Commentary for Monday, April 27, 2015 ( www.golddealer.com) – Gold closed dramatically higher today on the Comex up $28.10 at $1209.30. There is more to this than a large short-covering rally – because this just fell out of the trading sky. That’s why you should be suspicious especially as gold just touched a six week low last Friday ($1175.20).
The genesis of today’s strong move in the price of gold is a bit of a stretch but here is what some believe is the reason for the entire ruckus – traders got spooked over the Venezuela deal.
This from Reuters (Ulmer) – Venezuela carries out $1 billion gold swap with Citibank – “Venezuela’s central bank has converted part of its gold reserves into at least $1 billion in cash through a swap with Citibank, local media reported on Friday.
The deal will make more foreign currency available to President Nicolas Maduro’s socialist government as the OPEC nation struggles with soaring consumer prices, chronic shortages and a shrinking economy worsened by low oil prices.
Daily newspaper El Nacional said the deal was for $1 billion and was struck with Citibank, which is owned by Citigroup Co. Former central bank director Jose Guerra and economist Asdrubal Oliveros of Caracas-based consultancy Ecoanalitica said in separate interviews that the operation had been carried out.
The central bank did not immediately respond to a request for comments. A Citibank official said the company had no comment. A source at the central bank told Reuters last month it would provide 1.4 million troy ounces of gold in exchange for cash. Venezuela would have to pay interest on the funds, but the bank would most likely be able to maintain the gold as part of its foreign currency reserves.
Most of Venezuela’s foreign reserves are held in gold after late socialist leader Hugo Chavez began moving central bank assets away from the dollar in the wake of the 2007-2009 global financial crisis.”
This deal is not new – in fact the trade has known that both Citibank and Venezuela have been in money talks for some time. So why the big pop in the price of gold? The convoluted answer has to do with the sometimes goofy nature of gold swaps. Basically the owner pledges his gold as collateral for a loan and while this sounds easy there is usually a great deal of details in the deal which makes it anything but simple.
At any rate Venezuela gets to keep its gold reserves as opposed to an outright sale – perhaps the reason gold was stronger today. There is also a theory that because Citibank wanted more value they were shorting gold during these talks and closed these positions now that the deal is accomplished. This sounds like a fantasy to me but in the world of highly placed and sometimes secret commodity trading who knows?
The close in gold today is however not a secret deal and $1203.30 is powerful mojo if the price holds. I am suspicious of these jumps to higher ground especially when they come out from nowhere.
At any rate compare this close to the moving averages in gold – 50 DMA ($1192.00) – 100 DMA ($1212.00) and 200 DMA ($1224.00). So we are now above the 50 Day Moving Average but before you give too much credence to today’s charge consider that we are still only back to where we were in early April and gold must move above $1220.00 before anyone will pay attention.
The Dollar Index was also rather flat for such a big jump in the price of gold. As of this writing it was 96.67 and the range today was 96.47 through 97.28. There is also the thought that some dollar weakness persists ahead of this week’s latest FOMC pronouncements.
I think the gold trade has pretty much discounted any rise in interest rates but you never know – last week’s positive news in housing was big. So the usual attention will be paid to the Federal Open Market Committee meeting this Tuesday and Wednesday. Also keep in mind that leaks should be suspect – expect Janet Yellen’s regular speech after the markets close on Wednesday.
Silver was up $0.76 at $16.39. Silver bullion action across the counter slowed considerably.
Platinum was up $32.00 at $1152.00 and palladium was up $12.00 at $782.00.
The walk-in cash trade was on the quiet side – another reason for some suspicion over today’s big jump to the upside. There has been an increase in the ethnic gold bullion trade (PAMP gold bars) last week but this was the result of the drop in prices. The phones today were average at best but there was activity.
The GoldDealer.com Unscientific Activity Scale is a “ 3” for Monday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Tuesday – 5) (last Wednesday – 5) (last Thursday – 4) (last Friday – 4). 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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