Commentary for Wednesday, Feb 3, 2016 (www.golddealer.com) – Gold closed up $17.30 on the Comex today at $1144.60. A big move which came later in the trading session after gold had traded in the $1130.00 range for half the trading day.
Gold continues to catch a good bid – for a number of reasons. The short-term technical picture continues to improve so the computer models are in the green. With today’s close $1144.60 we are above the 50 DMA ($1084.00) the 100 DMA ($1107.00) and the 200 DMA ($1131.00).
The downbeat report from Reuters this morning again casts doubt as to whether the US economy is as robust as the government claims. This is probably an overreaction but it adds fuel to the fire which claims further rate hikes in 2016 might be out the window.
The ADP report today was also a disappointment – 205,000 jobs created in January – December was 267,000 jobs created but today 205,000 was in line with expectations. All of these numbers are watched carefully for signs about our economy – but the dynamics can change on a dime and will push gold one way or the other overnight.
This from Reuters – US January ISM nonmanufacturing at 53.5 vs 55.1 expected – “The U.S. economy's service sector expanded in January but at a slower pace than the previous month, according to an industry report released Wednesday.
The Institute for Supply Management (ISM) said its index of non-manufacturing activity fell to 53.5 from 55.8 the month before. The reading was below expectations of 55.1 from a Reuters poll of 73 economists.
A reading above 50 indicates expansion in the service sector and a reading below 50 indicates contraction. The business activity index fell to 53.9 from 59.5 the month before. That was below expectations of 58.5. The employment index fell to 52.1 from 56.3 a month earlier.
New orders dropped to 56.5 from 58.9. The prices paid index fell to 46.4 from 51.0. The U.S. economy's manufacturing sector contracted in January but was slightly improved from the previous month, according to an earlier ISM report.”
Stocks are in the red for the third day helped along by the above information and the dollar too is moving lower. The Dollar Index closed yesterday at 98.81 – its trading range today has been 97.46 through 98.94 and we are now around 97.22. So a weaker dollar continues to benefit gold.
Crude oil works against this equation – the weekly chart is miserable – we have moved from $34.00 a barrel to $29.00 a barrel – that is the real picture although today’s numbers are somewhat higher – around $31.00.
So is this recent upbeat activity the real thing or just another bear trap? Well, it’s real in the sense that international tension supports current pricing and the technical picture is getting better but the time frame is still bothering me – in late December of 2015 gold was testing the old $1050.00 level and the markets were ignoring gold. So in slightly more than a month we have moved to solid overhead resistance in the $1150.00 range and the floor talk has moved from “testing new lows” to perhaps gold has bottomed and the prospects are looking up in 2016. I’m naturally suspicious so I would look for a profit taking round – if I am wrong so much the better.
Another perspective – I was talking with Ken Edwards this morning about our volume numbers – disappointing considering gold is making new highs for 2016. I said it feels pretty slow – where is all the action? His reply was simple “there was a great deal of buying and selling when markets were cheaper because those people are value buyers – they never disappear. Gold moved higher and scared the cheap buyers away – and the general public is still on the sidelines. But higher prices always attracts new buyers – there is just a delay in the process.”
Silver closed up $0.45 at $14.72. Another big pop to the upside – this is guaranteed to create attention. Today silver bullion buyers may be spoiled as prices got cheaper and cheaper – our volume numbers actually moved lower when the market stalled above $14.00. Somewhere in this process the fundamental reality sets in – falling production and continued consumption dictate that eventually the trend will reserve.
Platinum closed up $25.00 at $879.00 and palladium closed up $23.00 at $516.00. Platinum is trading at a $265.00 discount to gold – still a great value and we should get a great deal of traction here considering gold may be turning the price corner.
This is our usual ETF information – Gold Exchange Traded Funds: Total as of (1-27-16) was 49,871,605. That number this week (2-03-16) was 50,581,464 ounces so over the last week we gained 709,859 ounces of gold.
The all-time record high for all gold ETF's was 85,112,855 ounces in 2013. The record high for Gold ETF's in 2015 is 53,901,867 and the record low for 2015 is 47,394,412.
All Silver Exchange Traded Funds: Total as of (1-27-16) was 595,841,872. That number this week (2-03-16) was 594,047,367 ounces so over the last week we dropped 1,794,505 ounces of silver.
All Platinum Exchange Traded Funds: Total as of (1-27-16) was 2,345,547. That number this week (2-03-16) was 2,330,379 ounces so over the last week we dropped 15,168 ounces of platinum.
All Palladium Exchange Traded Funds: Total as of (1-27-16) was 2,326,651. That number this week (2-03-16) was 2,329,031 ounces so over the last week we gained 2,380 ounces of palladium.
This from Sarah Benali (Kitco) – Precious Metals Recap: Gold & Silver To Shine – Capital Economics – Despite oil’s downward pressure on commodity prices since the start of the year, with Bloomberg’s Commodity index falling to levels last seen in 1991, analysts from one U.K.-based research firm note that gold has managed to shine; and, say precious metals should continue to benefit from market uncertainty.
“Gold prices rose by more than any other commodity on the back of safe-haven demand generated by the turmoil in global financial markets [in January],” said analysts from Capital Economics in a research note Monday afternoon.
A major factor expected to weigh on gold prices this year is further U.S. monetary tightening, they noted. However, given current market volatility, markets are now expecting the Federal Reserve to delay its next rate hike until later in the year, which should help gold.
“Indeed, combined gold imports by China and India surged in December, up by 116% y/y, as low prices stimulated buying in the two biggest consumers. Meanwhile, preliminary data show that buying of gold by global central banks remained strong in December, with Russia and China adding 22 and 19 tonnes of gold to their reserves, respectively,” the analysts noted as other supportive factors for the yellow metal.
In a Capital Economics report released earlier this year, the analysts said they even expect gold prices to end the year at around $1,250 an ounce, nearly 11 % higher from where prices are today.
January saw investors flock to gold in search of a safe-haven amid weaker global equity markets and oil prices. The metal has pushed back above $1,100 an ounce and April Comex gold futures were last quoted 0.07% down at $1,127.20 an ounce.
Silver has also managed to benefit so far this year, despite the industrial component to its price, as gold pushed it higher. Prices are up 3.4% so far this year with March Comex silver futures last quoted down 0.37% at $14.29 an ounce.
“Indeed, the latest data released by the USGS suggest that U.S. demand for silver in electronics fell sharply in 2015. However, low prices have already stimulated retail investment, with demand for U.S. silver coins reaching the highest level in three years in January,” they said.
In fact, the latest U.S. Mint data showed that American Eagle silver coins sales were up 7.68% year-over-year at over 5.95 million ounces in January, its highest level since January 2013.
Precious metals as a whole diverged in January, the analysts continued, with palladium posting the most losses.
“Palladium was the biggest loser, as abundant above-ground stocks and the latest financial market turmoil in China weighed on prices,” they said. “However, the price of palladium appears to have now fallen beyond what could be expected based on China’s unofficial manufacturing index and car production alone.”
Palladium futures had a rough start to the year but have managed to steadily rise since mid-January. March Comex palladium futures were last down$9.90 at $492.45 an ounce. Meanwhile, platinum futures were last quoted down $12.90 at $857.20 an ounce.
Well – the above report from Capital Economics is optimistic – don’t see these too often. The precious metals are benefiting from that early 2016 surprise I have been talking about and perhaps the good news will continue – perhaps.
Gold began to really lose its luster in the summer of 2012 ($1800.00) as it became apparent that the world banking institutions were not going to shut their doors. During the intervening 4 years it also lost its safe-haven status as the mighty dollar moved much higher in value.
Why this happened is counterintuitive – no one believed the US could create that much fiat currency and not pay the piper but in fact that is exactly what happened – at least to date. It remains to be seen if the Fed can normalize rates without causing the other shoe (inflation) to fall. But in the meantime it’s nice to see that gold is once again being considered as a way to diversify your investments.
It’s also much nicer that gold is down 35% from its highs so there may be some monetary upside besides its simple insurance value against the entire system going off the rails.
The walk-in cash business was active today and so were the phones – the markets were a bit slow in the beginning but the downstairs was full by noon and there is some buzz in the air – usual old customers and a few new faces.
The GoldDealer.com Unscientific Activity Scale is a “ 4” for Wednesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 4) (last Friday – 4) (Monday – 3) (Tuesday – 3). The scale (1 through 10) is a reliable way to understand our volume numbers. The Activity Scale is weighted and is not necessarily real time – meaning we could be busy and see a low number – or be slow and see a high number. This is true because of the way our computer runs what we call the “book”. Our “activity” is better understood from a wider point of view. If the numbers are generally increasing – it would indicate things are busier – decreasing numbers over a longer period would indicate volume is moving lower.
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