Gold Moves Lower on Profit Taking and Technical Correction

Gold Moves Lower on Profit Taking and Technical Correction

Commentary for Wednesday, Feb 19, 2014 (www.golddealer.com) – Gold closed down $4.10 at $1320.60 today in what appears to be another round of profit taking. This is the first time gold actually closed lower in the last ten trading sessions as its most recent rally pushed prices above the 50, 100 and 200 day moving averages so technically this pullback should be considered mild but I am concerned about the lack of buzz considering recent gains. Overall this recent push makes for a $73.00 gain in gold or about a 5.8% increase in a market decidedly lacking in good news.

And the gold rally happened with virtually no fanfare and was ignored by the press. The dollar has been under some pressure lately and CNBC this morning seems to be worried about the US economic recovery. Now consider the IMF has indicated that the world economies might also be sputtering or worse. Today the housing starts number was also worrisome down 16% but this weakness was dismissed because of poor weather. The question also raised on CNBC this morning was how many passes are you going to give slumping economic numbers because of the weather? It is a fair point and perhaps time to consider other factors. The elephant in the room is of course the massive quantitative easing program still in place. Keep in mind it is easy to “help” the economy with a loose monetary policy but very difficult to make the better numbers stick if the public is still not buying.

All of this is of course vague but if there were problems with the recovery it would be positive for gold.

Also in this time period we have a Federal Reserve Chairwomen which looks just as accommodative as former Chairman Bernanke. Today Federal Reserve officials repeated the notion that the taper would continue with oversight. And interest rates would remain low even if we move below the previous 6.5% target for unemployment.

And keep an eye on the increasing price of crude oil. Easy monetary policy, the possibility of a lower dollar and higher oil all support gold prices on the short term. 

Silver closed down $0.04 at $21.84 and I can’t say they are kicking down the doors for the new bullion products. Don’t get me wrong it is not slow but again with the recent gains in gold and the significant discount in silver bullion I would have expected a better show.

Platinum was unchanged today at $1423.00 and palladium was down $1.00 at $736.00. Sales of rhodium bars seem to be increasing – a great bet in my book.

So what is happening to gold? You have a solid 60 day run into higher territory from December ($1200.00) to February ($1330.00) but if you stretch the gold chart out to 1 year you run into the same old story. Gold seems solid with a double bottom in the $1200.00 range but struggles in the $1300.00 to $1400.00 trading range. So until you develop strength to move above the old $1400.00 over resistance established in August of last year it seems gold is again range-bound. Still the technical picture for gold is much improved but without significant follow through from current levels higher pricing will remain more of a grind than a walk in the park.

This from Sangeetha G. (Financial Chronicle – mykditalalfc.com / India’s first global business networking platform) – Gold Demand up 13%, Despite Penal Duty – Finance minister P Chidambaram’s 10 per cent penal duty to curb gold imports failed to kill citizens’ appetite for the yellow metal with demand rising 13 per cent in calendar 2013 to reach 975 tonnes. However, India was displaced to the second slot after China in the global consumption ranking for gold. Together, both the countries consumed half the world’s gold supplies last year. The World Gold Council’s gold demand trend released on Tuesday estimated domestic demand for 2013 at 975 tonnes against 864 tonnes in 2012. Jewellery demand grew 11 per cent to 612.7 tonnes and investment demand was up by 16 per cent to 362 tonnes against 2012. WGC usually relies on import data to gauge demand in import-dependent markets like India. But for 2013, the council looked at different yardsticks to assess demand. “This time the grey market has played a huge role in supplying gold. Recycling was relatively higher in the second half and destocking by the trade too has happened to make up for lesser imports,” said P R Somasundaram, WGC’s managing director for India. WGC has estimated that the grey market would have fed at least 200 tonnes of gold demand last year, while 100 tonnes would have been recycled. However, it did not rule out the chances of smuggled gold entering the market as recycled gold. Bachhraj Bamalwa, past chairman of the all-India gem and jewellery federation, felt that even up to 300 tonnes could have been smuggled in last year. “There are no concrete numbers on the smuggled quantity, as this is a clandestine activity,” he said. WGC’s Somasundaram said, “Demand in the second half was lower due to the effect of the supply curbs introduced in that period, but, equally, it was due to households having met a large part of their annual gold requirements in the first half, using the price drop in April as a buying opportunity. The latter half of last year has seen intense grey market activity, but its impact will be more visible and significant in 2014, if the import curbs continue.” In the December quarter, demand was down by 16 per cent at 218.7 tonnes; jewellery demand was down by 2 per cent at 150.7 tonnes and investment demand fell by 38 per cent at 68 tonnes. WGC estimates the demand to remain between 900 tonnes and 1,000 tonnes in 2014 as well. “However, we will revisit the demand estimates in the first quarter taking into account several factors, including prices, relaxation of import curbs and economic stability and affordability,” said Somasundaram. With 1,066 tonnes, China’s consumption surpassed India’s in 2013. China broke India’s previous record of 1,007 tonnes — the highest annual demand by a single country. China is already the world’s top producer of gold, mining 437 tonnes annually. India and China together consumed 54 per cent of the world’s total demand of 3,756 tonnes. With a total gold ETF outflow of 881 tonnes, the demand was, however, down by 15 per cent in 2013. Nevertheless, demand in Turkey was up 60 per cent, Thailand 73 per cent and the US up 18 per cent. Global jewellery demand was up 6 per cent, while bar and coin demand fell 6 per cent.

All of this supply/demand data comes from the just released report from World Gold Council and it points out what many have been talking about for years. The direction of real gold bullion is moving from West to East. Not big news anymore but still amazing in that no one in the US or Europe seems to give a hoot that China and India seem to have an unending appetite for physical gold. And considering that both are economic powerhouses is not this the perfect storm for higher gold prices over the decade?

Thoughts from James Rickards (www.epochtimes) about China from Chuck Butler (EverBank) – "What China wants is the SDR [Special Drawing Right, a type of money for governments], because it’s not the dollar. It’s issued by the IMF [International Monetary Fund], and China is simultaneously lobbying for more votes in the IMF. China is trying to use its willingness to lend money to the IMF to purchase SDR notes from the IMF to give the IMF money to bail out Europe. It’s trying to use that as a lever to get more votes. If it has more votes, it would be comfortable using the SDR as a reserve currency, because its use would be regulated by the membership and that would make China the second largest member after the United States. The United States is opposing it, but Christine Lagarde [Head of the IMF], is pushing very hard to increase the Chinese role. It’s a complicated global game. If you said to me, does China want to get rid of the dollar as the global reserve currency, the answer is yes. But most people think it’s that they want the yuan. They don’t. It’s the SDR." When asked what can the U.S. do about the money owed to China, Rickards responded: "All we have to do is inflate our currency and pay them back in cheaper dollars and that reflects a wealth transfer from China to the United States. So China is completely vulnerable to that, which is why they are buying gold to create a hedge. If we inflate, then gold will go up. So what they lose on the paper, they make on the gold.”

The walk-in cash trade was very quiet and so were the phones. Which is why I have concerns about current pricing but the market remains a crap shoot. World tension seems to be once again rising and with all the problems in Russia I’m surprised gold has ignored the violence.    

The GoldDealer.com Activity Scale is a “4” for Wednesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Wednesday – 4) (last Thursday – 3) (last Friday – 4) (Tuesday – 4). The scale is 1 through 10 and a reliable way to understand our volume numbers.

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