Commentary for Friday, July 18, 2014 (www.golddealer.com) – Gold closed down $7.50 at $1309.20 which makes for a $28.00 loss on the week – pretty uneventful pricing – in light of all the international turmoil.
Silver closed down $0.25 at $20.83 and we are selling the Bison and Antelope (Canadian Wildlife Series) at $2.50 over spot. These are beautiful, limited and popular real silver bullion choices.
Platinum closed down $14.00 at $1489.00 and palladium was off $4.00 at $880.00.
A small technical look at gold into the weekend might prove interesting: Gold is trying to pare its gains today, breaking back below the May high at $1315.00 before finding support above the important 50% Fibonacci ratio at $1308.00. Fibonacci ratios have a long standing in the technical community and can be used to suggest support in a negative market.
We are seeing resistance at the 7 Day Moving Average ($1315.00) and 21 Day Moving Average ($1318.00) with support at the 50 Day Moving Average ($1293.00) and 100 Day Moving Average ($1303).
Bollinger Bands (BB) was developed by technical trader John Bollinger. This “band” is plotted on a graph two standard deviations away from a simple moving average. Today the BBs are diverging, which suggests consolidation on reduced volatility following the strong upside break.
A few days ago I talked about the Relative Strength Index (RSI). The RSI relative to gold is a momentum tool used by technicians in an attempt to determine overbought or oversold conditions in a particular asset class. The RSI is really a ratio of averages – it divides the average number of “up” closes times the days involved with the average number of down closes using the same number of days.
Without getting more into this type of commentary I am curious as to what the reader thinks of such wizardry? Some readers like the idea of technical indicators; some believe these are nothing more than chicken bones and some fall asleep. I am not trying to develop a trading mentality here because all of this is presented as “informational only” – we are simply long term holders. Your input however would be appreciated and thanks.
Let’s consider gold safe haven buying – or lack of said product. Hamas has launched 8000 rockets into Israel and one must ask where did they get this new capability? This is a horrible game of shadows and it appears that this new weapon capability comes from Iran.
So like many times before the Middle East situation is complex – is this move by Hamas one of desperation because they are not part of the peace negotiations. All of this will end badly as even Egypt condemns them and is talking about war crimes.
The death toll is completely one sided as Israel has one of the finest fighting forces in the world. So let’s hope someone can create a cease fire and once again attempt a political solution.
The other unsettling aspect contributing to this escalating problem is the rocket attack which brought down the commercial Malaysian airliner killing almost 300 civilians. And this number includes as many as 23 Americans – but this has not been confirmed as of Friday. This atrocious act is now being investigated and it will take weeks before definitive information is available. But there is only a handfull of governments with this capability and our State Department claims the Russians are involved either directly or indirectly.
However these tragedies play out the tension level will remain high and this will unfortunately support the price of gold. But not to the extent that some might assume. Remember the last Russian incursion into Ukraine was worth about $50.00 in the price of gold as safe haven buying immerged. So I think that higher gold prices are capped unless this mess continues to escalate.
Because of these factors the short players have moved to the sidelines – especially into an uncertain weekend. The overnight Globex and Sydney markets reached a high of about $1325.00 before seeing mild profit taking. The Hong Kong, London and domestic markets settled looking at $1310.00.
But all of this will not create the longer term support needed for higher gold prices.
Could I pick one significant problem which will push prices higher? Europe’s still accumulating debt – which can only be paid back through inflation.
This from Ambrose Evens-Pritchard (The Telegraph) – “The world economy is just as vulnerable to a financial crisis as it was in 2007, with the added danger that debt ratios are now far higher and emerging markets have been drawn into the fire as well, the Bank for International Settlements has warned.
Jaime Caruana, head of the Swiss-based financial watchdog, said investors were ignoring the risk of monetary tightening in their voracious hunt for yield.
“Markets seem to be considering only a very narrow spectrum of potential outcomes. They have become convinced that monetary conditions will remain easy for a very long time, and may be taking more assurance than central banks wish to give,” he told The Telegraph.
Mr Caruana said the international system is in many ways more fragile than it was in the build-up to the Lehman crisis. Debt ratios in the developed economies have risen by 20 percentage points to 275pc of GDP since then.
Credit spreads have fallen to wafer-thin levels. Companies are borrowing heavily to buy back their own shares. The BIS said 40pc of syndicated loans are to sub-investment grade borrowers, a higher ratio than in 2007, with ever fewer protection covenants for creditors.”
Participants in the weekly Kitco News Gold Survey are split over gold’s price direction for next week as no one group has an outright majority, although a nominal number lean bullish.
Out of 37 participants, 25 responded this week. Of those, 11 see higher prices, nine see lower prices and five see prices trading sideways or are neutral. Market participants include bullion dealers, investment banks, futures traders and technical-chart analysts.
Last week, survey participants were bullish for this week. As of 11:30 a.m. EDT, Comex August gold was down about $19 for the week.
Those who see higher prices say geopolitical concerns will keep gold bid.
“The tragic geopolitical situation, however it transpires in both Gaza and Ukraine, gives gold support. At the same time, the market had overcompensated for the reduction in stimulus by the Fed and with sentiment on gold very negative. So up next week,” said Adrian Day, chairman and chief executive officer, Adrian Day Asset Management.
Those who see weaker prices took an opposite view of gold’s reaction to geopolitical worries.
“If a day of rising tensions in Russia and Ukraine and ground-fighting in Gaza can only muster a 1% rally in gold, what will it take to really get a rally going? Funds’ trading performance in gold has been horrific the past two-three months… getting short at the low, getting long at higher levels, now caught in the middle of a $1,275-$1,350 trading range. I believe the recent poor performance is having the effect of funds going to the sidelines which is one reason gold can’t rally well. I look for gold to drift a little lower probably re-testing $1,275’ish over the next one to two weeks,” said Ken Morrison, editor of online newsletter Morrison on the Markets.
A few participants said gold prices have little short-term trend right now, so they expected choppy, range-bound trade. Frank Lesh, broker and futures analyst with FuturePath Trading, said he’s had a hard time trying to be bullish gold and is opting for being neutral right now.
The “gold trade has been a real disappointment for the longs the past week. Gold opened on the high of the week on Monday and immediately sold off on profit taking, hitting sell stops and cleaning out any recent buyers. Then the geopolitical problems (surfaced) and the market can’t hold the gains from the safety bid. The downing of the aircraft is a tragic, but not an act of war and the Israeli invasion of Gaza is something that has happened before without serious market disruptions. Either situation could easily turn much worse, but the markets will take a wait-and-see attitude for now. Many traders remember getting burned when the initial tension of the Russia/Ukraine started and gold spiked to $1,390’s, only to quickly give back any gains. I have been trying to be bullish this market, but the action the past several weeks has me back to a neutral stance,” Lesh said.
The walk-in cash trade picked up some this Friday but is still subdued and the phones were back to average with lots of questions. Buyers or sellers however remain elusive so volume numbers continue to disappoint even though prices are cheap relative to old highs.
The GoldDealer.com Activity Scale is a “4” for Friday. The CNI Activity Scale takes into consideration volume and the hedge book: (Monday – 4) (Tuesday – 3) (Wednesday – 2) (Thursday – 4). The scale (1 through 10) is a reliable way to understand our volume numbers.
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