Gold Moves Lower as Paper Markets Settle Down

Gold Moves Lower as Paper Markets Settle Down

Commentary for Thursday, Jan 21, 2016 (www.golddealer.com) – Gold closed down $8.00 today on the Comex at $1099.10. A not unexpected result of yesterday’s big push to the upside – as the international stakes move higher expect a much more volatile market.

But for now this move to the downside is profit taking – the euro moved higher against the dollar trimming early trading gains as the Dollar Index returned to the 95.00 range. And crude oil turned higher moving from around $28.00 a barrel to $30.00. Stocks cut losses and all of this was enough to convince the majority of traders that the roof was not falling in – at least for now.

Remember gold still can’t figure out which way to go – but there is one thing for sure. It was difficult to make a solid case for owning gold in 2015, unless you were really committed. For someone like me it’s not difficult – gold is cheaper so what’s the problem?

For most however a falling market is not an opportunity – China and India being the exception. This majority view may be changing in 2016. There is buzz coming back into the gold market – even if you are still a pessimist it is now a consideration – depending on price. In 2015 that was not a possibility for most people – to simply wade into cheaper prices took a real contrarian.

ECB President Mario Draghi is once again talking about inflation – “inflationary dynamics are weaker than expected”. This continues to set the stage for a loose monetary policy and I would not argue against this position – being in the gold business. But it’s interesting that world monetary leaders today embrace inflation – not in a big way – they are looking at a controlled process which allows them to create more fiat currency. I wonder how fast they would change their tune if inflation really came around the corner.

Silver closed down $0.06 at $14.08. A bit on the quiet side today – business is steady representing the usual suspects. The ever popular 2016 Silver Eagle Monster Boxes, the usual 100 oz silver bars, the 1 oz silver rounds and of course the $1000 Face 90% silver bags. By the way if you are considering a 90% silver bag stay away from half dollars – the dimes and quarters are much cheaper. Believe it or not 90% silver half dollars now fetch a $700.00 premium (they used to fetch $500.00 over in dealer to dealer transactions and I thought that was silly). The only reason half dollars cost more is that telemarketers are taking advantage of the uninformed – as soon as they come up with another gimmick the premium will return to the traditional range.

A few things to keep in mind about silver – it is a by-product of other mining activity. The fact that prices for products such as nickel, tin, copper, and lead are down reduces mining activity and thus by-product production. The US Mint has sold the entire initial allocation of silver eagles – some 5 million ounces. That is enough to fill more than 8 tractor trailer rigs. So while they are trying to match supply and demand factors the public really loves that Green Monster Box.

Platinum closed down $2.00 at $818.00 and palladium closed up $10.00 at $497.00. Platinum is trading at $281.00 less than gold and is getting some traction here in the physical market – we are seeing some outright buying of platinum bullion and some trading of gold bullion for platinum bullion – supplies of physical platinum bullion remain thin.

This from Reuters (Harvey – Munoz) – Gold retreats as equities recover some ground after rout – Gold edged lower on Thursday after posting its biggest one-day gain in two weeks in the previous session, as a tentative rebound in European equities dampened some risk aversion.

European shares rose 0.8 percent, shrugging off a weak session in Asia overnight, though remained near multi-year lows after a volatile two days that has wiped trillions of dollars off global markets.

Also feeding into better sentiment, oil prices edged off early lows after falling to their weakest since 2003 this week on persistent concerns about a supply overhang.

Spot gold was down 0.1 percent at $1,099.30 an ounce at 1300 GMT, while U.S. gold futures for February delivery were down $6.50 an ounce at $1,099.70.

"You're not seeing so much safe haven bidding, although that is probably supporting the market," Societe Generale analyst Robin Bhar said.

"As the price inches higher, you're just losing steam from the physical markets. The physical buying is maybe not there to mop up any excesses, and for the moment gold appears to be struggling."

Physical gold demand in Asia slowed this week as prices rose, curbing seasonal buying in China ahead of a big holiday and forcing sellers in India to offer a discount.

Gold rose to two-month highs this week as investors sought alternative assets after stocks and industrial commodities, especially oil, fell sharply on fears of a global slowdown.

Gold has repeatedly struggled to maintain a push above $1,100 an ounce, however, as the threat of further U.S. interest rate increases and a stronger dollar suggest scope for gains is limited. It has also hit resistance at its 100-day moving average at $1,107.

Traders were awaiting the outcome of a European Central Bank meeting later on Thursday. The bank is expected to keep interest rates on hold, even as market turmoil, tumbling bank stocks and ebbing inflation set the stage for action later in the year.

Expectations of a steady-as-she-goes message kept the euro strong against the dollar ahead of the bank's January decision and statement.

"Although we do not expect the ECB to already take any further significant expansionary measures … ECB President Draghi could nonetheless raise the prospect of further steps to be taken at subsequent meetings," Commerzbank said in a note. "This should benefit gold in euros above all."

Among other precious metals, platinum was up 0.3 percent at $820.40 an ounce, after earlier falling to a 7-year low at $807.89. Palladium was up 0.6 percent at $495.85 an ounce and silver was down 0.5 percent at $14.08.

This is our usual Thursday Chicago Mercantile Exchange report covering the last 5 trading days – so we are looking at the trading volume numbers for the “February” Gold contract: Thursday 1/14 (219,738) – Friday 1/15 (211,549) – Monday 1/18 (Holiday) – Tuesday 1/19 (200,960) – Wednesday 1/20 (194,211).

We have introduced silver to our CME rundown – so we are looking at the trading volume numbers for the “February” Silver contract: Thursday 1/14 (123,294) – Friday 1/15 (119,082) – Monday 1/18 (Holiday) – Tuesday 1/19 (115,761) – Wednesday 1/20 (113,337).

This from Peter Hug (Kitco) – Ominous Storm Upon Us – “Gold the only metal up. The euphoria that the market expected as we opened yesterday morning was quickly dashed throughout the day and overnight the carnage continued. The Chinese numbers are smoke and the global economies are struggling with an accelerating deflationary bust. Oil under $28, copper approaching multi-year lows. Platinum trading at a whopping $280 discount to gold. Equity markets on meltdown. Capitulation not yet in sight. Gold catches a fear bid, which may begin to accelerate. This time around, with global interest rates pretty much at zero, the central banks will be hard pressed to buy their way out. 2008 may turn-out to be a picnic against what the global economies are facing today. Gold from a technical perspective requires a close above the $1,102 level to motor on, with $1,088 support.”

Wow! I really like Peter Hug because he is an actual trader – and as a trader he has that undefined “feel” of when things are going well and when they are going south. In all the years I have been reading his commentary the above is the most ominous – it’s almost biblical.

I don’t share the same feelings but because I have so much respect for Hug I wonder if there are others out there that believe world governments have pushed the quantitative easing envelope too far. My take up to this point has been simple – the “pay-back” would come in the form of creeping inflation numbers and we would eventually see a number of years come and go as inflation picked away at the dollar’s buying power.

But this has not been the case and yesterday’s inflation numbers were non-existent – the same is true for Europe. The big difference between there and here is that the US does not fear deflation – that is not true with everyone else.

So is Hug right? Are we in for some kind of collapse as opposed to a steady grinding away at stocks and financial markets? There is no reason to believe this fate awaits the US but it is possible we might end up as collateral damage. But even this scenario is too bleak for me – I think this financial situation will stabilize just like it has so many times before. And gold will once again sink below the $1100.00 mark waiting in the wings for something of substance to walk through the front door. This morning’s sell off from all the tension created yesterday seems to bear this out on the short-term.

And I will stick with this opinion unless the price of gold once again wakes up and decides to confound the pundits. Gold as I am fond of saying keeps everyone honest. And if it finds its feet in the very congested $1100.00 to $1200.00 corridor – it could point to very deep financial problems worldwide.

At that point gold will be back in the lime-light – and with all that attention if it still breaks above the summer 2013 highs of $1400.00 you should buy all you can and hope Hug is wrong.

The walk-in cash business was on the slow side today and so were the phones.

The GoldDealer.com Unscientific Activity Scale is a “ 4” for Thursday. The CNI Activity Scale takes into consideration volume and the hedge book: (Friday – 4) (Monday – Closed) (Tuesday – 4) (Wednesday – 5). 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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