Commentary for Tuesday, March 18, 2014 – Gold moved down $13.50 to $1359.00 today in continuation selling from the cool-down in the Russian situation yesterday and in fact saw levels as low as $1350.00 before settling somewhat higher. The general trend has been higher in 5 of the last 6 weeks with an average advance of $23.00 per week, but the big question without further Russian agitation is where do we go from here?
The Federal Reserve began another 2 day meeting today so results will likely push or pull gold prices but I think further tapering is in the cards and this will make gold heavy for the short-term. The American Gold Buffalo 1 oz was popular with investors today.
Silver closed down $0.41 at $20.83 and this physical market remains quiet.
Platinum was off $8.00 at $1461.00 and palladium was down $5.00 at $771.00. The new production American Platinum Eagle 1 oz will be in stock tomorrow and I am surprised this has not produced more buzz which is usually accompanied with US Mint advertising. Fresh physical material always moves the needle regardless of relative mood.
Gold then continues to work in a defined trading range which has been technically bullish since February running from the $1300.00 level through the $1380.00 level before moving lower against stiff overhead resistance. The 60 day chart for gold also looks impressive moving from the $1200.00 and again topping at $1380.00. The Russian problem pushed gold from a consolidation pattern in the $1340.00 range into its current attempt at moving above $1400.00 but Putin has managed to calm the waters and so traders took profits and gold technically adjusted.
For computer traders this most recent dip in prices sends up a red flag even in the bullish camp. It raises questions from momentum players looking to further capitalize in the short term. And because before all the latest pop in the price the gold the mood was somber we refocus away from the short-term buzz into a longer term assessment. And because that technical picture remains uncommitted it looks like we are stuck in no-man’s land. At least until gold moves above $1400.00 and even then it must show continued strength before getting real respect. So why is all this not getting more gold press. Well after the Russian threat seems to have diminished we are back to the basics – listen to Mike Myer.
This from Mike Myer (EverBank): February industrial production had a nice pop as it had the biggest gain in three months. Total industrial output, which includes utilities and mining, increased 0.6% as weather was more cooperative and carmakers rebounded from a rough January. Specifically looking at factory output, we saw the biggest increase since August last month as it came in at 0.8%. It didn’t quite offset the revised 0.9% contraction in January, so we’re still sitting on a negative number so far this year. If the other regional reports come in like the NY area, we should be back in black this month. The experts were only anticipating a 0.3% gain so this report really hit a home run and provided solid support for the equity markets. Factory output excluding vehicles increased 0.5%, which was the most in four months, and economists now see manufacturing as being a positive contributor heading into summer. Assuming the inventory buildup from the beginning of the year continues to dwindle, I would think that helps the manufacturing numbers as well. I guess we’ll see if the volatility of the first couple months will flatten out going forward as we should be past most of the mother nature related events. Following up with more good news, February capacity utilization both increased more than expected as well as compared to the previous month. Remember, this report measures the amount of a factory that’s in use and the Fed generally uses it to gauge the amount of slack in the economy. The rise to 78.8% from 78.5% was a positive development and supports the other reports we had just discussed. We were supposed to get the TICS data yesterday, but that got pushed to this morning since some federal offices were closed due to weather. The last bit of data yesterday came in the way of homebuilder confidence. The NAHB (National Association of Home Builders) Housing Market Index gave us a reading for March that was slightly above last month but below expectations. The result of 47 was both below initial estimates of 50 as well as the line in the sand that separates those who see good conditions compared to poor conditions. The measure of current sales increased a bit while the measure of sales expectations over the next six months fell so they still remain optimistic going forward. And that takes us to this morning, when we get February CPI, housing starts, and building permits. We aren’t expecting any significant moves one way or the other, so I would say they get largely overlooked. The housing numbers might get some air time since they are expected to show some improvement, but other than that, it’s a yawner. When we include the rollover of the TIC flows from January, we have today in data. As I mentioned up top, I think the markets were bracing for the worst regarding Ukraine and Russia so relief set in, for now at least, when things didn’t escalate. The geopolitical tensions eased a bit when we didn’t see any major violence following the Crimean vote to join Russia in a landslide margin, so the risk takers felt comfortable enough to get back in the pool. The EU and US have implemented some sanctions, which are really symbolic in nature at this point and lack any real teeth, but it’s at least something to talk about. The measure included freezing assets and banning travel on several officials that are believed to be involved with that movement. President Obama said they will calibrate responses according to whether Russia escalates or de-escalates the situation. If we continue seeing this modest and specific action, I think the markets are ok with it at this point. As a result of the risk on sentiment, the dollar ended the day lower against most currencies. I saw a report from the Commodity Futures Trading Commission that showed investors reduced bullish bets on the US dollar for a fifth straight week while the net long positions fell to their lowest levels in over four months. That data would certainly be consistent with the euro trading at 1.39. Speaking of the euro, it traded in a pretty tight range yesterday in spite of lower inflation data. In fact, eurozone inflation unexpectedly fell in February to 0.7% from 0.8% and represents the fifth month below 1%. While this report on its own probably isn’t enough to cause the ECB to cut rates again, it has increased its possibility. The last time inflation fell to this level, the ECB did end up surprising the markets with a rate cut, but most economists only see a significant rise in the euro or an abrupt decline in growth to push the ECB into action, assuming inflation doesn’t continue falling. Deflation remains on the ECB’s radar screen so they will continue to monitor and assess. I know that I’m throwing this one in from left field, but thought it was interesting when I saw the German current account surplus has been at least 6% since 2007.
The landscape without the Russian threat is basically calm, not really good but not really bad and so investors are willing to poke around with their extra money. And this type of environment does not produce the needed gold or silver vibe.
For old timers in this game this situation it just fine because they know sooner or later gold will be back in the headlines but until then be patient and work on your investment approach. Also keep in mind that the longer we remain uncommitted the more hype you will see from the telemarketing trade. These are the guys that call incessantly with the latest “hot” gold or silver coin. Avoid the conversation and stick with regular bullion products which have been around for years. Not colorful but easy to figure and low premium. The reason these phone jokers never want to sell just bullion is because there is no large commission and without that commission they are either out of business or being invested by the Santa Monica DA – another fraud investigation is ongoing. Google – Santa Monica coin fraud.
The walk-in cash trade was just average today until 12:30 and then the store was full. The phone business was also a slow starter but picked up considerably in the afternoon…why I am not sure but there you have it and this says something about how fast business can change. The GoldDealer.com Activity Scale is a “4” for Tuesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Wednesday – 3) (last Thursday – 3) (last Friday – 3) (last Monday- 4). The scale (1 through 10) is a reliable way to understand our volume numbers.
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