Commentary for Tuesday, April 15, 2014 (www.golddealer.com) – Gold closed down $27.20 today at $1300.00 reacting to early selling which began overnight in Hong Kong and continued lower in London finally bouncing off the $1290.00 level and rising domestically to finish just above the important $1300.00 level for the day. Live pricing after the Comex close appears stable and relatively flat holding the bounce back position. Keep in mind that gold’s 200 day moving average is $1298.00.
A report from the World Gold Council seems to imply that the Chinese may be importing gold bullion and then using this asset to borrow cheap money. Everyone and their brother have flagged this report as a big deal. The idea being that somehow this asset is now not as secure.
Even more absurd is that Chinese gold import numbers should now be questioned. All of this is ridiculous because they print currency willy-nilly just like every other central bank and fractional lending advantage relative to collateral is a none starter.
Silver closed down $0.52 at $19.47 really just following gold lower so expect a bounce back in silver prices as the physical market takes advantage of this surprise sale.
Platinum closed down $23.00 at $1444.00 and palladium was off $15.00 at $796.00.
Not long ago Goldman Sachs predicted gold would see $1050.00 by year end and even with recent strength to the upside they are standing by that number according to Market Watch. Their reasoning behind the bearish call centers on continued tapering by the Federal Reserve and continued US economic improvement. And Reuters today says “Growing optimism about the U.S. economy has been one of the factors in gold’s decline over the last year, as funds pulled money out of bullion to invest in stocks.”
Of course you could take the other side of the bet and say that the Russian/Ukraine problem could turn into a civil war and even if that is unlikely the price of gold has already factored in less quantitative easing.
My point however is that the Goldman call and today’s weakness takes many positive facts which argue for higher gold prices off the table. Because gold becomes easily defensive like today, citing continued physical demand from China and India sounds rather hollow.
And even with supposedly weaker Chinese numbers today growth is still north of 7% and she has never been shy about quantitative easing. And the European Union and Japan are also on board as far as watering down their currency. You might also want to consider why all this quantitative easing is still necessary if things are improving? And further if the recent route in stocks continues gold begins to look like a safe haven.
Or how about the recent Consumer Price Index which looks like a 45% angle, with no pullback now at 18 month highs? The expected inflation has to be on someone’s mind and yet the media ignores this metric.
Further supporting higher gold is Kira Brecht’s (Kitco) contention that the much talked about dollar rally in 2014 is going nowhere fast: “What does this all mean? It’s bearish news for the U.S. dollar. Currency players are happy to put on the so-called “carry trade” and sell U.S. dollars, while buying any number of currencies that have a higher interest rate. Shifting back to gold. The yellow metal continues to rally. The gold market held support on the recent corrective pullback and the bulls have been inching prices higher in recent days. With the U.S. dollar continuing to go nowhere, there is no bearish pressure from the currency onto gold.”
During the initial Crimea problem gold was higher and even then I was suspicious and introduced the Trojan horse concept about Greeks bearing gifts: today this notion is further supported.
Which brings me to yesterday’s comment about watching the dollar and ignoring other financial noise when it comes to the price of gold. A stronger dollar today did help gold move lower but take this uptick off the table and gold has developed a minor upward price channel which will encourage the paper traders looking for quick trades and subsequent profits. This kind of volatility is great for option players but discouraging for the real physical market.
Don’t get me wrong we will see plenty of buying action today because the public is always interested in lower prices but this type of public is the seasoned player not new spec money. And without fresh money I am afraid we will remain stuck because there is a giant hurdle to cross between where we are now (the $1300.00 psychological level) and a sustainable break to higher ground (above $1400.00). So in the meantime keep your powder dry and watch for opportunities.
Finally I don’t discount the Russian/Ukraine problem and would add the world is full of potential political unrest which could further support the physical gold market. In the end however I vote for cooler heads worldwide and if I am wrong, well that is one of the main reasons for owning a physical hedge in gold bullion.
The walk-in cash trade was active all day which figures with this large sell-off and the phones began ringing early even before we set up the showcases and made coffee. If there is one thing that is constant with this changing market it is increased buying when prices make new lows. At this point it is impossible to say if this market will again test support tomorrow but there is nothing like a large price swing to wake everyone up and create action.
The GoldDealer.com Activity Scale is a “5” for Tuesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Wednesday – 4) (last Thursday – 3) (last Friday – 3) (Monday – 5). The scale (1 through 10) is a reliable way to understand our volume numbers.
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