Commentary for Monday, March 2, 2015 – Gold closed off $4.90 on the Comex today at $1207.70 as gold’s recent firmness failed to show up to work Monday morning. What was an intact but small effort by the long trade at higher ground succumbed to profit taking.
China announced they would cut lending rates by 0.6% to encourage borrowing activity – their economy slowed to a 7.3% growth rate in 2014. Over the weekend India decided to keep the 10% tariff on gold imports in tack – too bad really most were looking for an improvement in that area. India did announce a plan to offer deposit accounts for owners of gold. It is estimated that citizens of India own some 20,000 tonnes of gold. The European Central Bank began their easing programs today which helped push the dollar to 11 year highs at 95.50 on the Dollar Index.
Coin World notes that sales of American Buffalo gold bullion coins for 2015 are off to a slow start. In January, the US Mint recorded sales of 34,500 coins which is 7,000 fewer than was sold in January of 2014. Sales of American Silver Eagles however are doing just fine with 2014 being a record breaking year and 2015 off to a record start – the US Mint recorded sales of 5.53 million Silver Eagles in January of 2015.
Silver closed down $0.11 at $16.40 – and even though prices seemed to have flattened out in silver the across the counter action remains firm. Our US Silver Eagle 1 oz sales are up 34% in the first two months of this year but don’t get out the party hats yet – gold sales of the US Eagle are down 54% for the same period.
Platinum was up $7.00 at $1192.00 and palladium was higher by $11.00 at $830.00. Traders of gold bullion for platinum bullion should be happy – it is still an excellent trade.
Gold was solid in overnight Hong Kong Trading above $1220.00 but began to weaken into London trading and continued to sell off in the domestic market. If you want to blame the dollar it’s OK – the Dollar Index previous close was 95.47 and it traded weaker touching a day low of 95.06 before reversing and moving higher to 95.50.
For my money however I would chalk this latest gyration up to a purely technical market. The overnight was pushed for further profit taking – we had seen gold push higher from the long standing $1200.00 support these past two weeks – a bit of a relief rally over the Janet Yellen comments. But considering the negative gold press and new record ground in stocks weak long hands took profits and moved to the sidelines.
This from Kira Brecht (Kitco.com) – 17 Central Banks Slash Rates – and The Year Is Only Getting Started – “By one count, 17 global central banks have slashed monetary policy rates in 2015. Global interest rates are going lower and they are going negative.
Global central banks are panicking in their efforts to fight low economic growth levels and the threat of deflation and interest rates are sliding like dominoes across a game table.
The rate cuts are intended to spur economic activity and drive inflation levels higher by boosting bank lending. BNP Paribas currently projects the CPI level for the advanced economies of the world at 0.6% for 2015. That is barely scraping the barrel on the positive side, with G-7 CPI inflation forecast at 0.5% this year.
But, if everybody is slashing rates and driving the value of their currencies lower to spur export activity how effective can this strategy be? It is like when everyone rushes to one side of the boat —it simply tips over.
The Fed is one of the few central banks fighting the tide this year.
The U.S. Federal Reserve is still expected to begin hiking interest rates from its zero-bound level this year. But, how far can the Fed actually raise rates in a global environment of slow growth and deflationary concerns?
The economic questions become a vicious cycle of the chicken or the egg. Growth is low, companies are running razor thin profit-margins, they don’t provide wage increases to their employees, their employees don’t spend, economic growth remains sluggish. How does the cycle end?
Central banks are doing their part by offering cheap money all around. However, some economists warn this is an experiment that could destabilize the financial system. Could negative interest rates cause savers to change their banking habits and no longer keep assets in a bank? In theory, that could detract from overall liquidity in the financial system. Let’s take a look at where some key rates are now.
Central Bank Official Rates – Euro zone (0.05%) – UK (0.5%) – Sweden (-0.1% – more rate cuts forecast ahead) – Denmark (-0.75% – more rate cuts forecast ahead) – Norway (1.25% – more rate cuts forecast ahead) – Switzerland (-1.25% to -0.25% – more rate cuts forecast ahead) – US (0 to 0.25% – rate hike forecast this year) – Canada (0.75%) – Japan (0 to 0.10%) – Australia (2.25% – more rate cuts forecast ahead) – China (2.75% – more rate cuts forecast ahead) – South Korea (2.00% – more rate cuts forecast ahead) – Thailand (2.00% – more rate cuts forecast ahead) – Source and forecasts: BNP Paribas
What could this all mean for gold?
“We see a risk that the current status quo among central banks may at some stage change:
After initial rate hikes there may be a case for the Fed to slow the pace of policy normalization against the backdrop of aggressive easing by central banks in World ex-US.
Alternatively, central banks globally may start coordinating monetary policy. In our view, either of these would potentially limit the upside to USD, which in turn may be bullish gold. Acknowledging that the macroeconomic set-up has been somewhat different, we note that a coordination of central bank activity in the wake of the Plaza Accord in 1985 led to a sharply decline of USD which in turn pushed gold prices up sharply,” according to a B of A Merrill Lynch Global Research report.
Central banks are navigating through uncharted waters. Currency devaluation underscores the safe-haven value of gold as a wealth preservation vehicle. And, the year is only getting started.”
If you have not been keeping close watch the above post by Kira Brecht is the biggest thing gold has going for it today. Inflation will be the biggest thing it has going for it when all this fiscal liquidity begins to circulate.
This from Gary Wagner (thegoldforecast.com/Kitco) – Baked by the Fed – “Significantly, an important Fed member checked in today with his opinion on where rates are headed, although he really didn’t exactly add anything spanking new.
Stanley Fischer, vice chair of the Federal Reserve’s board of governors (a voting member on the Fed’s policymaking committee, the FOMC), told CNBC Friday there is a “high probability” of a rate increase this year.
We’re shocked. (Not really.)
He said the U.S. is coming “very close” to achieving a “natural rate of unemployment,” and he predicted that inflation should rise as the effect of low oil wears off “in a couple months.”
We’re not sure that oil is going back to the mid-$80 range very soon.
“We’ve gotten used to thinking of a zero interest rate as normal—it’s far from normal,” Fischer said.
The central banker also reflected on the Fed’s use of the term “patience” in its statements, saying that its removal would indicate “it could happen, depending on the data, at any meeting.” hasn’t that always been true, patience or no patience?
We know that June and September are likely trigger dates, but we also feel there will be a slowdown reported in the first quarter reflective of the awful winter we’ve had in the U.S.”
I read Wagner all the time because he is a great chart man and is sensible. Now everyone knows that the Fed will raise rates this year – well not everyone – the idea is debatable. But I think the economic recovery is actually better than the numbers show so the Fed will raise rates because every day at these zero interest rate levels creates more chance of blow ups down the road.
But the most interesting part of Wagner’s post is the area that I highlighted about rising inflation. Who has said anything about inflation lately and who has linked low inflation to cheap oil? Remember the US was at near zero inflation for years before the price of crude oil collapsed. And who even hinted that this coming inflation was a couple of months away? If anyone but a member of the FOMC I would throw this comment out the window. Inflation is dead – right? Stanley Fischer is an insider and I have always wondered how much information this board releases and how much it keeps to itself? Too much transparency might create panic in the financial markets.
At any rate we will just have to wait and see but this throw in line was extraordinary. And if inflation even begins to rise in 2015 the last gold boogie man (rising interest rates) could turn into a neutral event.
Perhaps we will see another attempt at breaking to the upside in 2015 – let’s hope so. And remember my “wall of people” theory. It is not absolutely clear that we have heard the last of the bigger picture – the 10 year bull market in gold – it might just be resting.
That’s the reason gold continues to be stubborn to the downside. Sure it moves lower but it is not like all the people left the theater at once. There are a “wall of people” ready to jump on gold’s next big leg upward. Why? Because no has completely bought the idea that quantitative easing has no consequences.
The walk-in cash trade remains off and the phone action is just average. There is no buzz on either front so the physical market remains in neutral in my opinion.
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