Commentary for Tuesday, Feb 17, 2015 – Gold closed down $18.40 on the Comex today at $1208.10 on worries – worries that the Fed will raise interest rates this summer – worries that the Chinese will not buy during the holiday (their markets will close for 5 days beginning this Wednesday for the New Year – worries that today’s close is below the 100 Day Moving Average ($1216.00) – worries that Greece will exit the euro and, well you get the idea.
It’s funny really how fast gold moved from a positive safe-haven buying bias because Europe is going into the drink to a proclaimed technical nightmare where noone is interested.
This most recent sell-off in gold is technical and looks like a continuation in the one year chart. About a year ago (Feb – 2014) gold could not move above the $1350.00 level and so the bear trade had their way pushing prices generally lower which put in a bottom at $1150.00.
We subsequently had the safe haven rally which pushed again to the $1300.00 level and once again gold failed as Europe and the Russian/Ukraine problem moved to the back burner. What is troubling about this latest weakness is the fact that gold has completely ignored the European Union plan for quantitative easing.
And consider these morning headlines – U.S. stock futures were under pressure in early trading on the stalled Greek bailout talks and the shaky Russia-Ukraine cease-fire. Capping a positive week, the Dow closed above 18,000 and the S&P 500 hit a record on Friday. ( CNBC)
Debt talks between Greek Finance Minister Yanis Varoufakis and his euro zone counterparts broke down late Monday, raising concern ahead of the expiration of Greece’s current bailout loan later this month. ( CNBC)
With no relief rally – any other time the above would have generated higher prices for gold.
At any rate we are back in the defensive mood for gold and it looks like even the buying going into the Chinese New Year will not dissuade the bears.
So how bad can it be? Actually it is not time to jump out the window – let’s look at our handy 5 year gold chart for some wisdom. Since February of 2010 gold has bounced off the $1200.00 mark 4 times – so it’s pretty safe to say that we might indeed hold at the technically important $1200.00 mark.
A break below that mark is possible in the greater picture because noone is absolutely sure we have put in a gold bottom. And like in the days of quantitative easing the big bugaboo today is the interest rate question. Forget about safe-haven buying (here today – gone tomorrow) forget about what the Russians are doing or if Draghi will buy bonds.
The big question today is when will the Federal Reserve raise interest rates? It’s not a cinch one way or the other but my bet is that the pressure to raise rates will increase because the insiders know that super low interest rates – in place since the 2008 financial collapse will eventually create mischief. Everyone is back to say this summer will be the time for at least a testing of the waters.
In the meantime we are back to my original probably too conservative model – $1050.00 to $1150.00 if we break below the long-time $1200.00 support for gold.
I would also add the usual proviso – we are approaching a bottom here somewhere so lower moves will become less and less dramatic. And there is plenty of physical demand to support this statement. Central Banks, the Russians, China, India and others who really believe gold is an important financial asset will buy this weakness – just like they have bought other downward trends.
So if you’re still interested in gold bullion don’t miss the chance to cost average downward. This will ultimately be gold’s saving grace in a world which will eventually drown in its own fiat paper money.
And here’s one premium dynamic you might find interesting. This morning I was looking at the premium over melt for lower grade $20 gold pieces. Most of these still come out of Europe and the Europeans will not sell into the US market if they think it is getting too cheap. Premiums on the circulated coins have more than doubled recently – this would indicate the Europeans are not willing to part with their circulated $20’s at these lower prices and so ask and get the additional premium – just another anecdotal sign that a bottom is forming.
Silver followed gold to lower levels down a big $0.91 at $16.36. This is actually good for the physical market because real silver buyers are encouraged at these lower levels.
Platinum closed down $30.00 at $1180.00 and palladium was down $11.00 at $783.00. This platinum close was the lowest we have seen in 5 years and I think this is simply a reaction to the weak gold market.
The fundamentals for platinum are strong when you consider that 2014 saw a worldwide deficit of 885,000 ounces and car sales in America are soaring. But the fears of financial problems in Europe are trumping this market – 40% of 7 million ounces produced every year goes to Europe.
The walk-in cash trade was slow and the phones were also off – figures with lower markets.
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