Commentary for Wednesday, May 7, 2014 – Gold closed down $19.70 at $1288.60 saying good bye to the reassuring $1300.00 support level.
So gold is weaker because the upbeat Yellen comments reinforce the “feel good” economy numbers. And Putin’s assurance that he wants to deescalate the powder keg in Ukraine takes the tension or “blow up” scenario off the table relative to Russia.
I am not so sure either leader is exactly truthful but there is enough truth in each presentation to put a cap on gold for the near term. Given the sell off today in gold look carefully at the old support line of $1280.00 on the shorter term with continued overhead resistance at $1320.00.
Federal Chair Yellen looks better on camera today than on previous outings. She appears younger and more careful but assertive and kind (not a bad thing to be in her shoes). Her responses were more clever by two so she will be difficult to trap with those no-win questions. She maintains the now old line of “a high degree of monetary accommodation”. This of course assures the stock market that the monetary taper will continue as planned and continues to pressure gold.
These are the changes in the largest gold Exchange Traded Fund (GLD – SPDR Trust) since last Wednesday: we moved from 25,468,060, gold ounces on deposit (April 30, 2014) to the current holdings of 25,169,478 gold ounces on deposit (May 7th, 2014). This means the fund has moved lower by 298,582 over the last 8 days. In future newsletters we will track this number on a weekly basis which will provide a better short-term feel of which way speculators are moving in this exchange traded gold fund.
Silver closed down $0.30 at $19.30 and the physical action today was just average.
These are the changes in the largest silver Exchange Traded Fund (SLV – BlackRock iShares) since last Wednesday: we moved from 327,253,616 silver ounces on deposit (April 30, 2014) to the current holdings of 321,804,055 (May 7, 2014). This means that the fund has moved lower by 5,449,561 over the last 8 days. In future newsletters we will track this number on a weekly basis which will provide a better short-term feel of which way speculators are moving in this exchange traded silver fund.
Platinum was down $23.00 at $1435.00 and palladium was off $22.00 at $796.00. Rhodium closed unchanged at $1030.00.
The dollar index today was higher but not much looking like 79.14 and keep in mind that the 52 week low for this metric is 79. So it looks to me like we can expect more of the same, basically weaker relative to the euro and even the small gains today were given back during the Yellen testimony. Considering the somewhat improving economic conditions and this is a soft pitch (there are many out there that are not near as kind) I would not short the dollar relative to the euro but this trade is getting some attention and in the longer term a weaker dollar will support gold prices.
The currency versus gold relationship however has been tenuous in my mind. It sounds good on paper to say the dollar was weaker and gold moved higher but in the longer view this relationship is delayed at best. Even the consistent physical demand numbers are thrown overboard from time to time as gold commentary looks for singular events to explain continued weakness. For now I would discount much of the day to day commentary instead believing we are just stuck within a relatively small trading range. And I would continue to wait as the general “owning gold commentary” improves.
More people will move back to the old economic model that government monetary intervention can generally be a good idea short term (hopefully avoiding financial collapse). But the longer we “tinker” with the free enterprise system the more chance of bubble formation and sooner or later we are back to the “emergency” of the day scenario. This is when gold shines because it is the only financial asset which does not create an obliged second party.
Neils Christensen (Kitco News) – Gold prices could be dragged higher Thursday by a stronger euro as the European Central Bank is expected leave interest rates unchanged following their monetary policy meeting, according to some analysts. Expectations continue to build for the central bank to take action to promote economic growth and stave off deflation concerns; however, some analysts agree that markets will have to wait at least one more month, as the ECB will probably delay any action until June, when they will release updated staff projections. Christopher Vecchio, currency analyst at DailyFX, referred to Thursday’s meeting as “a filler.” He added that the ECB will be hesitant to act because since the last meeting in April, the economic growth picture has continued to improve, inflation has ticked higher and credit conditions have loosened. “Right now there is just nothing for the ECB,” he said. Neil Mellor, senior currency strategist from the Bank of New York Mellon, agreed that from a policy standpoint, the ECB will be a non-event; however, he added that it will be difficult to predict how the euro will react and as a by-product the gold market. As of 12:49 p.m EDT, EUR/USD was trading at $1.3924, just below the key long-term resistance level of $1.40. Both Mellor and Vecchio pointed out that the relative strength of the euro against the U.S. dollar is a concern for the ECB but the central bank is limited in what they can do to weaken the signal currency. Not only is the euro benefitting from interest rate differentials but concerns about the U.S. economy are also helping to propel the euro higher, both analysts said. “Fundamentally the euro should be weaker against the U.S. dollar,” said Vecchio. “However, I wouldn’t want to short the euro until it goes through $1.40.” Because of the weakness in the U.S. dollar, Mellor said he does not see a lot of downside risk to the euro during Thursday’s meeting and ECB President Mari Draghi’s press conference. He added that the euro is on the verge of “exploding higher,” and all it could take to ignite the rally is for the ECB to signal that they still aren’t ready to loosen their monetary policy. “If we see U.S. dollar weakness, that will be beneficial for gold,” he said. Alex Merk, president and chief investment officer of Merk Investments, said gold could benefit as it is one of the last safe-haven investments. He added in the last few days that the U.S. dollar has failed to rally even though there has been high risk-aversion sentiment in the marketplace. “No matter what happens on Thursday, Draghi is going to create a risk-off environment and that should benefit gold,” he said.
The walk-in cash trade today was active all day and the phones were relatively busy but not hurried. The public seems more interested in pricing today than yesterday. There was a great deal of tire-kicking but not a big pop in sales so investors are interested but still waiting for a better deal.
The big gold bullion seller remains the American Gold Eagle 1 oz Real value shoppers will consider the Australian Kangaroo 1 oz – a pure gold coins at only $35.00 over spot. It comes in a protective special plastic holder and there is no Form 1099 reporting when you sell the product back to any dealer.
The GoldDealer.com Activity Scale is a “6” for Wednesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 4) (last Friday – 3) (Monday – 3) (Tuesday – 4). The scale (1 through 10) is a reliable way to understand our volume numbers.
We are thinking of putting an In and Out Wagon in our parking lot when the need for a hamburger arises. Everyone loves a good hamburger and we thought it would be a nice way of saying “thanks” for the business. Anyone with a tax free invoice ($1500.00) can get a free Double/Double on the way out. The truck would be in the parking lot about 2 hours and we would have tables in one corner. The upside to this idea is getting a great hamburger when you make a purchase in person. The downside is that while we have a large lot this idea might create a parking problem for vegetarians. Please opine at RSchwary@aol.com and thanks for the input.
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