappeared and ETF gold holdings are moving higher.
Silver closed up $0.07 today at $17.30 in quiet trading even though the Canadian Silver Maple Leaf Monster Box was popular.
Platinum was up $6.00 at $1237.00 and palladium was off $2.00 at $786.00. Platinum was higher today and the discount of platinum to gold narrowed somewhat ($22.00). Car sales are surprisingly strong and there is talk of Zimbabwe export restrictions which produces about 7% of the world’s platinum. Most platinum bullion products remain in short supply but the US and Australia mints are slated to produce more coins this quarter.
This from Reuters (Manolo Serapio Jr) – Gold holds up on strong fund interest, economic growth woes – SINGAPORE, Feb 3 (Reuters) – “Gold hovered above $1,270 an ounce on Tuesday as a wobbly outlook for the global economy burnished bullion’s appeal as a safe-haven, with holdings at the top gold fund at their highest in four months.
Gold was firm despite rising equities, suggesting an improved outlook for the metal which has climbed around 8 percent so far in 2015 after a two-year slide. “I think the sentiment on gold has changed from a very bearish tone last year which was due to expectations of higher U.S. interest rates,” said Yuichi Ikemizu, branch manager at Standard Bank in Tokyo. “We have seen some good demand from Asia around $1,250 and the market is quite long at the moment.”
Spot gold was nearly flat at $1,274.38 an ounce by 0308 GMT, after a modest loss on Monday.
U.S. gold for April delivery eased 0.2 percent to $1,275 an ounce.
Rising inflows into gold funds underlined how some investors are bullish on bullion.
Holdings at SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, stood at 24.65 million ounces on Monday, the highest since October.
But Ikemizu said the market overall remained “pretty much split between bullish and bearish”, warning there could be a sharp liquidation of long positions when the U.S. nonfarm payrolls data this week turns out strong.
A Reuters poll of analysts forecasts that U.S. employment data on Friday will show about 230,000 jobs were created in January, slowing slightly from 252,000 in December but still robust.
On Monday, there were signals that the U.S. economy could be on a slightly softer footing than many had thought. U.S. consumer spending recorded its biggest decline since late 2009 in December, while factory activity cooled in January.
Those numbers followed data last week that showed a slowdown in economic expansion to 2.6 percent in the fourth quarter from 5 percent in July-September.
Elsewhere, the economic outlook remained bleak. European and Chinese factories slashed prices in January as production flatlined, heightening global deflation risks that point to another wave of central bank stimulus in the coming year.”
This from Business Insider – Byron Wien ” Ten Surprises in 2015” – This famous Vice Chair from the Blackstone Group does this every year and is closely watched. The two most interesting points to me (besides the fact that he does not think Hillary Clinton will run) are Number 1: The Federal Reserve finally raises short-term interest rates, well before the middle of the year, encouraged by the improving employment data and strong Gross Domestic Product growth. The timing proves faulty, however, as the momentum of the economy has begun to flag and a short-term slowdown has started. The end of monetary accommodation and rising rates precipitate a correction in equities. Long-term Treasury rates stay where they started and the yield curve flattens. And Number 4: Mario Draghi finally begins to expand the balance sheet of the European Central Bank aggressively by buying sovereign debt, mortgages and corporate bonds. In spite of this expansion, Europe falls back into a serious recession. Germany is particularly weak as reduced demand from various trading partners has a major impact on its exports. The European policy makers fail to embrace the one option, fiscal spending, that could turn the economy around, and European stocks decline. Politically, Europe moves dangerously toward the right.
As far as this first point – I think the Fed will raise rates but it won’t rock the ship – something small to test the waters. There is no reason to go all in here – the simple act of doing something will get the required attention of everyone. So initially this will not be a big negative for gold.
Regarding his second point – QE for Europe might be big for gold even though there are some who believe quantitative easing will not work well for the European Union.
The walk-in cash trade was quiet most of the day and so were the national phones.
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