Commentary for Thursday, July 10, 2014 (www.golddealer.com) – Gold closed up $14.90 at $1338.70 and with yesterday’s $7.80 move into higher ground traders should be paying attention. In today’s action to the upside gold opened higher in New York and stayed there all day – showing the solid buying follow through needed to reinforce recent strength.
This is the highest level for gold since March helped by new concerns over the stability of the European Union. In background chatter the parent company of a Portuguese bank defaulted on debt payments.
This from Jim Wyckoff (Kitco) – “World stock markets are under selling pressure Thursday due to several new overnight developments: Weak economic data from the European Union, including Italy’s industrial output dropping 1.2% in May and Euro zone house prices declining 0.3% in the first quarter. Also, trade data from China did not meet expectations. China’s exports grew by 7.2%, year-on-year, in June, which was below market expectations of a 10% rise. And there are reports that a major bank or banks in Portugal are in trouble. All of the above have boosted the gold market, U.S. Treasuries and the U.S. dollar index, amid risk aversion that is keener in the market place Thursday. Given the recent weak economic data coming out of the European Union, traders will be closely watching European bond yields, for clues on European investor confidence. The European Union sovereign debt crisis is not that far removed from the market place. Traders and investors are also keeping a closer eye on the Middle East, as Israel this week launched a military offensive on the Gaza strip. Heavy fighting was reported overnight. This situation is a potential powder-keg that could further incite unrest in other parts of the Middle East.”
Today’s higher price in gold made the bulls happy and sets up the needed test above $1350.00 overhead resistance. On everyone’s mind of course is whether gold can once again push the seriously difficult $1400.00 mark. In the last year we have tried twice (Aug – 2013 and March-2014). On both occasions the market sold off and traded lower but this in progress attempt does look interesting.
So could there be something afoot? Of course this old Sherlock Holmes line is just what gold needs to replace today’s complacency. There are plenty of “big picture” events which might support this notion – including the conclusion that interests rates will not rise (as expected) after yesterday’s FOMC news release.
Still all of this is transitory – but there is something different in the air. The recent higher price for gold has not created the excitement I had hoped for but it has cleared out some of the doom and gloom. And professionals are buying ahead of the public – which is always good.
Perhaps there is something afoot – especially because this recent action has been created during the usual summer doldrums. Most professional bullion dealers get much more optimistic in September – the kids are back in school – the family vacation is over and business returns to normal. Let’s wait and see but like I said things are – should I say it – more encouraging.
Silver was also higher up $0.43 at $21.45 and is not getting the attention now focused on gold. This is interesting because there is some buzz developing relative to silver which would indicate a potential run in prices around July 15th. I love rumors in the silver market especially now because they have been absent for months. And when you place this dubious rumor backdrop against a real 15% move in the price of silver these past 5 weeks – we could be talking a major movie release – popcorn please.
Platinum closed up $10.00 at $1515.00 and palladium closed again unchanged at $$871.00.
From Reuters (Howard Schneider, Michael Flaherty and Jonathan Spicer) – WASHINGTON – “The Federal Reserve has begun detailing how it plans to ease the U.S. economy out of an era of loose monetary policy, indicating it will end its asset purchases in October and appearing near agreement on a plan to manage interest rates in the future, according to minutes of the last Fed policy meeting. The minutes from the June 17-18 meeting indicate the Fed envisions using overnight repurchase agreements in tandem with the interest it pays banks on excess reserves to set a ceiling and floor for its target interest rate.
Though no decisions have been announced, the discussion has become detailed enough for Fed officials to contemplate the proper spread between the two – mentioned in the minutes as 20 basis points.
The minutes showed the Fed participants “generally agreed” that its monthly bond purchases would end in October, with a final reduction of $15 billion in the amount bought each month of U.S. Treasuries and mortgage-backed securities.
The alternative would have been to leave $5 billion a month in purchases intact until December, but “most participants viewed this as a technical issue with no substantive macroeconomic consequences.”
There also was more detailed discussion about the central bank’s current policy of reinvesting its $4.2 trillion in asset holdings as the securities mature.
Policymakers have debated how to reduce those holdings without disrupting financial markets. They are divided over whether reinvestment should stop before or after an initial decision to raise interest rates.
In addition there is now discussion that the reinvestment decision may not be an all-or-nothing choice, with the central bank possibly letting some maturities expire each month and reinvesting the proceeds of others in an effort to “smooth the decline in the balance sheet,” according to the minutes.
The Fed’s exit strategy is complicated by the fact that its massive stimulus programs have flooded financial markets with cash and stifled daily participation in the Fed funds market that is traditionally used to manage interest rates.
The new reverse repo facility and the interest on overnight reserves are meant to give the Fed new tools to influence rates once policymakers agree they should start to rise again.
The new reverse repo facility, which remains in test phase but is expected to be formally adopted, is designed to control cash held by money market funds and mortgage agencies that can’t deposit money with the Fed, not just banks. Raising or lowering the interest on excess reserves can encourage or discourage banks from holding money at the Fed.”
I have been saying for the past 12 months that the best thing that can happen to gold is the end of this money boondoggle. I appreciate that most believe this fiat money production has been supporting gold prices but be offer an alternative result. Suppose we are at or near the bottom in gold? And further that the result of quantitative easing is now “no result” much the same way that this fiat money making machine was supposed to “improve” the economic picture.
While this improvement may be justified earlier in these government programs there comes a point when further money does not produce any discernable result. We may be at this point both with economic improvement and the negative effect taking away the punch bowl has on the metal itself. After all these years of talking gold investors out of the market ending QE in all its forms may just reinforce the notion that gold is now cheap and inflation might be knocking on the door.
Kitco’s Peter Hug notes that gold needs a “kick” to move above the $1330.00 and more importantly sees professionals buying gold while the retail investors are selling into strength. These two factors are bullish for gold and his commentary is right on the money. The typical nonprofessional trade is what most coin dealers see each day. And for the most part the daily chatter about buying or selling gold has faded. There are times downstairs when it gets crowded but mostly the number of coffee pots is moving in the wrong direction.
So why is the public burned out – at least for now about gold and silver bullion? Well for starters when a market goes from moving higher to flat the urgency is taken out of the trade. Gold for example has traded between $1310.00 and $1330.00 for 3 weeks now with no particular bias – when the background noise should have produced more action. The trouble in Iraq, Ukraine and Israel alone should have produced a wave of safe haven buying worth $50.00 to the upside. The return of inflationary talk should be worth another $50.00 which would have pushed gold above the important $1400.00 overhead resistance level.
But instead the smaller physical players while not completely absent have not reacted with any gusto one way or the other. Could this be because the daily records being set on Wall Street has attracted investor cash? There is also a factor common to gold bullion players – everyone (except the most committed) are either all in or all out. I have mentioned this before but there really does not seem to be any middle ground when it comes to gold. Let’s hope that public money shows up soon because this is the catalyst which will guarantee the bear market is over and when it’s over new records will be set.
The walk-in cash trade was again quiet which has me concerned given the two day pop in gold prices. We should be crowed downstairs but sometimes there is a one or even two day lag in activity. Few are selling which is good. The phones were a bit more encouraging but again a good follow through is needed.
The GoldDealer.com Activity Scale is a “2” for Thursday. The CNI Activity Scale takes into consideration volume and the hedge book: (Monday – 3) (Tuesday – 3) (Wednesday – 2). The scale (1 through 10) is a reliable way to understand our volume numbers.
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